Employment Contract Checklist – What to Watch Out For Before Signing
Saying that an employment contract is one of the most important documents people sign in their lives is an understatement. Whether you're entering a permanent, fixed-term, or flexible working arrangement, understanding the fine print of your employment contract is essential.
Employers, on the other hand, want clear and legally sound contracts not only to give their employees peace of mind but also to avoid potential turmoil that might arise from having poorly written contracts.
That's why we created this employment contract checklist that will help you in reviewing employment contracts. While every employment relationship has its own unique details, you will find most elements of our checklist in the majority of contracts, which is why we suggest you take all of them into consideration:
Things to look for in an mployment contract
Here's a quick employee agreement checklist of the most common things to look for in an employment contract:
Contract Type and Duration
Depending on what you have negotiated with the employer, your contract might be:
● Permanent employment: A formal and ongoing work relationship that will continue until one of the parties decides to terminate.
● Fixed-term employment: Fixed-term employment agreements end after a specific period or after a project is completed. Ensure that the conditions are stated clearly.
● Freelance and contractor roles: Contractors and freelancers aren't employees, strictly speaking. Ensure that you fully understand the terms of a freelance agreement,[1] as contractors have a distinct legal position compared to employees.
Role and Job Title Clarity
The job title should be clearly stated. The department, role, and reporting structure should be clearly stated, including both the employee's reporting line and the direct reports they will manage, if applicable.
Defining Specific Duties and Responsibilities
All of your primary responsibilities should be listed. Ideally, the contract will include KPIs that will be used to assess your performance, to avoid future ambiguity.
The contract should outline secondary tasks that are expected (for example, administration work or other responsibilities that may be expected from an employee in a broader scope), as well as ad-hoc tasks that may be required.
If applicable, the contract should outline the responsibilities and the authority that accompany the role, especially when the position involves decision-making power.
Comprehensive Compensation Package Details
The total annual compensation should be clearly stated (monthly, if applicable). Besides the base salary, the contract should cover all bonuses, guarantees, employee benefits, and fulfillment terms.
Next, check for the payment date and/or frequency, as well as the payment methods.
Where applicable, relocation allowances and loans (with repayment terms) should also be included, as well as signing and referral fees.
Salary Structure and Review Mechanisms
Check if the base salary is stated, and the effective date of compensation. Also, check the process for salary and performance reviews, including when they occur (if quarterly, annual, or performance-based).
If there is a clear role hierarchy and salary levels, they should be defined. The contract should mention promotional raises, bonuses, or similar one-time payments.
If previously agreed, check for performance-based increases and conditions, as well as any cost-of-living and inflation adjustments and their frequencies.
Benefits Package and Inclusions
The benefits package outlined in the employment agreement will vary depending on the company and the specific position. Let's list some of the most common ingredients of benefits packages:
Health Insurance:
Check what type of health insurance is provided (medical, dental, vision, etc.), who the provider is, and also if the coverage includes family members. If there are employee contributions and premiums, they should be listed there.
Life insurance should also be mentioned, if applicable.
Retirement:
See if retirement plans and savings are mentioned, as well as state employer contribution matching, vesting schedules, or similar participation criteria.
PTO:
Vacation days, sick leave, personal days, and other company policies regarding paid time off should be mentioned. See how these benefits are accrued, if there are any year-to-year carryovers, and whether and how unused days are paid in cases of contract termination.
Additional Leave:
Maternity/paternity leaves, leaves for taking professional and work-related exams, as well as bereavement, sabbaticals, or leaves related to religious reasons, should be clearly outlined. Unpaid leave should also be described, with conditions under which it can be taken.
Development and Education:
Educational benefits, tuition reimbursement, access to resources, conferences, and similar professional development opportunities are great options for career growth, so ensure you fully understand the terms.
Stocks and Equity:
Stock options and equity opportunities are valuable options for startups to attract top talent, as they motivate the employees to give their best and contribute to company growth. But, they can be complicated to understand, which is why it’s best to consult legal professionals if something isn’t clear.
Additional Perks:
Access to a company car, gym membership, transport allowance, employee discounts, or similar benefits should all be outlined in the contract.
