Beware These Red Flags in Employment Agreements

There’s a good chance that an employer or contractor has asked you to sign an employment agreement or contract. But unless you read the terms and conditions carefully and understand them, you may be agreeing to one-sided clauses that are restrictive beyond reason.

For instance, a recent study showed that around 30 percent of hiring contracts in information fields such as engineering and architecture contain non-compete clauses, which aren’t actually enforceable in every state.

“Employment agreements rarely benefit the employee,” explained Connor D. Jackson, a Chicago healthcare attorney with Jackson LLP. “You need to pay particular attention to restrictive covenants that are often buried in the middle of the document.”

Although red flags can be plentiful in these agreements, you may be able to negotiate more favorable terms as long as you discuss them with HR or the hiring manager before accepting an offer. Here are some of the terms or clauses that you should recognize and read carefully (or run by an attorney).

Non-Competition and Non-Solicitation Clauses

While many states will not recognize non-compete clauses, they continue to appear in employment agreements.

“Non-competition clauses are likely the most important because they attempt to restrict where a tech pro can work for a period of time after their employment term ends,” explained Jeff Scolaro, partner with Daley Mohan Groble.

A non-compete clause may keep you from working for another firm in the same industry, or from setting up a competing business yourself. A company may also try to restrict you from moonlighting during your term of employment; specifically, they may forbid you from taking on side projects for a competitor (more on this under the ‘confidentiality provisions’ section below).

A non-solicitation provision can limit a tech pro’s ability to do business with former colleagues or clients of their employer, and also prevent them from recruiting former teammates to a new company.

Again, while enforceability varies by state, the threat of expensive litigation favors the employer, so you’re better off clarifying and redacting or modifying restrictive terms and conditions up front.

Confidentiality Provisions

Generally, your employer owns the rights to any code or intellectual property you develop on the job, and those terms are usually spelled out in confidentially provisions (or a separate IP agreement).

However, read carefully, because those provisions may also apply to side projects, especially if you use a company-owned computer or smartphone, or work on personal projects during company time (which, by the way, is not a good idea).

“Some employers ask for a list of the side projects you’re working on,” Jackson explained. “Any code or products you develop that aren’t specified on the list may belong to the company and you won’t have a leg to stand on if push comes to shove.”

Also, your contract or non-disclosure agreement (NDA) may forbid you from discussing projects with outsiders, including interviewers. You can’t post code samples online or examples of your work in your portfolio.

In addition to clarifying the confidentially provisions in your contract, be sure to review employee handbooks or department policies that may modify or supplement the information in your agreement, especially if you’ll be working with open-source software platforms or modifying reusable code.

Compensation Clauses

Compensation is another area where tech pros need to get everything in writing and read everything before doing anything.

“If you’re promised part-ownership of the company down the road, or a deferred bonus, get it in writing,” Scolaro warned. To see how much you can actually make and when, be sure to evaluate the information contained in separate profit-sharing, bonus or vesting agreements that may have been drafted by different attorneys at different times.

Final Thoughts

Other things to watch out for in employment agreements include mandatory arbitration or mediation clauses. Both options are cost-prohibitive; agreeing makes it nearly impossible for employees to sue their employers when things go wrong.

Furthermore, watch out for indemnification clauses that attempt to shift liability onto employees. Other terms that should be approached with caution include “choice of law” provisions, termination for “cause” provisions, “best efforts,” “forfeiture,” “liquidated damages,” “vesting,” “employee representations” or “exclusive employment,” to name a few. Finally, comparing your current employment contract to a new one can help you spot over-the-top provisions that are restrictive beyond reason.

“The good news is that there is usually some wiggle room to negotiate moonlighting or indemnification clauses,” Jackson noted. In those cases, hiring an attorney to review your employment agreement may prove a wise investment.

Comments

16 Responses to “Beware These Red Flags in Employment Agreements”

September 27, 2017 at 5:57 pm, Sean Roulo said:

Do like Wells Fargo did, make sure there is a clause to settle claims by ADR (alternate dispute resolution), not by litigation. Having to go to court can make your life hell, and ultimately make you feel like you’ve been screwed twice!

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September 28, 2017 at 9:02 am, William Anthony said:

There needs to be a list of employers that engage in these odious practices to allow prispective employees a chance to review the companies before even applying. Recruiters also need to be identified who deal with these nefarious companies. Sounds like a good side project.

