Home Fairfield The ins and outs of employment contracts

The ins and outs of employment contracts


With the economy improving, more people are getting job offers and some come with employment contracts – which offer both job security and potential pitfalls. Here are some tips for employees.

Security is the big benefit.

Protecting yourself financially if you’re terminated without cause is a big plus. If you’re let go, your employer typically must pay your salary and benefits for a set period or the remainder of your contract. Without a contract, you’re an at-will employee and your employer can terminate you anytime.

If you want a contract but aren’t offered one, bring up the possibility during the salary negotiation phase.

Before signing, read the contract carefully.

Make sure you understand contract terms before you sign. Having an attorney look it over is not a bad idea, especially if the contract contains technical language you feel unqualified to interpret.

Beware of noncompete and nonsolicitation clauses.

Sales positions, some medical jobs and technology and research positions often come with noncompete clauses or agreements, which may be part of the employment contract or a separate document. Noncompetes should terminate within a certain period after you’ve left your job; one year is typical. State law varies on how restrictive they can be and remain legally binding. Learn about your state’s requirements to make sure any such agreement is legal. An overly restrictive noncompete can make it hard to get a new position.

Some employment contracts also include nonsolicitation clauses, which restrict former employees from soliciting employees or customers. Again, take care that it won’t be overly burdensome or likely to hurt your future job prospects.

If you plan to hold a second job or run a side business or pursue other business opportunities, make sure your contract permits moonlighting.

If your other work clearly falls in the same industry as that of your employer, you could run afoul of a noncompete clause. You may also risk creating a conflict of interest. Be sure you are not creating a choice between a legal headache and giving up your side business later on if you intend to keep it once you begin work.

Make sure that the title and duties in the contract conform with your understanding of the position based on your interview and other conversations with your potential employer. If you notice a discrepancy, speak up before you sign.

The contract should outline the basic terms of your employment, including whether you are a full-time employee, a part-time employee or an independent contractor. If you are an employee, it should also be clear what hours you are expected to work. Is flextime allowed and, if so, how is it structured? Will you be allowed to work remotely?

The document should clearly outline your salary, compensation structure, overtime pay if any and whether bonuses are guaranteed or discretionary, along with how performance will be measured if bonuses are performance-based.

If you were offered a signing bonus, get it in writing. The contract should also set out any relocation costs or education funding that you and the employer negotiated. The contract should clearly explain all benefits, including vacation, health care, disability or malpractice insurance if applicable, and the company’s retirement plan structure and vesting rules.

Anything you agreed on during negotiations about compensation should be in the contract. Speak up if it’s absent.

A contract will have a start date and sometimes an end date.

Even with an open-ended position, there may be an end date for the contract, at which point it will be renewed or renegotiated. Many contracts for long-term positions have an “evergreen” provision, so that the contract will be automatically renewed unless either party chooses to terminate it.

If you’re likely to generate intellectual property as part of your job, understand your legal rights.

Usually an employee’s work automatically belongs to the employer if it is performed as part of the worker’s normal job duties—the “scope of employment.” But the issue is murkier for employees who make discoveries, inventions or other creative works on their own time that somehow relate to their employers’ businesses. Make sure the contract isn’t overly broad in its definition of the scope of employment.

Eric Meermann is a client service manager and portfolio manager at Palisades Hudson Financial Group L.L.C. in Scarsdale. He can be reached at eric@palisadeshudson.com.

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