Employment Agreement Review Guide
An employment agreement is the senior, longer cousin of an offer letter — ten to thirty pages, often with schedules attached. Every clause has been negotiated by someone before you. The defaults skew toward the employer; the upside is yours to capture.
What it is
An employment agreement is a comprehensive contract between an employee (often executive or specialized) and the employer. Unlike a brief offer letter, it spells out the full terms of the relationship and what happens when it ends.
Common at the executive level, for fixed-term contracts, and for roles with significant restrictive covenants. Also common outside the U.S. where employment is rarely at-will.
Reading it like a lease: skim once, read twice, mark every section that turns on a defined term, and look up every defined term.
Common clauses to check
- [ 01 ]
Term & termination
Whether the contract has a fixed term (1, 2, 3 years) or is open-ended. The termination triggers and notice periods.
What to look for- Definitions of "Cause" (employer fires you, no severance) and "Good Reason" (you quit, full severance — like being fired without cause).
- Notice period — 30, 60, 90 days. The longer, the better for you on either side.
- Garden leave: paid, but you can't work for anyone during the notice.
Red flags- Cause defined as "any breach of any company policy" (too broad — narrow to material, willful breaches uncured after notice).
- No Good Reason definition (you only get severance if they fire you outright).
- 30-day cure period missing — minor mistakes become firing offenses.
- [ 02 ]
Scope of duties
The role, the reporting line, and how much the company can change either without your consent.
What to look for- Specific title and reporting structure stated in the agreement.
- A demotion or material reporting-line change should trigger Good Reason.
- Carve-outs for outside activities (board seats, advisory roles, writing).
Red flags- Company has "sole discretion" to assign any duties — opens the door to "demote and wait" tactics.
- All outside activity prohibited absent written consent — even passive investments.
- [ 03 ]
Compensation & benefits
Base, bonus, equity, benefits, perks. Each should be defined; promises about "future increases" should be in writing.
What to look for- Annual base salary, with review schedule and floor (it can go up but not below the stated number).
- Target bonus tied to defined metrics, with payment timing and the rule for partial-year bonuses on termination.
- Equity grant size, vesting, and treatment on termination/sale.
Red flags- Bonus described as "discretionary" with no metric, target, or floor.
- Benefits stated as "company plans as in effect from time to time" with no commitment they continue.
- Pro-rated bonus paid only "if the executive is employed on the payment date" — gets weaponized in firings.
- [ 04 ]
Severance
What you get if the company fires you without cause, or if you quit for Good Reason.
What to look for- Months of base salary, paid on schedule or in lump sum.
- Pro-rated bonus through the termination date.
- COBRA reimbursement for the severance period.
- Equity acceleration — full or pro-rated, single-trigger or double-trigger.
Red flags- Severance conditioned on a release of all claims (standard) PLUS extensive ongoing covenants (less standard).
- Forfeiture of severance if you breach a non-compete — gives the company a tool to challenge any competing job and stop your payments.
- Severance paid only if you accept a separate non-disparagement agreement.
- [ 05 ]
Restrictive covenants
Non-compete, non-solicit (employees and customers), confidentiality, and non-disparagement that bind you after you leave.
What to look for- Time periods — 12 months is standard for a non-compete; 24 is aggressive.
- Geographic scope — narrow to where you actually worked or the company actually operates.
- Definition of competitor — narrow to the company's actual products and customers.
Red flags- Non-competes that survive termination without cause — many states won't enforce these but the legal fight is expensive.
- Non-solicit of clients you never personally worked with.
- Non-disparagement that's mutual on paper but practically asymmetric (you can't speak; the company has a comms team).
- [ 06 ]
Intellectual property
Assignment of inventions, work product, and confidential information to the company.
What to look for- Carve-out for prior inventions (Schedule A) — list everything.
- Limitation to work made within scope of duties or using company resources.
- California §2870-style carve-out (or the equivalent in your state).
Red flags- Assignment of "any" inventions for the duration of employment, including weekend hobby projects.
- Continuing IP assignment after termination.
- [ 07 ]
Indemnification & D&O insurance
If you're an officer or director, the company should indemnify you against claims arising from your role.
What to look for- Indemnification to the maximum extent permitted by law.
- D&O insurance coverage during employment AND a tail (run-off) period after.
- Advancement of legal expenses while a claim is pending.
Red flags- Indemnification with broad exclusions (gross negligence, willful misconduct, breach of policy).
- D&O coverage that ends the day you leave.
- [ 08 ]
Change of control
What happens to your equity, severance, and role when the company is acquired.
What to look for- Double-trigger equity acceleration (sale + termination/Good Reason within 12–24 months).
- Severance multiplier on change-of-control termination (often 1.5x or 2x).
- Treatment of unvested equity in the acquirer's structure.
Red flags- Single-trigger acceleration only (vesting accelerates on sale even if you stay) — sounds great but acquirers often "negotiate it down" before close, and it has tax consequences (parachute payments).
- No acceleration at all on change of control.
- [ 09 ]
Section 280G & 409A
Tax provisions affecting executive compensation. Important and arcane.
What to look for- 280G best-net cutback — if your parachute payments cross the threshold, the company cuts back to optimize for your net (not theirs).
- 409A compliance language — if the company drafts severance as installments, it must comply with 409A or you face penalty taxes.
Red flags- 280G cutback with no cap — company can reduce your payments unilaterally.
- Vague 409A language that the company can re-interpret.
Other watchouts
- Choice of law and venue — where disputes get resolved. Pick somewhere neutral if you can.
- Mandatory arbitration with class-action waiver.
- Cooperation clause — you must "reasonably cooperate" with company investigations after you leave (often unpaid).
- Survival clause — list of provisions that continue after termination. The longer the list, the more friction post-departure.
- Schedule of side letters — sometimes the real comp is in a separate letter; don't sign without seeing it.
Frequently asked questions
- What's the difference between an offer letter and an employment agreement?
- An offer letter is a 1–3 page summary that confirms a job offer and basic terms. An employment agreement is a 10–30 page comprehensive contract typically used for executives, fixed-term roles, or jobs with significant restrictive covenants.
- Are non-competes enforceable?
- It depends on state law. California voids most non-competes outright. Most other states enforce them if reasonable in scope, time, and geography. Federal action has been ongoing — check current law before relying on enforceability.
- What is Good Reason termination?
- Good Reason is a defined event (material demotion, pay cut, relocation, change in reporting line) that lets the employee resign and still collect severance — treating the resignation as if it were a firing without cause.
- Should I negotiate severance?
- Yes, especially for senior roles. Severance is one of the highest-leverage things to negotiate at signing — your leverage at signing is massive compared to your leverage at firing. Aim for 6–12 months base + pro-rated bonus + equity acceleration on termination without cause or Good Reason resignation.
- What is double-trigger equity acceleration?
- Vesting accelerates only when TWO events occur: (1) the company is sold, AND (2) the executive is terminated without cause (or resigns for Good Reason) within a window after the sale. It's the standard for senior executives because acquirers prefer it to single-trigger.
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