What is an Employment Contract?
When you apply for a job, the process is often straightforward. You fill out an application, possibly submit a resume and then have an interview. If all goes well, the employer may make you an offer of employment, which may or may not be contingent on you doing various things, such as submitting to a background check or passing a drug test. Most people think that this is where it ends, and then, upon being offered the job, you experience the joy of being in the right place at the right time. There’s nothing wrong with that, but it does not tell the whole story.
Often when you apply for a job with a large company you will be presented with an employment contract or what is known as an "offer letter." An offer letter is a document that contains very straightforward and basic terms of your employment, such as how much you will make, any bonuses you will receive and what benefits you will get – essentially what your base compensation package is. The employment contract (also known as a "Covenant of Employment" in Massachusetts), not to be confused with a non-compete agreement, is often longer and more complex. In addition to stating the terms of your employment, it will often contain clauses that involve the non-disclosure of confidential information of the company, competition with the company after you leave the company, for example, working with one of your new employer’s competitors or starting your own business, and possibly other clauses relating to your compensation, such as how and when you will receive it, termination and possibly even restrictive covenants.
You may read through the aforementioned documents and think that this all sounds very basic and standard, but that could be a very big mistake . That is because many people have lost jobs, business opportunities and money because they did not correctly understand what contractual documents said. It is very possible that the company you are seeking employment with is completely above board, does everything in an honest and fair way and treats its employees exceptionally well. But despite that, you should play by the rules and read the contract before you sign it. And if you don’t understand what the contract says after you have read it, you should seek an understanding of it through an attorney who handles Employment Compliance Litigation, such as a New England Employment Attorney.
While some people think they can save money by not paying a lawyer to review their employment contracts, in truth, hiring a lawyer to do so will save you great amounts of money down the road.
An experienced employment lawyer will review your contract, often free of charge, explain the terms and limitations it imposes on you and help walk you through the contractual process. That process might involve seeking negotiated outcomes to terms that are not appropriate, or may involve simply understanding that a term is fair and reasonable, despite the fact that it might not be in your best interests. In other words, an experienced employment attorney can explain to you whether a clause or requirements is fair, equitable and reasonable. In the end, it is much better to be armed with knowledge so that you can make an informed decision instead of being blindsided by something that blindsided someone else.
When it comes to employment contracts, knowledge is power.
Benefits of Professional Contract Review
An employment contract review attorney will have the necessary experience to analyze an employment contract against your potential rights regarding salary, benefits, workplace protections, and other important issues. They will also have the experience to spot red flags that might lead to significant legal troubles down the road.
Most of the time, a contract with an employer is going to contain some language that favors the employer over the employee. An employer might, for example, have the right to terminate an employee without cause, or they might have a say over where the employee works. If you do not get legal assistance regarding the employment contract, you won’t have a solid understanding of what rights you have under local, state, and federal law.
A professional employment contract review may even reveal that you are eligible to pursue damages against your employer. A lawyer can help minimize damages and avoid overpayment as a result of a contract breach. You might be surprised at what you can accomplish by investing a relatively small amount of money into getting that contract reviewed by an experienced employment lawyer.
Common Employment Contract Mistakes
Many employment contracts contain a variety of clauses which if not fully understood, can have potentially negative impacts on the employee if they are terminated. Common clauses include:
Non-Competition Clauses. These clauses can prevent you from working for a competitor of your former employer for a certain period of time and/or within a certain geographical area after your departure. Non-competition clauses are not always enforceable, and even if enforceable, are often times not worth the effort required to you to litigate to make them enforceable, especially if you have only been with that employer for a relatively short period of time.
Non-Solicitation Clauses. These clauses often can be enforceable, and unlike non-competition clauses, can make a huge difference from a monetary standpoint. In most instances, however, non-solicitation clauses are crafted in such a way so that they technically do not cause you a problematic outcome, but rather prevent you from bringing in "new" clients after leaving your prior employment. For instance, a non-solicitation clause may prohibit you from contacting clients of your prior employer with whom you did not have a pre-existing relationship prior to your employment with your prior employer. In this instance, your non-compete clause is likely not problematic, yet your non-solicit may be. An employer seeking to enforce what appears to be a non-problematic clause can be very difficult to deal with from a monetary standpoint, because you may be expected to either (a) drop your entire book of business, or (b) keep your book of business intact, but not add new clients.
Termination Sections. It can be problematic if your employment contract provides for automatic termination upon a criminal conviction, yet the offense involves a type of crime or conviction for which you are not employed in. Likewise, if your employment contract provides for termination upon your "insubordination" or "unprofessional" conduct, termination is subjective and can sometimes be used strategically by an employer seeking to terminate an employee. Similar to these termination reasons, it can also be problematic if your employment contract provides for termination upon your unlawful conduct. In short, many employment contracts, if they contain subjective terms, can provide your employer with the ability to terminate your employment in a manner that may be unexpected.
Choosing an Attorney to Review Your Contract
Choosing the right employment contract review attorney is crucial to ensuring that your employment contract rights are fully protected. You should look for an employment attorney who specializes in employment contract review. A lawyer who is an employment law specialist will better understand your legal needs and will take the time to carefully review and negotiate your employment contract to ensure that your interests are protected.
