What an Employment Contract Actually Covers
An employment contract is a legally binding agreement establishing the terms of your employment. It may be a formal multi-page document or embedded in an offer letter. Either way, it governs your compensation, your duties, any restrictions on what you can do during and after employment, and — critically — what happens when the relationship ends. Most employees focus on title and salary and overlook clauses that restrict their future career options or claim ownership of work they create on their own time. These clauses are often buried in pages 4–7 and written in the densest legal language in the document.
Compensation Structure: Salary, Bonus, and Equity
The compensation section should clearly state your base salary, pay frequency, and how any variable compensation is calculated and paid. Bonus language deserves close attention: look for whether the bonus is "target" (you could earn more or less) or "guaranteed" (rare), whether you must be employed on the payment date to receive it, and whether it's "at the discretion of the company" (meaning they can withhold it without breaching the contract). If you're receiving equity (stock options or RSUs), the grant details and vesting schedule are typically in a separate equity agreement — the employment contract may just reference it.
Non-Compete Clauses: What You Can and Can't Do After You Leave
A non-compete clause restricts you from working for a competitor or starting a competing business for a defined period and geographic area after employment ends. Enforceability varies dramatically by state: California, North Dakota, Minnesota, and Oklahoma effectively ban non-competes; other states enforce them if "reasonable" in scope, geography, and duration. The FTC proposed a near-total ban in 2024 that is subject to legal challenges. Even in states that don't enforce non-competes, a signed agreement can still generate costly litigation threats. Know your state's law, and if possible, negotiate to narrow the competitor definition, shorten the term, or add a severance payment during the restricted period.
IP Assignment: Who Owns What You Create?
Intellectual property assignment clauses are among the most overlooked and consequential parts of any employment contract. These clauses transfer ownership of inventions, code, designs, writings, and other creative work you produce during your employment — and sometimes beyond — to the employer. Some clauses are extraordinarily broad, claiming ownership of anything you create on your own time with your own equipment if it "relates to the company's business" — which may be defined to cover almost everything. Several states (California, Delaware, and others) limit these clauses for work done entirely on personal time without company resources. If you have side projects or pre-existing IP you want to protect, add a written carve-out to the contract before signing.
Termination, Severance, and What Happens When You Leave
Most U.S. employees are "at will," meaning either party can end the relationship at any time for any legal reason. The contract should make clear whether this is the case or whether you have a fixed-term agreement. Look for: the notice period required to resign or be terminated (typically 2 weeks to 90 days); severance provisions (amount, conditions, any release of claims you must sign); and what constitutes "cause" for termination (which typically eliminates severance). If severance matters to you, it must be explicitly written into the contract — a promise of severance made verbally or in an offer email is not enforceable if the contract doesn't include it.
Arbitration and Non-Solicitation: The Hidden Restrictions
Many employment contracts include mandatory arbitration clauses requiring employment disputes (wrongful termination, discrimination, unpaid wages) to go to private arbitration rather than court. This waives your right to a jury trial and class-action participation for employment claims. Non-solicitation clauses — separate from non-competes — prevent you from recruiting colleagues or soliciting customers for a period after leaving. The scope varies widely: "clients you personally worked with" is far narrower than "anyone on our client list." Both restrictions deserve careful reading and negotiation.