10 Considerations Before Signing an Employment Contract
A promising company offers you an employment contract. If the numbers are right, shouldn’t you just skim the legalese, sign and celebrate?
Not so fast -- you need to read the contract carefully, understand some employment law and have an attorney review the relevant documents. Here’s a start on what to look for as you launch the contract review process.
1. It’s the Job Security, Stupid
Protection from involuntary termination is not automatic with employment contracts. “You need to ask, ‘Am I getting any job security with this agreement?’” says Joshua Zuckerberg, a partner at Pryor Cashman LLP in New York City. How do you do that? First of all, “determine whether you’re an at-will or fixed-term employee,” says Truth Fisher, senior counsel at Gordon & Rees LLP in Miami.
2. Start and End Dates
“You must have a beginning date and an end date for your employment -- otherwise it’s just an offer letter,” says Alan Lescht, founding partner of Alan Lescht & Associates, PC, in Washington, DC. Those dates are necessary but not sufficient; read through the contract to understand all terms of termination. “Employers will often include language that means the relationship remains at will, which means you still can be terminated for any reason at any time,” Lescht says. “I’ve had doctors thinking they’ve locked in a three-year term, but they missed language that lets the employer terminate them with 30 or 60 days notice.”
3. Cause for Termination
“The employee wants just-cause termination,” Lescht says. “You don’t want the employer to have wide discretion in termination.”
4. Compensation and Benefits
What’s your base pay? Is the bonus guaranteed or discretionary? Who decides whether you’ve met the criteria for a performance-based bonus? How objective are those criteria? Are benefits guaranteed or changeable at the whim of the employer? “Make sure all types of compensation are detailed,” Fisher says.
5. Job Description
If you’re agreeing to be locked into a job for a period of years, be sure it’s the job you think it is. “I would expect to have my title and role spelled out, and what’s expected of me,” Fisher says.
If you plan to do any work on the side, be sure the contract doesn’t prohibit you from doing so. “Especially in this economy, a lot of people have more than one job, and a lot of employers will have an exclusive employment provision,” Fisher says. However, these provisions are not uniformly enforceable in the 50 states, she adds.
7. Copyrights, Inventions and the Like
Your employer may make a claim to the fruits of your creative efforts, even if you labor on a side project off your employer’s premises and outside of work hours. “If you invent anything during your employment, the intellectual property generally belongs to the employer,” Fisher says. What about that brilliant invention in your garage that’s nearly complete when you sign with a new employer? “You might want to highlight anything you’re already working on, and carve that out,” Zuckerberg says.
8. Noncompete Clause
Beware of signing any agreement that bars you from working for a competitor for a considerable period after separation. “Employees have to make sure they don’t make themselves unemployable in the future,” Fisher says. Still, the courts may not look kindly on a contract of employment that bans you from working practically anywhere, forever. “To be enforceable, noncompetes must have a reasonable term and a reasonable geographic restriction,” Lescht says.
9. Nonsolicitation of Clients and Employees
Look for post-employment restrictions on your ability to do business with people you’ve worked with during the contract period. “There may be a prohibition of stealing employees,” Lescht says. “To be enforceable, the term has to be reasonable -- probably one or two years.”
10. Sale of Employer
“What happens if the company is sold -- does the employment contract terminate or remain in force?” asks Alyson Brown, a partner at Clouse Dunn Khoshbin LLP in Dallas.
Can you really challenge the terms of an employment contract? Yes, and a reputable company should respect you for it. “Nine times out of 10, it’s worth asking about stuff you have doubts about,” Zuckerberg says.
These 10 considerations are by no means an exhaustive list, and there are innumerable state and local variations in employment law. So consult with a qualified attorney before you sign anything.
This article offers general information on legal and financial matters relating to employment. For specific information relating to your situation, consult an attorney.