Employment Contracts: Why You Should Actually Read Them

“Sign now, read later” is usually a bad plan with Employment Agreements as it can have particularly awful consequences.

I often meet with clients shortly after they have resigned or have been terminated from their job. At the exit interview the client may have been advised by the company that all of their “restrictive covenants” remain in effect. Generally speaking, “restrictive covenants” relate to activities that the former employee is NOT allowed to do post-employment. Some examples may be to not compete in the same industry as the company, to not solicit current company’s customers or to not disclose the company’s trade secrets.

On several occasions a client has admitted to me that he or she signed the agreement without even reading it.  I usually hear things like “they gave me a bunch of documents to sign with my offer letter and I assumed this (non-compete/non-solicit/non-disclosure) provision was just standard.  Anyway, my friend told me these contracts are usually unenforceable.”  Unfortunately, I have the unpleasant task of telling the client that the Employment Agreements that have restrictive covenants, (like a non-compete provision) are indeed enforceable and they should never rely on their friend for legal advice!  And, further, depending on the exact language of the provision, we might have to advise the client that he or she must look for work outside his/her field or risk defending against claims brought by the former company.  If the client has already begun work with a competitor, I may have to advise him/her that the company could seek a preliminary injunction from the Court which prevents them from continuing to work for their new company.  Further, the old company could bring separate claims against the new company.  That is a lot of bad news to deliver to someone who signed a contract with a firm belief that its provisions were unenforceable.

So, let’s back up and address the first issue about the belief that the contract is “standard.” While it’s true that many types provisions will typically be included in an Employment Agreement (like what state law will govern the agreement), the devil is in the details when it comes to restrictive covenants.  We’ve seen wide variations in the geographical and time duration of these restrictions.  Some will limit an employee’s prospective employment with competitors to six months in one state while another may limit prospective employment to five years worldwide.  Depending on the industry and the type of work that the client was performing, the latter may be enforceable.

So, what can you do when faced with an Employment Agreement with these provisions?  First, (you know what’s coming) read the contract in detail and ask for clarification if you don’t understand the terms.  Second, companies will often negotiate the terms as part of your overall employment package before you start employment with them, so ask before signing whether the terms can be modified.

However, even if you didn’t negotiate any modification to the terms, there are some circumstances under which the provision may be unenforceable.  For example, if the company failed to offer you proper consideration for the Agreement at the time it was signed or if the provision is unnecessarily broad.  But, this analysis would entirely depend on the specific facts of the client’s employment with the employer.

Bottom line is, when you are asked to sign an Employment Agreement, don’t make assumptions. Read it thoroughly before you give it your autograph.

Have you been asked to sign an Employment Agreement with restrictive covenants before? Tell us about your experience in the comments below!

 

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