4 red flags to watch out for before signing any job contract, say employment lawyers
Signing a job contract is often an automated process. When facing pages of fine print, you may just trust your prior conversations with your employer and sign off without a second look. Down the road, however, you may find yourself in legal and financial trouble as a result.
“Of course, it is very difficult to read these agreements and even if you recognize that something is objectionable, it’s difficult to say ‘Hey, I’m walking away,'” says Lawrence Pearson, a labor and employment attorney from New York. He recommends to at least skim the contract to note any concerning clauses and to keep a copy of it, so that you can determine your rights in case an issue comes up later on in your employment.
“I can’t tell you how many people come into my office having already signed these agreements and their explanation as to why they signed it is always that [they thought] the employer would never act on the agreement and that it was just a formality,” says Ashley Tremain, an employment attorney based in Dallas, Texas.
As for specific red flags that should pique your attention, these four clauses and phrases make the top of the list, according to labor and employment attorneys:
Non-compete agreements are clauses in a job contract that limit your capacity to work for competing firms upon the termination of your employment. Although they are fairly common in job contracts, they could seriously limit your financial independence and career development if you choose to resign from your current position.
But “whether or not a company can fully enforce your non-compete is going to depend upon the law of the state you are living and working in,” says Pearson.
A company will have a hard time enforcing your non-compete if you live in California or Massachusetts, which both have a very unfriendly stance toward the clause. New York, Pearson says, is more in the middle. While most New York courts would enforce a non-compete if you resigned, he says they would be unlikely to enforce it if you were laid off or if your non-compete clause requires a period longer than a year.
You can find more information by looking at the website of your particular state’s Department of Labor. Federal crackdown is also expected, as The FTC has proposed a ban on most non-compete clauses among other restrictive employment practices back in January, and they are expected to vote on it by April 2024.
“In the company’s sole discretion…”
Pearson advises employees to be careful if they spot any language in the agreement that is along the lines of “the company may …” or “in the company’s sole discretion”. This language can most often accompany requirements concerning work hours and pay. While it is normal for a bonus to be in the company’s discretion as it is based on your performance, anything else should raise an eyebrow, especially if you have not previously discussed it with your employer.
“If it is your understanding that if you hit a certain sales number or a certain number of work hours, that you will receive compensation, make sure that the language states that definitively.” Pearson says.
Tremain advises employees to look out for contracts that seem to be “extremely one-sided.” Although it is normal for companies to have expectations from their employees, Tremain says that when the contract seems to be made up of mostly one-way commitments and without any promises in return to the employee, then that is a sign that you should pay closer attention to what the agreement really entails.
Severance provisions and arbitration clauses
Most contracts say that you will receive severance unless you are ‘terminated for cause’, which regularly means that you will receive severance payments unless if you were let go for committing an unlawful or ‘objectively’ wrong act such as lying, absenteeism or harassment. If the company tries to slip in subjective standards like performance expectations into a clause for severance, that is another red flag to be wary of.
Arbitration clauses can also be tied to severance provisions. In some cases, the company may ask you to sign a waiver of claims to get your severance, which means that you will be unable to sue your employer, which, according to Pearson ,is not a good sign.
Job contracts may also enforce repayment of expenses made on your behalf by the company. For example, if your offer includes an all-expenses-paid relocation, you should make sure that your agreement will not require you to pay the company back for your expenses if you choose to terminate your employment.
The most notorious of such clauses is training repayment agreements (TRAs), also commonly referred to as TRAPs. You may have come across a TRA if you have taken on a job with a training period. A TRA requires an employee who has received training to spend a certain amount of time working with the company, usually two or three years. If you terminate your employment before that, the employer may charge you what they believe was the cost of your training.
However, Tremain says, often the charged fee does not correlate with the cost incurred by the company. It is rather a large enough amount to scare employees from breaching the contract, thus trapping them in an unfulfilling job that they would have quit if not for the financial threat.
“A TRA is probably one of the biggest things people should look out for, not only because of the way it restricts your personal and professional mobility but also because of what it says about the company,” says Tremain. “Any time you see an employer who is relying heavily on some form of coercion to keep people employed, rather than using more of a carrot type approach like a salary increase, benefits eligibility or stock options along the years, that should tell you something about the work environment you are about to go into.”