How do I read my Employment Agreement?

You got your verbal offer, Yay! What follows is 25 pages of your formal Employment Agreement, Eek! It’s due back in 5 business days, Double Eek! Obviously everyone knows what it means to read a document, but we also understand that making it through 25 pages of legalese isn’t fun and feels rather daunting. This week, we’re taking some tips from how Ask Ginkgo’s software ‘reads’ contracts to share some steps that might help those of you who are tackling the same task.

Step 1: Break the Contract into Sections

We have yet to receive an Employment Agreement that is truly 25 pages straight of legal clauses. If you’ve got one, let us know! What most contracts end up being is a couple of different sections. One possible combination might include:

1. Offer Letter (2 - 3 pages)

2. Confidential Information and Inventions Assignment Agreement (3 - 7 pages)

3. Additional Forms such as Prior Inventions, Termination Disclosure, or Non-Disclosure Agreement (1 - 2 pages each)

4. State-Specific Clauses (3 - 10 pages)

While we are a strong proponent of read the fine print, it is true that not all sections are created equal. The Offer Letter includes major details you’ll want to negotiate, like your compensation and benefits. The CIIAA/CIIA/PIIA covers your inventions and is often where restrictive covenants like non-competes and non-solicits are nested. It would be smart to prioritize these sections when you approach understanding your contract. On the other end, only a subset of the remaining sections may apply to you. You may not have any prior inventions, and your state of employment may not have any specific additional modifiers in the appendix.

Step 2: Classify each Clause

Next, within each section, there are a couple categories of clauses:

1. Notable Clauses: These clauses impact you significantly by requiring an action, or they may be out of the norm, such as a 2 year non-compete or a very high signing bonus.

2. FYI Clauses: These clauses are good to be aware of, but are also unlikely to change, such as your company monitoring all work equipment telecommunications.

3. Miscellaneous Clauses: These clauses are often legal drafting necessities that appear in every contract, such as Severability, No Waiver, and Notices.

Again, not all sections are created equal and it’s helpful to skim each clause and flag whether it requires a deeper dive vs. it’s boilerplate legalese. You’re looking for the points of negotiation you want to bring to the next meeting with your hiring manager. A well-structured contract will aim to have Notable Clauses as early as possible, followed by FYI Clauses, and ending with Miscellaneous Clauses. Of course, contracts may not follow this trend and messy contracts will have everything mixed up.

Step 3: Flag the Unfavorable Clauses

In general, you’ll spend the most amount of time on unfavorable clauses, so it’s important to flag them within your Notable Clauses. Last week, we covered the most frequent unfavorable clauses in our 2023 reviews, so that list might be a good place to start. You’ll be surprised how far you get by just searching for keywords in your contract: compete, solicit, disparage, waiver, etc. Identifying these clauses help you understand if you’ve got a fairly standard contract, a particularly good one, or a gnarly one.

Step 4: Negotiation Preparation

For each unfavorable clause, it’s likely there is a set of industry and legal standards. It’s time to research what the trends are and build your leverage when it comes to negotiating these terms to be more favorable. For example, non-competes and non-solicits are generally unenforceable in California based on BPC 16600. For equity compensation vesting period, a 4-year monthly vesting with a 1-year cliff is industry standard. These standards are the types of information you want to prepare yourself with as the last step of reading your contract ahead of negotiations.

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When you’re given a long contract, the other party really hopes you just sign it and return it ASAP. While it might seem like the easiest way to move forward, particularly in the case of a job offer, our goal is to encourage more people to take control of their contracts. Once you break down the contract into pieces and sift out the handful of clauses you really need to be spending your time on, you’ll already be improving your negotiation position. Give it a try and let us know if you learn something new!

For advocacy and beyond,
The Ask Ginkgo Team