Although employment agreements are not required for most employment relationships in the U.S., many employers use them for some or all workers. In addition to expressing the material terms and conditions of the employment relationship (including salary and benefits), an employment contract should also describe the position’s essential functions and its role within the overall organization, as well as lay out the legal rights and responsibilities for both the employer and the employee, during and after employment.
Before signing the contract, you should carefully examine each clause and paragraph to avoid any surprises later. Let’s look at some key provisions.
Before signing the contract, you should carefully examine each clause and paragraph to avoid any surprises later. Let’s look at some key provisions.
Compensation
Every employment agreement should, first and foremost, set out the details of the employee’s direct compensation. This includes not only salary or wages but also other valuable compensation such as 401(k) contributions and retirement benefits, equity and profit-sharing, stock options, insurance benefits, signing bonuses, relocation expense reimbursement, educational reimbursement, vacation and paid time off, stipends, and the use of a company vehicle.
Contingent Benefits
Along with base salary, employees might receive compensation in the form of bonuses, commissions, paid vacation, stock options, or other additional benefits earned when achieving specific benchmarks or other criteria. You should make sure that the employment agreement properly memorializes these benefits, such as how and when they will be awarded, whether they can be transferred or deferred, and how they will be treated upon the voluntary or involuntary termination of your employment.
Non-Monetary Perks and Details
If there are other terms of your employment that are important to you, make sure they are also part of your employment agreement. It is not uncommon for an employment contract to provide for:
- Working a particular schedule.
- Being based out of or working in a particular office.
- Determination and assignment of sales territories.
- Telecommuting, working remotely, or working from alternate office space.
- Frequency of required travel.
- Use of company property or technology (mobile phone, computer, tablet, etc.).
- Training or continuing education opportunities.
If assurances were made to you during your pre-employment interviews that don’t appear in the employment agreement, speak up – unless those promises are in writing, you might not have the opportunity to enforce them.
At-Will Status
By default, most employees in the U.S. have an “at-will” relationship with their employers, which means that either the worker or the company can terminate the relationship at any time, with or without notice, for any legally permissible reason or no reason at all. An employment agreement may contain terms that (intentionally or unintentionally) change the at-will status of the relationship.
Make sure you understand whether and how the agreement would change the obligations of both you and your employer (e.g., severance, progressive discipline before termination, or a required notice period before separation). Unfortunately, it’s not always possible to take an agreement at face value; sometimes, certain provisions may create a binding contractual relationship between the parties that is contrary to their intentions. An experienced employment attorney can help you identify and negotiate any terms that may impact you in this way.
Governing Laws and Forums
Where you live or work can affect the initial requirements and overall enforceability of a valid employment agreement. Some states, for example, mandate that you have a period of time before you begin your actual employment to review and potentially negotiate the terms before signing. Although most jurisdictions “red pencil” or delete terms of a contract that are not enforceable under state or local law, others will refuse to enforce any term of an agreement that contains invalid provisions.
In the event a dispute arises between you and your employer, “choice of law” and venue provisions will specify which region’s laws will be invoked to interpret the contract and in whose courts any lawsuit will be litigated. Additionally, many employment agreements include mandatory arbitration provisions that limit or remove your right to pursue your claims in open court.
Restrictive Covenants
Employers might be concerned that when employees separate from the organization, they will take valuable proprietary information. Such fears prompt many employers to include restrictive covenants that limit the employee’s post-employment rights.
For example, confidentiality clauses prohibit former employees from revealing trade secrets or unlawfully using intellectual property. Non-compete clauses prevent employees from going to work for the company’s competition within a set period of time or prescribed geography. Non-solicit provisions bar former employees from trying to lure away people currently working for that employer or from attempting to take clients or work away from the employer. State laws differ on the enforceability of such restrictions, so speaking with an attorney is a good idea.
Negotiating Changes to an Employment Agreement
Although an employment agreement may appear to you as a take-or-leave-it proposition, there is often room for negotiation. Review the offer carefully, consult with an experienced employment attorney to protect your interests and prevent future difficulties, and try to think creatively about how you can start your new job on the right foot.
