What to Check Before Signing an Employment Agreement
An employment agreement can determine more than salary and job title. It may control when compensation is earned, how employment can end, which work belongs to the employer, whether outside work is allowed, and how future disputes must be handled.
Read the agreement together with every document it incorporates, including the offer letter, bonus plan, commission schedule, equity plan, employee handbook, and confidentiality agreement.
Confirm the Basic Employment Terms
Start with the terms discussed during recruitment. The agreement should correctly identify:
Job title and primary responsibilities
Supervisor or reporting structure
Work location and remote-work expectations
Starting date
Full-time or part-time status
Required schedule or travel
Initial or probationary period
Length of employment, if a fixed term applies
Watch for language allowing the employer to change duties, location, schedule, or reporting relationships. Some flexibility is normal, but the provision should not make a central promise effectively meaningless.
Verbal assurances may be difficult to enforce when the agreement says it contains the complete understanding between the parties. Ask for important promises to be included in writing.
Understand How Compensation Is Calculated
Confirm the salary or hourly rate, payroll schedule, and conditions attached to each additional form of compensation.
For a bonus, determine:
Whether it is guaranteed or discretionary
The performance measures used
Who decides whether goals were met
When the bonus is earned and paid
Whether employment on the payment date is required
What happens after resignation or termination
For commissions, review how a sale is credited, when the commission becomes earned, what happens after cancellation or customer nonpayment, and whether the company can change the plan during a compensation period.
Equity compensation requires separate attention. Identify the type of award, number of shares or options, vesting schedule, exercise price, expiration date, tax treatment, and consequences of leaving the company. The equity-plan documents may control if they conflict with the offer letter.
Do Not Assume a Salary Eliminates Overtime Rights
Being paid a salary or given a managerial title does not automatically make a worker exempt from overtime.
Federal and state wage laws examine factors such as actual job duties, method of payment, and earnings. Some states provide protections beyond federal law.
An agreement also cannot necessarily convert an employee into an independent contractor merely by using that label. The Department of Labor states that classification under the Fair Labor Standards Act depends on the economic reality of the working relationship rather than the title in the contract.
Ask how the position is classified and whether overtime is expected, permitted, and paid.
Review Benefits Separately
The agreement may summarize benefits without guaranteeing that they will remain unchanged. Health coverage, retirement plans, paid leave, disability benefits, and other programs are often governed by separate plan documents.
Check:
When coverage begins
Employee premium costs
Waiting or eligibility periods
Paid-time-off accrual and carryover
Retirement contributions and vesting
Parental, disability, and other leave
Whether benefits can be changed or discontinued
If a benefit was important to accepting the job, obtain the current governing document rather than relying only on a recruiter’s description.
Identify the Termination Rules
Many U.S. employment relationships are at will, meaning either party may generally end the relationship subject to applicable law. State rules and contractual terms vary.
Determine whether the agreement:
Preserves at-will employment
Creates a fixed employment term
Requires advance notice
Allows immediate termination for defined “cause”
Provides an opportunity to correct certain problems
Promises severance
Requires repayment of compensation after departure
Continues pay during a notice or garden-leave period
If “cause” affects severance, equity, or other valuable rights, review its definition carefully. Broad language covering any policy violation or conduct considered harmful to the employer gives the company substantial discretion.
Check what happens to earned commissions, unused leave, bonuses, expenses, and equity under each type of separation. Final-pay requirements also vary by state.
Examine Noncompete and Nonsolicitation Clauses
A noncompete may restrict working for competitors, starting a business, or providing services in a particular area after employment ends. A nonsolicitation clause may restrict contact with customers, employees, or business partners.
Review:
The restricted activities
The companies or industries covered
The geographic area
The length of the restriction
Whether it applies after any termination
Whether the employer must continue paying during the restricted period
Whether a court may revise an overly broad restriction
The Federal Trade Commission’s nationwide Noncompete Rule is not in effect and is not enforceable. State law currently plays a major role, and states differ widely. Some prohibit most employment noncompetes, while others permit limited restrictions or apply income thresholds and notice requirements.
Do not assume a restriction is valid or invalid without checking the law that governs the agreement.
Separate Confidentiality From General Knowledge
A confidentiality clause can legitimately protect trade secrets and nonpublic business information. It should be reviewed for definitions that are so broad they could cover general skills, publicly available information, or knowledge developed independently.
Check whether the agreement preserves the ability to:
Report suspected legal violations
Communicate with government agencies
Participate in an investigation
Discuss wages or working conditions where legally protected
Consult an attorney
Use information that becomes public through no fault of the employee
Federal labor law may limit overly broad restrictions on certain employees discussing workplace conditions. An employment agreement also cannot prevent someone from filing a discrimination charge with the Equal Employment Opportunity Commission or cooperating with an EEOC proceeding.
Review Intellectual-Property Ownership
An invention-assignment clause may give the employer ownership of software, designs, writing, inventions, research, or other work created during employment.
Determine whether it applies only to work:
Created within job duties
Produced using company resources
Related to the employer’s current or anticipated business
Developed during working hours
Created before employment began
List preexisting projects, businesses, software, creative work, or inventions in an attached schedule when appropriate. Review rules for side projects and open-source contributions.
Some states limit an employer’s ability to claim inventions developed entirely on an employee’s own time without company resources, but the details differ.
Look for Repayment and Clawback Obligations
Some agreements require repayment of a signing bonus, relocation costs, training expenses, tuition assistance, or advanced commissions when employment ends within a stated period.
Check:
Which events trigger repayment
Whether termination without cause also triggers it
Whether the amount decreases over time
Whether repayment is based on the gross or net amount
When payment is due
Whether payroll deductions are authorized
Whether interest or legal fees may be added
A large repayment obligation can make it difficult to leave a job. Wage-deduction and training-repayment laws vary by state.
Understand the Dispute Process
An arbitration clause may require employment disputes to be decided privately instead of in court. It may also include a jury-trial waiver, class-action waiver, shortened filing period, or specific location for proceedings.
Review who selects and pays the arbitrator, which claims are covered, where proceedings occur, what discovery is allowed, and whether either party may seek court orders.
Also examine the governing-law provision. Selecting another state’s law does not always override mandatory protections where the employee actually works, but it can complicate a dispute.
Check How the Agreement Can Be Changed
Look for language allowing the employer to revise compensation plans, policies, duties, or other terms unilaterally. Determine which provisions are contractual and which are described as changeable policies.
The agreement should explain how amendments must be made. A clause requiring signed written amendments can help prevent disputes about later verbal changes.
Ask for a complete signed copy and retain the version of every incorporated policy in effect when the agreement was executed.
Employment agreements often combine negotiable business terms with rights controlled by law. The most important questions concern how compensation is earned, what happens when employment ends, what restrictions continue afterward, and which obligations can be changed.
This article provides general information, not individualized legal advice. Employment, wage, restrictive-covenant, arbitration, and contract laws vary by state, jurisdiction, occupation, and the circumstances of the agreement.
