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.

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