Red Flags in Employment Contracts: What Job Seekers Must Know
You got the job offer—congratulations! But before you sign, review the employment contract carefully. These red flags could significantly impact your career and financial future.
Compensation Red Flags
1. Vague Bonus Structures
"Bonus at company's discretion" means no guaranteed bonus. If compensation includes bonuses, get the targets and metrics in writing.
2. Classification Issues
Being classified as a contractor when you're really an employee? Or as exempt when you should be non-exempt? This affects overtime, benefits, and taxes.
3. Clawback Provisions
Some contracts require you to repay signing bonuses or relocation if you leave within a certain period. Know what you're committing to.
Restrictive Covenant Red Flags
4. Aggressive Non-Competes
Watch for:
- Durations over 1 year
- Broad geographic restrictions
- Vague definitions of "competitor"
- Restrictions that apply even if you're fired without cause
5. Broad IP Assignment
Does the company own everything you create, even outside work hours? Even personal projects or prior work? Get carve-outs for personal projects.
6. Perpetual Non-Solicitation
Non-solicitation of customers is common, but watch the duration. You shouldn't be restricted from your professional network forever.
Termination Red Flags
7. At-Will with No Severance
At-will employment means you can be fired anytime for any (legal) reason. Without severance terms, you could be out with nothing.
8. Broad "For Cause" Definitions
If "for cause" includes minor policy violations, the company can avoid severance obligations easily. Look for objective, serious triggers.
9. No Notice Period
Some contracts require you to give 2-4 weeks notice but allow the company to terminate immediately. Push for mutual notice periods.
Dispute Resolution Red Flags
10. Mandatory Arbitration with Class Waiver
You give up your right to a jury trial and can't join class actions. This heavily favors employers.
11. Inconvenient Forum
If disputes must be resolved in the company's home state across the country, pursuing claims becomes impractical.
Other Red Flags
12. One-Sided Modification Rights
Can the company change the agreement anytime without your consent? Look for language requiring mutual agreement for changes.
What to Negotiate
- Written bonus targets and metrics
- Non-compete duration and scope reductions
- Carve-outs for personal IP projects
- Severance provisions
- Mutual notice periods
- Non-compete elimination if terminated without cause
Frequently Asked Questions
Should I sign an employment contract with a non-compete?
It depends on the terms. Non-competes under 1 year with narrow scope may be reasonable. Aggressive non-competes that restrict your entire career should be negotiated or could be a reason to decline. Also check if your state restricts non-competes.
Can I negotiate my employment contract?
Yes, many terms are negotiable, especially for professional and senior positions. Common negotiation points include non-compete scope, IP ownership of personal projects, severance terms, and bonus criteria. Don't assume the contract is take-it-or-leave-it.
What if the company says the contract is 'standard'?
'Standard' doesn't mean fair or that you can't negotiate. Ask for specific changes and see what they say. The worst outcome is they say no. Many candidates successfully negotiate contracts that companies initially called non-negotiable.
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