5 Things to Keep in Mind When Signing an Employment Contract

Employment contracts are good news/bad news things.

Employment ContractOn the one hand, a contract could make your life easy in the coming years by guaranteeing a severance package, bonuses, stock options, perks and job security. On the other, it could screw you if you don’t do your due diligence.

Though hard figures are difficult to come by, anecdotal evidence suggests that more companies are requiring new employees to sign contracts. “I have seen more employment contracts than I used to see and probably more non-compete agreements (in these contracts),” says Kevin Troutman, an employment attorney with the Houston law firm Fisher and Phillips. He attributes the growth to the widespread use of technology.

“There are more positions out there that hold really significant responsibility and have access to confidential information,” he explains.  “Companies need to protect that information and know-how.”

But employees also need to protect themselves. With that in mind, remember these points when you’re looking over a contract:

  • Read the Contract Carefully: Most contracts are actually quite easy to absorb, says Troutman. “But if you don’t feel like you understand the language, ask a company representative to go through the contract with you and ask them questions,” he says. “You might need to get the agreement modified so it says what both of you agree it says.”
  • Understand the Termination Clause: Sharon Stiller, an employment lawyer with the law firm Abrams Fensterman in Rochester, N.Y., says understanding the grounds for termination may be the most important thing you do. “The biggest protection an employee can have is if the employer is restricted from terminating him or her,” she said. “That’s the reason for having the contract, but (many) people don’t pay attention. Sometimes they say you can be terminated for not performing and not define what that means. ”Douglas Schade, a former employment attorney and principal consultant with the technology search division of recruitment firm Winter Wyman, adds that employees need to understand what kind of severance they have coming to them if they’re fired.
  • Getting Out: Just as crucial to keeping the job is being able to walk away, Stiller says. Sometimes, employers can make life intolerable for a worker by changing their duties substantially, significantly reducing their salary or requiring a move in excess of 100 miles. That could present considerable hardship if the contract doesn’t contain an escape clause.
  • Non-Compete Clause: Troutman sees more non-competes in employment contracts. He thinks that’s because courts are becoming increasingly receptive to “reasonable” approaches. Employment attorneys say you should make sure you don’t sign an agreement that could impede your ability to get work when your relationship with the company ends. “If you are bringing a book of business, make sure the agreement says you can take it with you when you leave,” says Donna Ballman, a Fort Lauderdale-based employment attorney. “Assume the worst – that you’ll be fired after a month or two. If you can’t live with stepping out of the industry for a year or two, it’s time to negotiate a better agreement before you sign. If they won’t budge and you can’t live with it, take a pass.”Adds Senen Garcia, an employment attorney in Coconut Grove, Fla., “Make sure this clause can be removed, especially if it is a low-level job. If not, ensure the restriction is limited to a specific geographical location and for a specific time frame.”
  • Secure Your Own Intellectual Property Rights: Many IT developers work on a variety of projects on the side, notes Schade. It’s important to have a provision that specifies that you own the rights to projects you developed on your own time. Also, “You want to have a work-in-progress provision outside the scope of employment,” he says. “This way if you develop a billion-dollar product your former company can’t come after you.”

11 Responses to “5 Things to Keep in Mind When Signing an Employment Contract”

  1. Forgotten in the above is any mention of what governmental entity has jurisdiction under the contract. Usually there is fine print that says something like ‘adjudicated according to the laws of the state of …” which is okay if both you and the company are based in the same place, not okay if you have to travel thousands of miles and hire remote lawyers to defend your interests.

    Regarding non-compete clauses, I had one that stated I could not be employed by or do business with any other company that the company does business with for two years after the contract ended. In theory this would mean that I could not deliver or buy pizzas…

  2. Non-competes are a joke and are fairly simple to work around. A court will nullify a non-compete that would make a terminated employee unemployable, meaning that the terms of the non-compete have to be reasonable.

