Know What You Are Signing Away in Your Employment Contract

Employment lawyer Sarah Brown often sees clients who are shocked when the contract provisions they ignored come back to haunt them. “What I see most is people who have either been terminated or who want to go to a different company, and they have an employment agreement that’s standing in their way,” says Brown, of Brown & Curry in Kansas City, Missouri. “They went ahead and signed it without even understanding it or thinking about the ramifications. Trying to fix it after the fact—that’s really hard.”

When presented with a job offer, it’s easy to get caught up in the moment and overlook—or shrug off—the fine print. Then, later, they might have signer’s remorse. “There are often occasions where employers, through either intent or through just using boilerplate agreements, use terms and conditions that scare employees and that prevent them from doing things that are in their best interests or that are perfectly appropriate,” says Clayton Wire, an employment lawyer at Ogborn Mihm in Denver. “I think it’s really important that employees feel empowered to question the provisions of their employment contracts.”

One reason potential employers have the upper hand, says litigator Brian Heller, of Schwartz Perry & Heller in New York City, is that they’ve been down this road many times. “Everybody starts out with an employment agreement, thinking the best of possibilities. It is important to recognize that you are going down a path that has been well worn by your employer and other management-side attorneys.”

Common Misconceptions About the Employment Contract

Looking out for your interests isn’t necessarily your boss’ top priority. One study by the Economic Policy Institute indicated that employers aren’t always upfront about noncompetition clauses, which limit future work for competing companies; more than 30 percent of new hires are asked to sign them after they’ve accepted a job offer, and sometimes on the first day of work. These contract provisions can also be “hidden” in thick employee handbooks.

A common refrain from clients, attorneys say, is that an employment contract really doesn’t mean anything. Often, says Ashley Tremain, founding partner of Tremain Artaza in Dallas, “I hear, ‘Oh, this is just a formality. They would never actually file a lawsuit over this,’ which is rarely true.’”

Another misconception is that the employee will have the means to win in court if they violate a clause they don’t consider “fair,” Heller adds. “The problem isn’t, ‘Are you going to win in the end?’ It’s ‘Are you going to be able to afford the fight to see if you win or not?’”

It’s Smart To Have an Attorney Review the Contract Before Signing

It’s generally a smart idea to have an employment attorney review your contract before you sign, especially if it runs more than a page or if something doesn’t make sense to you. “There are all sorts of clauses that can be buried in these documents,” says Matthew Fogelman, an employment and injury attorney in Newton, Massachusetts. “They may not be obvious to the average reader. Engaging with an attorney to review those clauses is essential and can oftentimes actually prevent problems down the road.”

Many workers may balk at the notion of hiring an attorney for a contract review, but spending a relatively small amount upfront could potentially save tens of thousands in litigation defense fees later. An attorney may be helpful at other times, too.

“You should always talk to a lawyer before complaining about anything to management or human resources, when deciding if you’re going to quit or take another job, or if you’re worried about a noncompete,” says William Julien, an employee rights attorney in Boynton Beach, Florida. “A lot of times, people will call me up and it’s already too late.”

By the time a contract matter goes to court, Tremain says, “It can really be extremely disruptive and devastating for an employee, and I don’t think very many people really appreciate how serious and severe it is.”

Confidentiality and Nondisclosure Agreements

Two clauses in particular—NDAs (nondisclosure agreements) and noncompetes—seem to cause the most concern for employees, attorneys say.

Non-Disclosure Agreements

According to Columbia Journalism Review, NDAs first began in the maritime law field in the 1940s, then began to spread when tech companies such as IBM adopted them. By the ’80s, they crept into contracts of all kinds. Data published in the Harvard Business Review in 2018 showed that more than one-third of the U.S. workforce was bound by NDAs, which can prohibit everything from revealing a pharmaceutical company’s secret formula to making disparaging remarks about a current or former boss.

The National Labor Review Board has taken an increasingly critical stance on NDAs and overly broad confidentiality clauses that can hamper employees’ ability to engage in “protected, concerted activities to make the workplace better,” says Wire.

Some states have changed their employment laws in ways that benefit workers. For example, Colorado is one of a handful that has taken steps to discourage or place limitations on the use of NDAs in an employment context, Wire says. Its 2023 Protecting Opportunities and Workers’ Rights Act eliminated stringent requirements for harassment claims and placed unique requirements on employers for the use of NDAs in settlement and severance agreements. “Colorado recognized that confidentiality and non-disparagement agreements can be used to whitewash or obscure what is otherwise a more systemic problem in the workplace.”

Some companies, adds Fogelman, will also allow for “carve-outs in the agreements that say employees can’t go on social media to complain, where they can obviously speak to a spouse or a therapist. There are exceptions to the rule. In addition, a recent NLRB decision casts doubt on the legality of non-disparagement clauses overall.”

Unlike NDA clauses governing trade secrets and patents, which are usually classified as intellectual property, confidentiality agreements refer to information that is simply unique to a particular business, such as customer lists and file systems. Be especially wary of wording that encompasses your own creations, Heller advises. “Say someone comes into a company with certain templates that they have developed over the course of their career and they use them at the new job, and the person leaves. The employer may say, ‘Well, those templates are now mine and you can’t bring them with you somewhere else.’”

One important NDA change took effect in the wake of the #MeToo movement when, in 2019, New York and a few other states passed legislation limiting their enforcement in confidential settlements involving workplace sexual harassment and assault. The initiative went national when Congress signed the Speak Out Act in 2022, empowering survivors to come forward and hold perpetrators accountable.

Noncompete Agreements

Noncompete agreements originate from the apprenticeship systems of the Middle Ages, with one of the earliest known precedents (Dyer’s Case) taking place in England in 1414. In the U.S., the National Employment Law Project traced their use to slave owners during the Reconstruction Era, who used noncompetes to keep freed Black workers working for them.

