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4 Items to Review in Your Employment Contract

Business News Daily Editor
Business News Daily Editor

If your new employer is having you sign an employment contract, make sure you read these tips first.

  • Employment contracts are vital for employers and employees, because these documents stipulate the expectations for both parties.
  • Employers should not rely on the same contract templates without reviewing them periodically.
  • It's important for employees to review all aspects of the contract thoroughly before signing. If there are any points that should be changed, be sure to discuss them before finalizing the contract.

What is an employment contract?

Employment contracts are agreements between employers and employees that spell out the terms and conditions of employment. These written and signed documents are crucial to understanding the expectations and inner workings of a job and serve as legal protection for both employees and employers.

"When I am representing a company, the contract often will set a precedent for numerous other individuals that are subsequently hired in similar positions," said Jeffrey Scolaro, an attorney at Daley Mohan Groble PC and a Legal Services Link member. "The company will not likely know for years whether they have adequately protected their intellectual property, trade secrets, customer lists and business relationships."

Because of this knowledge gap, it's essential to have a robust business liability policy in place. Employment contracts only go so far in protecting the employer. Before you begin to use a previous contract as your template, be sure that an attorney has reviewed it thoroughly. This review should occur at regular intervals to ensure that the protections are keeping up to date with the current legal environment.

What information is included in an employment contract?

A typical employment contract contains details such as the start and end dates of employment, compensation, job duties and other expectations on behalf of both the employer and the employee.

The employment contract should indicate whether the employees are "at will," wherein an employee can be dismissed by an employer for any reason, or if employees are classified as something else. That alone will dictate the manner in which the employee can be terminated and certain obligations to which they must adhere.

It is always a good idea for employees to have a lawyer review every document they sign. This review can ensure that employees fully understand the expectations and that these expectations are in line with their own.

As a professional, it is not advisable to work without a contract or some type of formal employment agreement. Don't wait to ask for changes or additions after you have been hired, as you will have the greatest amount of leverage to change anything in your contract prior to your start date.

Can you be employed without an employment contract?

While it is possible to be employed without a contract, in most cases, it is not advisable. If you are considering an employment situation that does not include a contract, it makes sense to review all of your options with an employment attorney.

"By signing any employment agreement, the employee could also be obligating themselves to other restrictive terms regarding potential future commissions, vesting in company shares and many other compensation terms that are, of course, vitally important to any employee," Scolaro said.

He advised professionals to carefully review the following items in any employment contract before signing it:

  • Job description. Clarity of the job description prevents disgruntled employees from feeling overloaded or misled regarding what is expected of them. A company may desire a vague job description, but most employees want a detailed one. If you are an employee who is given a vague job description, be sure to request a more detailed one. Without a comprehensive document outlining the duties that are expected of you, your employer will have a lot of leeway in saying that you aren't doing your job properly. Be sure to ask for clarification if there are any areas in which you are unclear.

  • Terms. If there is a term on the contract, it is vital to know the specifics of the term and, at the same time, the grounds for termination in advance of the contract's expiration. In addition to knowing the grounds for termination, be sure to gain a strong understanding of the mechanisms available for extending the contract.

  • Restrictive covenants. Businesses often attempt to protect themselves through restrictive covenants, including noncompete, nonsolicitation, and confidentiality, or nondisclosure clauses. Each of these covenants attempts to restrict an employee after (or during) their employment. Noncompete clauses are likely the most important, because they affect an employee's ability to work or start their own business in the industry for a period of time after their employment term ends. If the contract includes a noncompete clause, be sure to find out the compensation that will be provided for you during the dark period. It is not advisable to take a position where you would be unable to work for a significant amount of time after leaving the job if the firm does not provide compensation during that period.

  • Compensation. This is likely the most critical aspect of any employment contract. Oftentimes, compensation refers to more than just biweekly payments or a salary. It also may include complicated or vague bonus structures, and certain profit-sharing plans that may or may not be tied to performance and commission structures. Make sure that any additional compensation, such as bonuses or equity awards, are outlined clearly. You should know what performance measures are necessary to trigger the additional compensation. Do not accept an answer such as "We'll figure it out down the road." 

There is no set etiquette for suggesting changes. It could depend on the level of the position, the relationship between the employer and the employee, and the part of the process in which they find themselves. If there is anything in the contract you are unsure or wary of, you may want to review it with an attorney. Remember, it's important to have these potentially difficult conversations before signing anything. Once you have signed the document, it will become even more of a challenge to secure the changes you desire.

"Each attorney will approach agreements differently and advise ways, but the important thing is following that advice and asking questions when you are confused by something," Scolaro said. "Failing to ask about something that does not appear clear can lead to misunderstandings and larger problems in the future."

Scolaro cautioned that the potential employer-employee relationship is in its infancy, and many potential employees do not want to appear aggressive or difficult by injecting their lawyer into the process immediately.

"However, typically, the more sophisticated the employee might be, such as executive-level employees, the expectation can often be that an attorney will negotiate on their behalf from the start," Scolaro said.

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