Signing an Employment Contract? Check These Provisions.

Getting that job offer you’ve been hoping for can be exhilarating. Before signing your employment contract, however, it’s important to take a step back and make sure you fully understand its terms. Even if the person who hired you told you everything you wanted to hear, if your prospective employer offers you a contract, what it says will ultimately guide your employment relationship.

You should read your entire employment contract and seek clarification of any provision that you’re not sure you understand. Look out for any language that seems to contradict what company representatives have told you, including descriptions of your new job, pay, and benefits. Below are some common employment contract provisions and issues they might present.

Employment Status

Unless otherwise agreed, employment relationships in New Jersey are at will. That means employees may leave their jobs at any time for any reason, and employers may dismiss them at any time for any lawful reason. Your employment contract may alter this at-will status, but it may not. Make sure you understand how and under what circumstances you could be let go and, on the flip side, how you may leave your position under the terms of the contract and the consequences of breaching those terms.

Job Description

If your contract describes your position and duties, make sure the description matches your expectations. If it seems incomplete, lists unexpected responsibilities, or otherwise doesn’t match your understanding of the position, ask for clarification before signing. It’s critical that you and your new employer start out on the same page regarding the nature of your position and the expectations they have of you.

Additionally, if you were promised specific training or advancement opportunities, it is beneficial to have these included in the contract. Make a list of any such enticements that may have come up in your interviews, and check the contract language to see if it reflects them. You may need to follow up with the employer for confirmation that the position is, in all respects, what you believe it to be.

Compensation & Benefits

At the most basic level, you’ll want to make sure the contract stipulates the salary or wage that you have negotiated or otherwise have come to expect. The job may come with a host of other benefits, as well. Look carefully over the contract to ensure it includes all compensation and benefits that you expect. These might include items like

• Health insurance and/or HSA
• 401(k)
• Commissions
• Profit sharing
• Equity compensation
• Signing bonus
• Moving expenses
• Educational expenses
• Company vehicle
• Paid time off

To help you fully understand complex provisions like equity compensation or commission structures, it may be beneficial to consult with an attorney and/or a financial professional.

Restrictive Covenants

Restrictive covenants are contract provisions that restrict a person’s freedom to act. In employment contracts, these often take the form of non-compete, non-disclosure, and arbitration agreements. Be sure you understand all ways in which an employment contract restricts your rights. Some such provisions are unenforceable under New Jersey law because they conflict with public policy and unduly limit the rights of employees. However, it’s easier to avoid signing a bad contract than to get a court to invalidate it.

Non-Compete Agreements

Once upon a time, only high-level corporate hires were asked to sign non-compete agreements. However, these restrictive covenants have found their way into more and more employment agreements, affecting workers at all levels and across diverse sectors. While highly sought executives can use the promise of signing a non-compete agreement as valuable leverage in a hiring negotiation, for most employees, they hold little or no benefit.

Non-compete agreements are supposed to protect an employer’s proprietary and sensitive information, its customer relationships, and its interest in retaining employees in whom it invests. In New Jersey, these agreements are allowed if they reasonably protect these legitimate interests without imposing undue hardship on employees or injuring the public interest. As of November 2023, New Jersey courts apply a balancing test to each unique set of circumstances when determining the enforceability of non-compete agreements, and they may alter the agreements to make them enforceable (a process referred to as “blue penciling”) rather than throwing them out altogether. Unfortunately, this makes it difficult to predict the outcome of any legal action challenging the enforceability of a non-compete.

Pending Legislation

A bill is pending in the New Jersey legislature, however, that would place firm limits on employers’ non-compete provisions. In part, it would require that employers provide so-called “garden leave” for the period during which the non-compete agreement would be in force, providing 100% of employees’ pay and benefits while they are barred from working for the company’s competitors. It would also cap the duration of such agreements at one year and make them unenforceable outside the state’s borders.

Additionally, the Federal Trade Commission has proposed a rule that would broadly prohibit non-compete agreements, allowing few exceptions. Unlike the proposed New Jersey legislation, the federal rule would have retroactive effect, invalidating large numbers of provisions across the nation. However, any such rule, once promulgated, would face legal challenges.

Non-Disclosure Agreements

Similarly to non-compete agreements, non-disclosure agreements can protect employers’ legitimate interest in their trade secrets as well as their brand image. In general, these are allowed, and you should understand any restriction on your speech that your contract imposes. However, non-disclosure provisions have attracted increased scrutiny in the wake of the #MeToo movement as companies have used them as shields against claims of harassment and discrimination. As a result, the federal government[1] and several states (including New Jersey) have passed laws making non-disclosure agreements unenforceable if they have the purpose or effect of concealing evidence related to discrimination or harassment claims.

Arbitration Agreements

Arbitration agreements give employers a way to settle disputes more efficiently and cost effectively than engaging in litigation. In many cases, these provisions are enforceable. Be sure to understand what rights you are giving up when signing a contract that contains an arbitration agreement. However, thanks to the Ending Forced Arbitration Of Sexual Assault And Sexual Harassment Act of 2021,[2] these provisions cannot be applied to cases of sexual harassment or assault, and plaintiffs in such cases can still pursue claims through the courts.

Get Expert Advice

It isn’t possible to create a comprehensive list of what to watch out for before signing your employment contract. However, looking closely at the provisions discussed above can help you avoid many common pitfalls. If you have any questions about the terms of the employment contract you’ve been offered, it’s wise to speak with an experienced employment attorney. They can help you gain a clearer understanding of how specific provisions might be applied and how they could affect your work and your career.

[1] 42 U.S.C. Ch. 164

[2] 9 U.S.C. §§ 401, 402