Employment Contract Review: Everything You Need to Know
Employment contract review is an important step before accepting a new job so you can get the best deal possible.4 min read
Updated June 30, 2020:
Employment contract review is an important step before accepting a new job. If you don't review the contract before signing, you may not be getting the best deal possible. You may even jeopardize future employment opportunities.
What is an Employment Contract?
Employment contracts are often used for new employees as they spell out the specific terms and conditions new hires must agree to when accepting the position. Some of the terms may include:
- The duration of the position.
- The responsibilities and expectations while on the job.
- The expected salary and stipulations of raises.
Some contracts may include information on how long the position is good for, what the acceptable reasons are to be terminated, and how much severance pay will be offered.
Formally drafted employment contracts that guarantee employment for a specified amount of time are rare, as most states follow the at-will employment rule. However, in highly competitive positions, like executives and technical experts, you may find the use of employment contracts more common.
It's not uncommon to include restrictive clauses which help retain important employees and maintain high levels of productivity. Restrictive clauses can include a non-compete clause or prevent employees from soliciting other the company's competitors.
Non-compete clauses are not seen in every employment contract. Not all non-compete clauses are enforceable, and certain states set limits on what they will accept. California is one state that is very restrictive when it comes to protecting employees, while other states are more employer-friendly when it comes to enforcing non-compete clauses.
If your new employer does not want to delete the non-compete clause, you can at least ask to limit its scope. If an employer tries to state you cannot work for a competing business in your state, it would mean you have to move. Instead, ask them to limit it to your city. That means you could work in a nearby city without having to move.
If they define a competing business in very broad terms, it is not likely to be enforced. A non-compete clause that is very specific is more likely to be enforced. For example, if the employer says you can't work for another business in the foodservice industry, the clause is likely to be deemed too broad. If the employer says you can't work for a Korean food truck in San Francisco, that is more likely to be enforced.
Verifying Important Terms
It's imperative that you review your employment contract to ensure all the important points are covered and whatever you agreed to verbally is also in the offer letter. If the terms you agreed to are not in writing, they're not going to be included in your contract. An example could be when a recruiter says you are eligible for two additional weeks of vacation or added stock options. If there is nothing in the written contract, you aren't likely to hold your new employer to those promises.
You should check your contract to verify that these terms are what was agreed to verbally and that they match the terms of your offer letter:
- Employment position description, which includes your title and duties.
- What your salary will be.
- What your benefits are. If these are listed in a separate handbook, ask to review it before signing.
- Any additional compensation, like commissions, bonuses, stock options, or equity.
If you aren't happy with the terms and want a better deal, this is the time when you need to ask for it. Don't sign the agreement and then try to negotiate.
IP Assignment Clause
A number of employment agreements have some type of IP assignment clause. Some businesses might even make this clause a separate agreement. Your boss may have difficulty determining when you formulated an idea, but it can be much easier to show you invented something using the company's equipment.
Items You Don't Want to Find in an Employment Agreement
- Non-compete clauses are less too limiting.
- No vague termination language. Your contract should discuss the reasons for possible termination. It should have reasonable causes that you can be terminated for, but be wary of ones that list multiple pages of fireable offenses.
- “Sweeps” clauses, which are common in contracts for hospital physicians. These state that if the hospital ends its contract with the care group, you will be let go as well.
- Generic language in regard to work expectations. Hospital employees, for example, want to know what their work expectations are, not just that they will be working full-time.
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