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September 28, 2017 at 1:53 pm, Miss Techie said:

Good idea! Does anyone know if there is such a list somewhere?

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September 28, 2017 at 10:11 am, Jason Powell said:

Sean,

That is often a trick they use as well. ADR is a mediator for court. An ex judge, attorney, etc. It is the same as going to court and will often result in an appeal. That appeal sends you directly to court.

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September 28, 2017 at 11:49 am, Sean Roulo said:

But I thought that Wells Fargo was able to avoid class action suits for opening false accounts by the this ADR provision in the card memeber agreements? Are you saying that all these card holders had to do was submit to ADR, appeal, then form a class. I’m not sure you are correct. If I’m wrong please explain.

Thanks Jason.

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September 28, 2017 at 11:49 am, Sean Roulo said:

But I thought that Wells Fargo was able to avoid class action suits for opening false accounts by the this ADR provision in the card member agreements? Are you saying that all these card holders had to do was submit to ADR, appeal, then form a class. I’m not sure you are correct. If I’m wrong please explain.

Thanks Jason.

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September 28, 2017 at 11:12 am, Chris said:

What about the clause that forbids an employee from discussing salary with another employee?

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September 28, 2017 at 11:53 am, Sean Roulo said:

I would say this is a good practice for an employee anyway, especially if you think you might compensated more than others. You might be surprised how quickly co-workers can turn on you when they feel you are being overpaid.

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September 28, 2017 at 2:39 pm, Chris said:

I completely understand why you wouldn’t talk salary with your co-workers, but having a corporate policy with grounds for being let go seems extremely out of line to me. Can’t help but wonder if these kinds of corporate policies just insure that for those who are not very good with salary negotiations or are less able to take career risks for what ever reason don’t continue to be underpaid throughout their careers. This seems to prevents employees from establishing their own check and balance system to insure competitive pay for similar work. Last time I checked, there still seems to be pay discrepancies between men and women. Also, sometimes a policy is said to be put in place for one reason while in fact there is a completely different motivating factor.

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September 28, 2017 at 1:54 pm, Miss Techie said:

Yeah, I’d like to see THAT outlawed in EVERY state!

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September 28, 2017 at 2:11 pm, Sean Roulo said:

I think the supreme court’s decision in “Citizens United” pretty much makes your idea a pipe dream, these politicians in congress are being elected by and with the money of these big corporations.

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September 28, 2017 at 11:23 am, Moses Wolfenstein said:

Watch out for so called “Invention Assignment” clauses as well. They basically claim that anything you create for X period of time after severing ties with the company is owned by the company. They’re often even less enforceable than non-competes, but they can have a chilling effect for prospective employers who don’t want to deal with a contentious legal situation with your former employer.

Additionally, be very wary of non-disparagement clauses. These can be a tell for employers with a bad track record for employee relations.

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September 28, 2017 at 12:05 pm, Sue said:

Also be on the alert for employment contracts that secure ownership rights for the company for anything you may develop with your personal assets on personal time; you should consult an attorney if you are in a development role where you are designing or inventing for your employer on employer time with employer assets. You may be able to protect a percentage of patent or development rights should you leave or be discharged from the employer.

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September 28, 2017 at 12:37 pm, Suzanne said:

Yes all very beautiful, the poblem is if the company basically tells you: -take it or leave it.
And you cant negotiate any of those clausules.
Contrary to media believe getting a job is hard these days especially if you have a speak defective (stuttering) and you end up having little to none negotiation power.

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September 28, 2017 at 1:21 pm, Sean Roulo said:

Depending on your perspective, I believe it’s called the Corporatization of America. Violate the terms of the agreement, then go up against a team of $800 an hour attorneys. If you are naive enough to think that if the facts and law are on your side and that you should prevail because justice is something ‘for all’, you are in for a rude awakening my friend. Trust me, I’m living it.

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September 28, 2017 at 1:58 pm, Miss Techie said:

And even if you run this contract by your personal attorney before signing, just remember that a huge corporation can always afford better & more expensive lawyers than YOU can, and, if you do go to court, remember that THEIR attorneys are on salary, meaning they get paid the same whether or not they go to court, while YOU must pay YOUR attorney by the hour, so there is incentive on the company’s part to drag out any legal case, so that you go broke due to attorney’s fees, and eventually cry “uncle” (i.e., settle), while they just sit back and smile.

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