What to Check in an Employment Contract Before You Sign

Compensation: More Than Just a Number

The base salary is the easiest part to evaluate — but it is often the least interesting part of a compensation package. Before signing, you need to understand how bonuses are structured. Is the annual bonus guaranteed or purely discretionary? "Discretionary" means the company can pay you zero and breach nothing. Look for language like "target bonus of X%" rather than "bonus at the sole discretion of the company." Target language gives you a benchmark to argue against if you are underpaid.

Equity compensation deserves equal scrutiny. Understand whether you are receiving stock options or restricted stock units (RSUs), the vesting schedule, and the cliff period before any shares vest. A four-year vest with a one-year cliff means you get nothing if you leave in month eleven. Also check whether there is a double-trigger acceleration clause — this protects you if the company is acquired and your role is eliminated. Without it, your unvested shares can simply disappear in an acquisition.

Finally, check how expenses, commissions, and benefits are treated on termination. Some contracts allow the company to claw back unpaid commissions for deals you closed if you leave before they are paid out. Confirm whether commissions are earned at booking or at payment, and whether there is a trailing payment clause for deals in flight when you exit.

Non-Compete Clauses: The Most Negotiable Clause in the Contract

A non-compete restricts where you can work after you leave. The key dimensions are geography, duration, and scope. Geography should match the actual territory you cover — a local sales rep does not need a nationwide restriction. Duration should be twelve months or less in most industries; anything beyond eighteen months is aggressive and often unenforceable. Scope should be tied to your actual role, not the entire industry.

The most aggressive non-competes are industry-wide and last two or three years. Even if a court would ultimately void such a restriction, the legal costs to challenge it can exceed $50,000. This is why employers use broad non-competes even when they know they are unenforceable — the chilling effect on your career choices is the point.

To negotiate: ask to narrow the geography to the specific region where you will actually work, cap the duration at twelve months, and define "competitive business" as companies that offer a substantially similar product in your specific market segment. Get the carve-outs you need in writing. "I understand the company's interest in protecting its competitive position — can we narrow this to [specific territory] and [specific role type]?" is a professional and effective approach.

IP Assignment: What Your Employer Can Own

An intellectual property assignment clause transfers ownership of anything you create during your employment to your employer. The broadest versions cover everything you create — including work done on personal time, on personal equipment, outside of work hours — as long as it is "related to the company's business or anticipated business." That last phrase is the trap: "anticipated business" can mean almost anything a growing company might do.

The practical risk: you build an app on weekends that becomes valuable, and your employer claims ownership because your company was "anticipating" entering that market. This has happened to software engineers, designers, and developers at major tech companies. California law limits this to some degree, but most states offer no such protection.

Ask for a specific carve-out listing your pre-existing projects by name in a schedule attached to the contract. Negotiating language like "excluding inventions created entirely on personal time using personal equipment and unrelated to the company's current products" is standard and most employers will accept it. If they refuse to include any carve-out, treat it as a serious red flag.

Termination Rights: What Happens When the Job Ends

Most US employment contracts are at-will, meaning either party can end the relationship at any time for any reason. What varies is whether you get any notice or severance. Look for whether the contract specifies a notice period (usually two to four weeks), what triggers immediate termination "for cause," and whether any severance is offered.

The definition of "cause" matters enormously. Broad definitions — like "conduct the company determines, in its sole discretion, to be detrimental to its interests" — can be used to deny severance even in circumstances that feel like a layoff. Narrow definitions tied to specific actions (criminal conviction, material breach of policy, willful misconduct) are far more protective.

If there is a severance clause, check whether it requires you to sign a release of all claims to receive it. This is standard, but the release should not require you to waive claims that arise after the release date, and it should give you adequate time to review — at least twenty-one days under the ADEA for workers over 40.

Arbitration and Class Action Waivers

Mandatory arbitration clauses require you to resolve any dispute with the employer through private arbitration rather than in court. This eliminates your right to a jury trial and to join a class action with other employees. Arbitration is often faster and cheaper for the employer, but studies consistently show employees win less often and recover smaller amounts in arbitration than in court.

Class action waivers are particularly significant. If an employer systematically underpays a category of employees, the class action is often the only economically viable way to pursue it. By waiving the right to join a class action, you are giving up a major tool for collective accountability.

You can ask to remove the arbitration clause, but most large employers will refuse. A more realistic ask is to exclude harassment and discrimination claims from the arbitration requirement — an increasingly common carve-out following the EFAA (Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act) passed in 2022, which already prohibits mandatory arbitration for sexual harassment claims at the federal level.

Red Flags at a Glance: What to Check in Every Contract

Use this table to score your contract before signing. Three or more RED flags warrants a serious conversation with your employer or an attorney.