Overtime and Bonus Specifications
Overtime and bonus specifications are often as important as the benefits package, which is why they should be outlined in detail. As for overtime, it’s imperative for the contract to distinguish between exempt and nonexempt employees to avoid eligibility confusion.
When it comes to bonuses, the criteria and frequency need to be predetermined, as well as the structure, whether performance-based, annual, or for reaching specific targets. Also, take taxes into careful consideration, as every jurisdiction has its own rules.
Policies on Work Hours and Flexible Arrangements
Standard work hours and expectations should be clearly stated, as well as core hours when employees must be available (for international and remote workers).
For full-time employees, it should be stated whether the standard forty working hours per week are expected and how shifts and weekends are handled.
If flexible work is an option, such as working from home or remotely, it should be outlined, along with flexible working hours.
Holiday and Sick Leave Provisions
Besides defining the annual paid leave days, the contract should outline the sick leave entitlements, required documentation, and notice procedures upfront.
The same applies to public holidays and company-specific additional leaves.
If you are working remotely, ensure you fully understand the employer’s local legislature, if applicable, as not all cultures have the same holidays.
Parental Leave and Family Support Benefits
Paid and unpaid parental leave should be detailed, ensuring compliance with local laws.
The same goes for the eligibility, duration, and return-to-work conditions that will apply after the leave ends.
If the company offers support programs, such as childcare assistance, flexible work schedules, and similar, they should be stated in the agreement.
Starting Date and Work Location Specifications
The official employment commencement date should be clearly defined, as well as the primary work location (usually the employer's registered office).
If any flexible work arrangements or location changes are possible, they should be included in the contract. Also, check if your home address is the only allowed address for remote work, as it will prevent you from working from cafes, coworking spaces, or hotels.
Restrictive Covenants: Non-Compete Clauses
Non-compete and non-solicitation clauses are a common practice in employment contracts, but you may also see separate non-compete agreements. However, employers tend to define them too broadly, which is why it is essential to specify reasonable geographic and temporal limits.
The scope of restricted activities should also be outlined, and it must comply with labor regulations.
It’s worth noting that employers often phrase restrictive covenants too broadly. Although those will be hard to enforce, it’s always better to ensure they are reasonable and legal before signing anything.
Confidentiality Agreements and NDAs
Nondisclosure agreements are standard documents and are often found separately, but you can see these clauses in most employment contract templates, too.
The most crucial part of any NDA is defining confidential information and outlining the employee's obligations both during and after the employment status ends. NDAs also define what happens to confidential information once the employment ends and under what conditions the employee will be held responsible for breaching confidentiality.
NDAs define breach consequences but also situations when the employee isn't responsible for disclosing sensitive information.
Similarly to non-compete clauses, employers often define confidential information too broadly, making it challenging to enforce later. Regardless, never sign anything that isn’t balanced and reasonable.
Intellectual Property Rights
The contract should clearly outline what happens to any creations that result from the work, such as patents, copyrights, designs, or other types of intellectual property (IP). Typically, these rights are assigned to the employer and remain with them after termination.
Clauses of IP development using company resources and time should also be included.
While trade secrets and know-how aren't strictly intellectual property (IP) and are typically found in the non-compete sections, they can also be mentioned in the employment agreement.
Employment Termination Rights and Procedures
Notice periods should be clearly defined, as well as acceptable termination grounds, such as misconduct and redundancy.
The termination process must be outlined, particularly in terms of mandatory documentation, the return of company property, and exit interview procedures.
Dispute Resolution Process
The contract should define internal grievance procedures. The mediation option is often found (and may even be mandatory in some jurisdictions), but arbitration and court protection are also options that should be included.
Also, the governing law and jurisdiction should be specified, which is exceptionally important for international work arrangements.
Conclusion: Ensuring a Balanced Contract
Employment relationships are of exceptional importance for both parties, which is why ensuring contract transparency and fairness is a top priority. That's why it's imperative to encourage open communication, but it's also worthwhile to double-check every aspect of an employment agreement with legal professionals, before signing anything.
Okay To Sign provides affordable contract review services that give you peace of mind, knowing what you are signing.
Contact us today, and our legal professionals will clarify any ambiguous terms of employment and ensure that the contract aligns with your true intentions, preventing lengthy and uncomfortable labor disputes in the future.