You should also look for a lawyer who has experience reviewing employment contracts, negotiating employment contracts and litigating employment contract disputes, such as breach of contract and wrongful termination claims. It is important to choose a lawyer who dedicates his or her practice to employment law. Employment contracts may be different depending on whether you are a C-level executive, a mid-level manager with an employment contract or employee handbook, or an hourly employee. It is also important to hire a skilled employment contract review attorney who knows and understand the applicable law that governs the contractual agreement, such as tort laws and employment discrimination laws, and can effectively handle all aspects of the employment relationship so as to avoid costly litigation down the line.
How Contract Review Works
When you get a contract, do you feel overwhelmed reading it? Does the language seem foreign or intimidating? In fact, I regularly hear potential clients tell me that they do not want to enter into a dialogue with their HR representative or supervisor about their concerns or questions because they do not want to rock the boat. This is an unfortunate byproduct of what we often face in the corporate world. But that is exactly what you should be doing, and that’s where the help of an attorney comes in. Many employment contract review attorneys offer the first phone call as a no-cost consultation to assess your goals of negotiating the contract and your options. If you do not feel that you can have an open and honest discussion with your HR representative about your contract, an attorney can help provide you with the advice on how to best frame the conversation so that you do not alienate your employer. For example, maybe there is a clause in the contract that you can live with if it’s clear that the employer does not intend to strictly adhere to that clause and you have received a prior email or written document that evidences a history of them not strictly enforcing that clause. Also, there may be a place in the contract for you to acknowledge that you have read the handbook and understand the policies contained therein. You may feel that it is unnecessary to sign such a statement especially if you have already received some type of training on the policies. An attorney can help advise you whether you should sign such a statement so that you do not unnecessarily burn bridges .
Your attorney can help guide you through the review process, and here’s how it typically works. Once you have engaged your attorney, you will have another appointment where you will send your attorney your contact by scan or photo before or during the appointment. Your attorney will have read your contract prior to the appointment and will be ready to go over the contract with you. You will want to review the entire contract with your attorney, but some areas of the contract we discuss in detail are: 1) the location for dispute resolution; 2) the non-solicitation clause; 3) your resignation clause, and 4) your non-compete clause. We review these four areas in detail and likely have a conversation about the slightly different rules when dealing with contracts versus employees in California.
After you have discussed your issues, your attorney will be able to give you options on how to best proceed with your employer. Sometimes contract negotiation is a delicate matter and may even require the signature of an attorney or business manager from either side. A lawyer can help you navigate those waters—so that you are informed, prepared, and comfortable with how your specific situation is resolved. Getting the best possible deal can really pay off especially if the deal includes stock in the company. Because our employment or employee-at-will relationship is often the backbone of our ability to earn a living, a few changes or tweaking of your contract can really improve your bottom line, and your future. Remember, people we work with every day negotiate contracts every day, attorneys do not. You need someone on your side to help negotiate a fair and equitable deal.
Contract Review Costs and Legal Fees
Employment contract review fees are modest when compared to the potential downside of not investing in a contract review attorney’s expertise and knowledge. For example, an employment contract may contain provisions that limit your ability to work for a competitor or in the same industry for an extended period of time. Contract review attorneys can identify pitfalls in your contract that you may not have considered, such as potentially non-enforceable non-compete or non-solicit clauses.
Some attorneys charge their clients a flat fee for reviewing a specific type of contract. For more complex contracts, advocates of flat-fee pricing argue that it will save the client money overall. Flat-fee agreements are common when there are significant known issues with a contract and the attorney can more easily predict how much time and effort will be involved in resolving the matter.
Other attorneys prefer to charge their clients an hourly rate. For example, a contract review attorney may charge $250 per hour and bill in 15-minute or half-hour increments. Advocates of hourly billing argue that it is more transparent than flat-fee billing, which often requires attorneys to under- or over-work to keep the client from being overbilled (for more details on flat-fee vs. hourly-rate legal fees for contract review see A Guide to Flat-Fee Legal Work for Individuals and Businesses by the Florida Bar).
There are also attorneys who prefer to charge their clients a retainer, a specific amount set aside for the attorney’s use in connection with various tasks on the client’s behalf (see Retainer Fees and Attorney Trust Accounts from the Massachussets Bar Association). Such a fee structure protects the attorney from getting underpaid if the contract review is more time-consuming than the client has been led to believe it will be. A retainer fee may be held in escrow until a successful conclusion of the contract review process. If the contract review is less time-consuming than expected, the retainer fee arrangement allows the attorney to refund the remaining unspent retainer amount to the client.
Wrapping Up Your Employment Contract
Whether your attorney finds that your contract is reasonable or unreasonable, it will likely need to be finalized. Almost no one with whom you would sign a contract would do so without bright lines drawn in it. Likely, these lines will be drawn at the beginning of your contract negotiations, not at the end. When you receive a first draft of your employment contract, you should review it and send back changes to your attorney for review. After that, you will finalize those changes by manually marking up the contract and signing it , or using the "track changes" function in Word to make your edits. You will need to send the amended contract back to your attorney for review before finalizing it. Your attorney should help you with this process even though it is less "billable" than a phone call or an email exchange. A good attorney will help you craft language when it is needed or negotiate with the employer to finalize your contract. Treat your attorney as a service provider with which you are looking to partner, not an adversary. You shouldn’t have any tricks up your sleeve and neither should they.