    For example: Let’s say Jim is a software developer for an energy company in OKC and signs a non-compete agreement that if/when he leaves the company that he cannot work for another energy company for 2 years. After 5 years on the job, Jim is terminated and receives a severance and the company learns five months later that he is working for an energy company in New Jersey and sues for breach of contract. The court will more than likely deny the company’s claim because the companies are competing in different markets; therefore, Jim’s new employment position is not a conflict with his former employer.

    Just like pre-nups, non-compete agreements are NOT ironclad and can be nullified by a Court.

    • Laughonymous

      This is prob true for most non-exec positions at a large company. Have to consider other factors though and not one size fits all. Like 1 very public example of an exec being sued and winning was CEO Mark Hurd. A large company would be less likely to go after a low level employee even though their contracts maybe exactly the same. Still good to beware.

  3. ANOTHER WARNING from my own experience: Avoid contracts with companies that no business address in the same state that you live in. I had a remote repair position from a 2nd party contractor in a different state. When the staff in the other state made reporting mistakes to the manufacturer, they did not get paid, nor did I. The staff member that made the mistake left that company and they blamed it on me, refusing to pay me.

    I would have had to fly to the other state to file suit in civil court and ‘maybe’ get the money with an outlay equal to what they owed me. Not worth the time and money.

    But if you get a contract with an agency or company in your own state and you have problems getting paid, it is a short drive to the courthouse.

  4. I work as a contractor, so I see loads of contracts in all flavors. I always insist on specifics for non-compete clauses and I get rid of any unreasonable notification requirements. I had one once that required 6 weeks notice before leaving the job. I didn’t sign until they changed it to the standard 2 weeks.

    Nowadays, both sides can usually terminate at any time for any reason. Notice is suggested, but not required. I prefer right-to-work, since it allows *me* to control my employment situation and doesn’t leave me dependent on the employer or other third parties, like unions. Unions are the reason it’s so hard to work freelance, since they pushed for the IRS rules that make it difficult. They don’t like people doing their own thing, since they can’t get a cut of our earnings that way. People should be able to work for whomever they choose in whatever manner they choose, be it employee, contractor via staffing firm, or freelance.

  5. Unions negotiate contracts for the employees who work for a particular company. Union dues is part of the deal. People typically get better wages, benefits and job security. So you cannot be just laid off because a company wants to squeeze more work out of you or randomly change what you do or many other reasons. Sounds like you have never worked for a union by your comments. May want to try it before you find fault with it. And right to work states are just an effort by people to force workers to give up more and more so the few at the top can get rich. Has nothing to do with your rights. Good luck with your freelancing.

    • Why do PRO-Union people always assume that those of who do not like Union behavior have never been in a Union??? I was in a Union in Ohio doing Telecom work and the rules were NOT there to protect me, they were there to protect my UNION DUES! I now work free-lance and earn a lot more by doing contracts. It is not hard to negotiate a salary, tell the hiring manager what you expect and then as you continue to show you can produce increase it a bit. Eventually you hit the top end and WALAAA! you are earning a good salary with no UNION DUES!

  6. Unca Alby

    Two things come immediately to mind.

    First thing, you guys seem to be treating employment contracts like you’re already employed and have got reams of options. Unfortunately, in this economy it’s more likely you’re running out of unemployment insurance, and you’re ready to sign a deal with the Devil to get a job.

    As a matter of fact, I notice most of these employment articles are like that. They all seem written from the point of view like, “How to handle when you’ve got a dozen job offers.” Oh gee, I have to turn down 11 prospects, what to do, what to do!

    Second thing, I really love this mess where the employee is “required” to give a “standard” 2 week notice before leaving. Hell, if they want to terminate the you, they walk you into the office and close the door, get your keys and passcards returned, then escort you out. They give you two MINUTES notice. I say, if the company is bad enough that the you need to “terminate” the employer, then get another job and give the old company the same treatment.

    I knew a fellow who started his vacation with company A, while simultaneously starting work at company B. He didn’t notify company A until his vacation ended! Now that’s what I’m talking about!