What to Look for in an Employment Agreement

Signing an employment agreement is a significant step in your career, and understanding its terms is essential to protecting your rights and future interests. Before signing on the dotted line, it’s important to carefully review the document and ensure you fully understand its implications. Here are key factors to consider before committing to an employment agreement.

1. Job Title, Duties, and Responsibilities

Ensure that the agreement clearly defines your job title, role, and expectations. Vague or overly broad job descriptions could lead to misunderstandings or additional responsibilities beyond what you originally agreed upon.

2. Compensation and Benefits

Review the compensation structure, including:

• Base salary

• Bonuses and commission structures

• Equity or stock options

• Benefits such as health insurance, retirement plans, and paid time off

Make sure that all financial terms are clearly stated and aligned with what was promised during negotiations.

3. Termination and Severance Terms

Understand the conditions under which your employment may be terminated, including:

• At-will vs. contract-based employment

• Notice periods required for resignation or termination

• Severance pay, if applicable

Severance clauses can provide financial security in case of unexpected termination, so ensure they are addressed in the agreement.

4. Non-Compete and Restrictive Covenants

Many employment agreements include clauses restricting your ability to work for competitors or start your own business in the same industry after leaving. Employers want protections for their business interests but employees need to consider the limits on future career opportunities.

Some jurisdictions prohibit or significantly limit the use of non-compete agreements. There are pending legislative efforts in several other jurisdictions aiming to provide similar restrictions. In some places, employers can be penalized for trying to enforce a non-compete with overbroad restrictions. Both employers and employees should carefully review non-compete provisions to ensure their rights are protected and in compliance with current law.

Other types of restrictive covenants may include:

• Non-solicitation agreements, which prohibit attempting to lure customers and/or employees away from the employer

• Non-disparagement agreements, which limit the ability to make certain negative statements about the company

• Confidentiality/Non-Disclosure, which limits the information that you can discuss from during the employment relationship.

It is very important that restrictive covenants are drafted in compliance with the law and that both sides understand all of their obligations with respect to these agreements, which can often become a subject of litigation after the employment relationship ends.

5. Intellectual Property Agreements

Review any clauses requiring you to assign current or future intellectual property rights to the employer. If your job involves creating proprietary work, ensure you understand who retains ownership of your work and ideas.

6. Indemnification

Some employment agreements include indemnification clauses, which outline whether the employer will cover legal expenses or liabilities incurred by the employee in the course of their job duties, or, in some cases whether the employee will need to pay for losses suffered by the employer. Indemnification provisions can have significant financial implications. Depending on how they are drafted, these provisions also have the potential to impact professional liability insurance. Review these terms carefully to understand your rights and obligations.

7. Dispute Resolution and Arbitration Clauses

Many agreements include provisions requiring disputes to be resolved through arbitration instead of litigation. Many companies prefer arbitration as a faster, confidential, and sometimes cheaper method to resolve disputes. However, arbitration provisions can limit legal options for both parties, so it’s important to assess the process outlined, forum, and whether the provision waives any other legal rights.

Final Thoughts

An employment agreement sets the foundation for your professional relationship with an employer. Taking the time to review and negotiate key terms can prevent future disputes and ensure that your interests are protected. If you have any concerns or need clarification, consulting with an employment attorney before signing can provide valuable insights and peace of mind.