Starting employment with a new company is often one of the most exciting moments in one’s career, but it’s not something that should be rushed into. One of the most important parts of this process is a careful contract review of the employment agreement, so you know where you stand from a legal perspective before any employment offer is agreed to.
A well-drafted employment agreement contract will clearly spell out the expectations of the company for the employee, and what the company owes the prospective employee to minimize any future disagreements.
Here are the top 7 things to look for when redlining an employment contract, particularly for the hiring of high-level executive or specialist positions:
- Compensation: A base salary is one part of the total compensation package. You also need to know if and when base salary increases occur, if bonuses are available and if there is a signing bonus. You’ll also want it to be clear in your contract review if your base salary can be reduced, and under what circumstances this can happen.
- Scope of Employment: In addition to the employee’s title and responsibilities, a good employment contract template should cover to what extent an employee’s responsibilities will expand or contract. For example including clearly defined terms for promotion, demotion and even potential relocation. For C-level executive hires, it should also outline if a seat on the Board of Directors is guaranteed or even allowed.
- Benefits: The amount of the benefits programs, and to what extent an employee can participate in them, should be clearly and definitively outlined in any employment contract template. This includes health and disability benefits, life insurance, 401(k) and stock options, vision and dental. This section of the employment contract should also outline vacation and sick leave policies, including how much can be accrued in a year or carried over. Lastly, the contract template should clearly define if any benefits are taxable to the employee, and if the employee can be reimbursed for the tax.
- Restraints: Look out for any restraints or limitations on your ability to engage in activities outside of the job. These can be agreements to not compete, not solicit staff and clients or engage in other commitments either during or after the employment. Particularly look out for restraints of trades that limit what work you can do after the termination of your employment. You don’t want to unduly impact your ability to earn a living or find another job after this one.
- Intellectual Property: Intellectual Property (IP) such as trade secrets, marketing strategies and business systems can be extremely valuable. Standard employment contracts usually include clauses saying any IP an employee develops during their employment is owned by the company, including whether it was created on the job, in the office, or outside their normal work hours using the company’s resources or information.
- Confidentiality: Employees are often trusted with access to different kinds of commercially sensitive information. Under an employment relationship, there is usually an implied relationship of trust and confidence. However, it is always best practice to clarify the obligations of an employee using a confidentiality agreement, also known as an NDA agreement, in relation to accessing, using, protecting, and disclosing the commercially sensitive information of the Business.
- Term, Termination and Post-employment Agreements: The employment contract needs to clearly define if the employment is for a contracted term of time or if it is “at will” employment. It also needs to define the grounds on which an employee can be fired (due to job performance, for example) or terminated “for cause,” such as for a felony conviction or breach of the employee agreement. The contract should also specify any severance packages (including so-called “Golden Parachutes”) and the conditions on which they can be given following employment.
- Dispute Resolution: Most employee agreements have clauses to deal with disputes between the employee and company, such as if binding arbitration is the exclusive way to deal with disputes, and what the applicable laws are to oversee such disputes.
Carefully reviewing your employment agreement before sending or signing can avoid misunderstandings that can cause disagreements or even legal action between the company and employee. Oftentimes, an experienced employment law expert will be consulted on high-profile contract negotiations. However, a great way to understand your rights and obligations is to supplement a human lawyer’s expertise with legal technology.
authorDOCS automates standard contract checks with legal template reviews, including employment agreements, saving you a significant amount of time during the contract management process. Each month we release new contract template reviews and skillsets built by subject matter experts that are specific to different industries and contract types (including employment agreements), ensuring a smooth contract review process and better employer-employee relations.