Many employees quickly glance over employment contracts before signing them. However, there are important employment contract clauses that should be taken seriously. These clauses could affect your rights, responsibilities, and even your future career options.
Here are ten employment contract clauses that are often overlooked that you should know.
1. Non-Compete Clauses
Non-compete clauses are legal provisions that limit your ability to work for competing companies or start a similar business within a designated period after leaving your current employer. These clauses are designed to protect business interests, such as trade secrets and intellectual property, by preventing former employees from joining a competitor.
Tip: Non-compete clauses must be reasonable. In fact, they have become illegal in many states. Look for overly broad or lengthy restrictions and negotiate if necessary. If you are uncertain as to what is reasonable or if the clause is even legal, speak with an employment attorney.
2. Intellectual Property Ownership
Intellectual Property (IP) Ownership is about who owns the rights to creations like inventions, designs, software, and other work you create. In many jobs, employers claim ownership of anything you develop while working for them, especially if it’s related to the company’s business. This could include things like coding, product designs, or other innovations made as part of your job.
This may sound fair, but be careful of language that includes ownership of any ideas or inventions created on your own time not related to work.
Tip: Make sure the agreement clearly states what belongs to you and what belongs to the company. Before signing anything, try to get language that excludes personal projects or anything you work on outside of your job. If your work ends up making the company a lot of money, you might also want to ask about getting a share of the profits or royalties.
3. Termination Without Cause
This clause allows an employer to terminate your employment without needing to provide a specific reason, as long as they comply with the terms outlined in your contract. Typically, this means you could be let go with little to no warning, and the employer may only be required to provide minimal notice or a modest severance package.
While this is a common feature in many employment agreements, it’s important to understand the exact terms, including the amount of notice or severance you would be entitled to in such a situation.
Tip: Negotiate for a fair severance package upfront.
4. Probationary Periods
Many employment contracts include a probationary period, typically lasting between 3 to 6 months, during which the employer evaluates your performance. During this time, the employer often reserves the right to terminate your employment with little to no notice or severance if they feel you don’t meet their expectations.
This period is essentially a trial phase for both parties, allowing the employer to assess your skills while giving you the chance to determine if the job and company are a good fit for you.
Tip: Understand the conditions of the probation period and set clear performance expectations with your employer.
5. Restrictive Confidentiality Agreements
Confidentiality agreements, also known as non-disclosure agreements (NDAs), are common clauses in employment contracts that prohibit you from discussing, sharing, or using any confidential information related to your work. This can include trade secrets, business strategies, client lists, financial data, proprietary technology, and other sensitive information.
The restrictions typically apply not only during your employment but often extend indefinitely after you leave the company. It’s important to review the terms carefully to understand what is classified as “confidential” and for how long the restrictions apply.
6. Arbitration Agreements
Arbitration clauses require disputes to be resolved through private arbitration rather than in court. The problem is that arbitrations tend to favor the employer.
Tip: While arbitration clauses are sometime difficult to negotiate, speak to the employer to feel them out. If the employer won’t budge and you are uncomfortable with this clause, seek legal advice.
7. Moonlighting Restrictions
Moonlighting restrictions are clauses in employment contracts that limit or outright prohibit employees from taking on additional work outside their primary job. These restrictions are often implemented to prevent conflicts of interest, protect the employer’s business interests, and ensure employees remain focused on their primary role.
These restrictions can vary in scope. Some contracts may forbid all outside work, while others may allow it under certain conditions. If you have a side hustle or plan to pursue freelance work, you should discuss these activities with your employer before signing the agreement. In some cases, you may be able to negotiate for more flexibility.
8. Automatic Contract Renewal
Some contracts automatically renew unless you or the employer give notice within a specific period.
Tip: Mark renewal deadlines on your calendar or try to negotiate this out of the contract if this is important to you.
9. Salary Deduction Clauses
Certain contracts allow employers to deduct money from your paycheck for damages, training costs, or other expenses.
Tip: Ask for a detailed explanation of any potential deductions.
10. Relocation Requirements
Some contracts include clauses requiring you to relocate if the company moves or expands.
Tip: Negotiate relocation terms or seek a cap on the distance you’re required to move.
Final thoughts
While it’s easy to overlook employment contract clauses, doing so can lead to surprises later. Take the time to read and understand each clause. If something seems unfair or unclear, don’t hesitate to consult an attorney or negotiate better terms. While the employment contract clauses may not matter to you now, being proactive can help you in the long run.
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Disclaimer: This article is intended for informational purposes only. It provides general information and is not intended and should not be construed as professional advice. The author is not your attorney, accountant, financial planner or any other professional and no professional-client relationship is created. We do not represent that the information provided is accurate or up-to-date as laws and regulations are always changing. If you have an issue that requires professional help, you should contact the appropriate professional to help you on your specific set of facts. Please read the Terms and Conditions for additional information.
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