Red Flags to Look for in Employment Contracts By Dan Atkerson on October 29, 2020

When starting a new job, most employees are asked to sign an employment contract. While these contracts are meant to protect both the employer and employee, they aren’t always written that way. Although an employee is likely to be anxious to sign the contract presented to them so they can start their new position, they should always evaluate it carefully first.

Employment law attorney Dan A. Atkerson has ample experience reviewing employment contracts for clients in Allen, TX, Plano, TX, Frisco, TX, and surrounding areas. Here, he goes over some of the red flags to look for in employment contracts before putting pen to paper.

Indefinite Non-Compete Clause

A non-compete clause is a normal part of an employment contract. This clause prevents an employee from leaving their position to work for a competitor within the same field.

However, a reasonable non-compete disclosure is restricted by time and geography. For instance, a contract may stipulate that an employee cannot work for a competitor for two years following the termination of their employment. An additional geographic stimulation may limit the terms of this clause to companies that are within 100 miles of the current employer.

If a non-compete disclosure fails to provide these types of limitations and stipulations that is a red flag, because an employee’s future career choices are impacted indefinitely.

At-Will Clause

Many states are considered at-will employment states, which means that both employers and employees have the right to terminate employment at any time without giving a reason (provided employment laws are not broken). While employees cannot be fired for reasons that are illegal under state or federal law, employers can otherwise dismiss them at any time without warning. Unfortunately, at-will clauses are very common, but most employers will try to work with an employee before firing them.

The real legal danger arises when a potential employer promises that you will not lose your job for a certain time period (say a year), but an at-will clause is still included in your contract. Consequently, employees should read their contracts carefully upon hiring to determine if this clause is included - and, if it is, reach out to a lawyer if it is.

One-Way Indemnity Clause

An indemnity clause assigns risk or expense in the case that an employment contract is breached. Basically it outlines the actions an employer can take (such as filing a lawsuit) if the employee breaks the terms of their employment contract. The contract should further outline the actions an employee can take if the employer breaches the contract.

A one-way indemnity clause that only protects the employer should definitely be cause for concern.

Confidentiality Provisions

Confidentiality provisions are another common aspect of employment contracts. This type of provision prevents employees from sharing or profiting from proprietary company information. While this type of clause is not unusual, it is important to examine how a confidentiality clause is worded. In some cases, employment contracts may prevent employees from sharing or profiting off their own unique ideas in future business endeavors.

Work Ownership

Many employment contracts include provisions regarding work ownership, especially if a job is in the creative field. If an employer is paying for an employee to create creative or intellectual properties, an employment contract will typically state that they own that work. This is not unusual. However, employees should carefully read through this type of provision to be sure they will maintain at least some right to use their creative or intellectual property outside of work.

Have Your Contract Evaluated

Most employment contracts contain legalese that is not easily understood by those outside the legal field. We always recommend that employees have a contract evaluated by an employment law attorney before they sign it. If you’d like to have your contract reviewed by attorney Dan A. Atkerson, send us a message at your earliest convenience or call our law firm at (214) 383-3606.