A 2019 employer survey by the Economic Policy Institute estimated that up to half of private-sector businesses used noncompete agreements, affecting between 36 million and 60 million workers. But many employees dismiss—and sign off on—the provisions in a “that’ll never happen to me” frame of mind. This can be dangerous, employment attorneys say, especially since noncompetes can strip away your ability to earn a living if you leave the company, even when it’s to start your own business.

“Noncompetes are about control,” Heller says. “It’s about giving control to an employer outside of the employment relationship, saying that, ‘Even after I stop working for you, you will have a certain amount of control over my life.’ A noncompete can force people into staying at a job that they may not want to remain at. It takes away their ability to work for a competitor. It may take away their ability to work in a certain geographic area.”

It can also be used as a weapon to go after corporate rivals, says Heller, who once represented a medical worker who quit after seven days on her new job, went to work for a competitor, and was promptly sued by her former employer. “Sometimes these noncompetes can get the employees stuck in the middle of a fight between two corporations,” he says.

But there’s hope for workers. In April 2024, the Federal Trade Commission announced a ban on noncompete clauses, which Brown lauded as “a win-win” that “might make employers more attuned to the needs of their employees to keep them happy and staying there.”

Some were skeptical that the new FTC ruling would survive the backlash from organized business groups, and they were right. On Aug. 20, U.S. District Judge Ada Brown ruled the FTC doesn’t have the authority to ban virtually all noncompete agreements. FTC spokesperson Victoria Graham issued a statement saying the decision will not prevent them “from addressing noncompetes through case-by-case enforcement actions.”

Despite the ruling, Tremain likens it to the growing labor union movement of recent years. “It indicates sort of a broader social change that’s going on. … If nothing else, I’m hopeful that the media attention that’s being paid to the FTC rule will result in more people paying closer attention to what their employment contracts actually say, and stepping up and fighting back against some of these more oppressive terms.”

Some employees are already protected, at least in part, by state laws. The Massachusetts Noncompetition Agreement Act, for instance, includes a “garden leave” provision that specifies that an employer must pay at least half the former employee’s base salary for a certain period of time to keep them from working for a competitor.

Other Common Employment Contract Traps

While noncompetes and NDAs may cause the most headaches for employees, troublesome wording can appear anywhere in a contract.

Arbitration Clauses

The first thing Heller looks for when reviewing an employment agreement is a reference to arbitration, a type of dispute resolution resolved by a third party. One problem, he says, is that the employee may be expected to pay for some or even half of the process, even when pursuing a claim related to a firing over pregnancy, injury or illness, and the arbitration may take place in another city or even state. Often, Heller adds, “They’re written in a very deceptive way.”

Over the last 15 years, Brown says she hasn’t seen an employment contract without an arbitration clause. “That’s really hard to deal with because, most often, the company pays for the arbitrator to make the decision on how an agreement’s going to be interpreted, instead of a judge or a jury.”

TRAP Agreements

Also on the rise, says Tremain, are TRAP agreements (Training Repayment Agreement Provisions), which employers use to make employees pay in order to leave the job. “Employers will describe TRAP agreements in different ways to make them sound justifiable. Sometimes, they claim you have to repay training costs; other times, it’s a signing bonus or relocation. The point is that there’s some amount you must pay if you leave before a certain time. The goal is to keep you in the job.”

At-Will Employment

Another thing to remember is that at-will employment—which means you can be terminated at any time, for any reason—may override your contract. And “right-to-work” simply means you’re not required to join the workplace union.

Remember: You Don’t Have To Sign on the Spot

Above all, when offered an employment agreement—or a stack of stand-alone documents—remember that you don’t have to sign on the spot, either when you’re hired or on the first day. If multiple interviews are involved, ask for a copy of the employment agreement so you can see if you have any questions. “Make sure you actually read it, and if you’re not sure what you’re reading, then it’s time to ask someone for help,” says Heller. “These terms are negotiable, and you should assume that anything you sign is enforceable.”

Never rely on a mere handshake. “Most of those written employment contracts are going to have a clause in them that essentially says the written agreement is the end all, be all, and that any verbal promises or verbal statements that were made previously are not enforceable,” says Wire.

The time to negotiate the agreement is before you sign, not in a few months or years when you’re unhappy with your boss. While some employers adopt a take-it-or-leave-it attitude toward contracts, others will make concessions on, for example, financial penalties for leaving the company a year early.

Breach of Contract: When the Law Is on Your Side

If you do part ways with your employer and they breach your contract by withholding severance pay or other compensation to which you are entitled, you can file a claim with the U.S. Department of Labor or file a lawsuit with the help of an employment attorney.

You may even hold some leverage that renders your NDA unenforceable if the terms are too broad or vague, not limited to a specific geographic area, or if the company information you’ve shared with others is already a matter of public knowledge.

In Florida, says Julien, a statute requires that an employer must prove “a legitimate business interest,” such as a substantial relationship with customers, to enforce a noncompete. The time frame for enforceability must also be reasonable—no more than two years. “An employee such as a construction worker, cashier, server, bartender, or someone who works at a fast-food restaurant isn’t going to have a legitimate business interest that needs to be enforced,” Julien says. “But the problem is that most employees don’t realize that they may not be enforceable in that situation.”

And no contract will hold up if it goes against public policy. “If you’re a minor, you can’t contract to work in the same way that an adult can,” says Wire. “You can’t contract to hide your employer’s illegal conduct. Even if you signed an agreement, there are certain protections that you will always have.”

There’s another option, too: walk away before signing an onerous contract. Says Brown, “I’ve found that sometimes when they have some overbearing terms, they’re not really the kind of employer you want to work for in the long run.”

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