How to Review an Employment Contract Before You Sign

Compensation looks obvious until you read the fine print. A few things to check beyond the base salary number.

Bonus discretion. 'Eligible for an annual bonus at the discretion of management' is not the same as 'entitled to a bonus of up to 20% of base salary upon achieving the following targets.' The first is a maybe. The second is a contractual entitlement. Push for specific, measurable targets.

Commission clawbacks. Sales and revenue roles often include clawback clauses that let the company take back paid commissions if a deal cancels, a customer churns within X months, or you leave before a vesting date on variable comp. Read the commission plan carefully — it's almost always a separate exhibit.

Salary review timing. If there's a promise of a salary review in 6 months, get it in writing with the criteria. Verbal promises about raises are worth nothing.

Equity is often the most valuable part of a compensation package — and the section most employees understand least. The offer letter usually summarizes equity. The full details are in the option agreement or RSU grant, which you may not receive until after you start.

Standard 4-year vesting with a 1-year cliff: You vest no equity in the first 12 months. At month 13, you vest 25% at once (the cliff). Then you vest monthly or quarterly for 3 more years. This is market standard for US startups.

Red flags in equity: a cliff longer than 12 months, single-trigger acceleration on acquisition (rare — more common to require both a change of control AND termination), or equity subject to repurchase by the company at cost if you leave voluntarily. Also watch for 'full discretion' language on future grants that gives the company no obligation to issue additional equity they promised verbally.

Exercise windows. When you leave the company, how long do you have to exercise vested options? Standard is 90 days. Many employees lose years of vested options because they can't afford to exercise within 90 days of leaving. Push for an extended post-termination exercise window — 2-5 years is increasingly offered by employee-friendly employers.

Almost every employment contract for a professional or technical role includes an IP assignment clause stating that anything you create during your employment belongs to the employer. This is standard and generally reasonable. What's not standard is an IP clause that reaches beyond your job.

What's standard: assignment of work created using company resources, during work hours, or in the scope of your employment.

What's a red flag: 'All inventions, ideas, and works of authorship conceived or developed during the term of employment, whether or not during work hours, whether or not using Company resources, and whether or not related to Company's business.' That sweeps in your side projects, your freelance work, your open-source contributions, and anything you write or build outside your job.

What to negotiate: add a side project carveout. Most states (including California) have laws protecting employees' rights to inventions created without company resources and outside the scope of employment. Even in states without these protections, you can negotiate: 'IP assignment does not apply to inventions created solely during Contractor's personal time, without use of Company resources, and unrelated to Company's current or reasonably anticipated business.' Attach a 'Prior Inventions' exhibit listing everything you've already built so it's explicitly excluded.

Non-compete clauses prevent you from working for competitors or starting a competing business for a period after you leave. Non-solicit clauses prevent you from recruiting former colleagues or contacting former clients. These often travel together in employment contracts.

State law matters more here than almost anywhere else. California, Minnesota, and North Dakota effectively ban non-compete enforcement for employees. FTC rules attempting to limit them nationally are under legal challenge as of 2026. In Texas and Florida, courts enforce reasonable non-competes readily.

What to look for: duration (1 year is aggressive for most roles; 2 years is very aggressive), geographic scope (worldwide is overreach for most employees; limit to where you actually worked), competitive scope ('any business that competes' vs. specific named competitors), and whether the non-compete applies even if you're laid off.

What to negotiate: If you're in a non-compete-friendly state, push for a specific list of named competitors, a 6-12 month maximum, your metro area only, and an exception if you're terminated without cause. In many tech roles, companies accept narrowed scope in exchange for keeping some restriction.

Offer letters often describe benefits enthusiastically. Employment contracts often say 'Benefits subject to Company's policies, which may be amended at any time.' That's a meaningful gap.

Health insurance: Confirm the start date. Some companies have 30-90 day waiting periods. If COBRA from your previous job is expensive, negotiate a first-day start date or a signing bonus to cover the gap.

PTO and vacation: In at-will states, accrued vacation is usually treated as earned compensation (you get paid for unused vacation when you leave). 'Unlimited PTO' policies, counterintuitively, can mean you earn nothing on departure. Ask what the policy is at separation.

What's negotiable: PTO carryover, additional vacation days above the standard policy, remote work terms (specify the expected location clearly so relocations aren't forced later), and professional development budgets. Get these in writing in the contract, not just the offer letter, because the offer letter may not be incorporated.

Most US employment contracts include 'at-will' language: either party can terminate the employment relationship at any time, for any reason, with or without notice, subject to applicable law. This is legal in every US state except Montana and is entirely normal.

What matters is what happens AROUND the at-will relationship. Severance: Is there a severance commitment, and under what conditions? Severance is not legally required in most states — it's entirely contractual. Senior hires should always negotiate severance: typically 2-4 weeks per year of service, or a fixed lump sum (3-6 months for senior roles).

WARN Act notice: Companies with 100+ employees terminating 50+ workers must give 60 days' written notice under federal WARN Act. This is a floor — your contract can provide more protection.

Termination 'for cause': Many contracts give the company the right to terminate 'for cause' without severance, while 'without cause' triggers severance. Get a specific definition of 'cause' — a definition that includes 'any material breach of Company policies' is too broad. Cause should mean serious misconduct: fraud, embezzlement, willful violation of law, etc.

Many employment contracts require disputes to be resolved through binding arbitration rather than in court. This is legal in most states (with some exceptions for harassment and discrimination claims post-2022 federal law changes) and increasingly common.

What's standard: arbitration in the employee's home city, with an established provider (JAMS or AAA), employer-paid fees for the arbitration itself.

What's a red flag: arbitration in the company's home state (forcing you to litigate far from home), class action waivers combined with arbitration (so you can't join a collective action if something goes wrong for many employees at once), or clauses requiring you to pay arbitration fees if you lose.

What to negotiate: arbitration in your city, employer pays all fees, mutual class action waiver waived for harassment or discrimination claims, and the right to file a charge with the NLRB, EEOC, or state equivalent (non-waivable as a matter of law, but worth confirming explicitly).

Employment contracts include confidentiality obligations requiring you to protect the employer's trade secrets, business information, and client data — both during employment and after. This is completely standard and reasonable.

What's standard: confidentiality obligations for genuine trade secrets (customer lists, proprietary technology, business strategies) that survive your departure indefinitely, or for 3-5 years for general business information.

What's a red flag: confidentiality obligations that survive indefinitely for ALL information, with no carveout for public information, information you independently develop, or information disclosed to you after your employment ends. Also watch for confidentiality obligations that explicitly prevent you from discussing your compensation with colleagues — this is illegal under the National Labor Relations Act for most non-supervisory employees.

What to negotiate: confirm there are standard carveouts for publicly available information, information you knew before employment, and information independently developed. Make sure the confidentiality obligation doesn't prevent you from disclosing illegal activity to government authorities — this is protected by whistleblower statutes but sometimes companies try to override it contractually.