What makes an Employment Contract ‘Good’?

Individuals often wonder after receiving an employment contract: “Do I have a good contract?” While we’re far from qualified to judge good vs. evil, we do want to spend this week highlighting the facets you can use to ‘judge’ your contract. While these factors may not necessarily tell you if your contract is filled with favorable terms vs. unfavorable ones, being able to identify the quality of a contract can help in your ability to understand and ultimately negotiate.

Is the contract well-structured?

Briefly referenced in our previous post on how to read your employment agreement, a contract should contain the following sections:

1. Primary Clauses: Notable clauses such as Role, Compensation, Benefits that are highly specific to you should be at the start of the contract, followed by clauses that that you should be aware of such as Employment Relationship and Background Checks.

2. Miscellaneous Clauses: Typically boilerplate clauses that ensure the applicability of every contract like Severability, No Waiver, and Survival.

3. Appendixes: Referenced documents within the main body of the contract that either ask you to fill out a form (e.g. Disclosure of Prior Inventions) or abide by additional and/or different clauses from the contract, such as state-specific modifiers to non-competes and non-solicits.

When the contract is structured well, all the sections are included in one file and labeled clearly. The primary and miscellaneous clauses are numbered, not jumbled, and the action items of forms that are required for employment are noted clearly within the primary clauses.

Is the contract well-written?

You might think well-written is an incredibly arbitrary judgment call, but lawyers are paid for their time and their words, and are in a sense, professional communicators. Beyond typos and grammar errors, a badly-written contract aims to obfuscate, while a well-written one aims to effectively convey information. Let’s skim over three examples for At-Will Employment:

Example 1:
Employee hereby acknowledges and agrees that employment with the Company is at-will and may be terminated by either party at any time, for any reason or no reason, with or without cause, and with or without prior notice. It is expressly understood and agreed that this at-will employment relationship cannot be modified, altered, or amended except by a written agreement signed by both the Employee and an authorized representative of the Company. Employee further acknowledges and agrees that no promises or representations regarding employment made by the Company's representatives shall be binding unless set forth in a written agreement signed by both parties. Employee also acknowledges and agrees that no employee handbook, policy, or procedure shall create a contract of employment or alter the at-will nature of employment with the Company. Employee understands that any statements or representations to the contrary are void and unenforceable. Additionally, Employee acknowledges and agrees that the Company reserves the right to change, modify, or terminate any terms and conditions of employment, including job duties, compensation, benefits, and working conditions, at any time, with or without notice, and Employee's continued employment shall constitute acceptance of any such changes.

Example 2:
Employment with the Company is at-will. This means that the employment relationship can be terminated by either the employee or the Company at any time, with or without cause, and with or without notice. No representative of the Company has authority to enter into any agreement contrary to the foregoing 'at-will' relationship. Any such agreement must be in writing and signed by both the employee and a designated officer of the Company.

Example 3:
Your employment is “at will,” meaning you or the Company may terminate it at any time for any or no reason.

I assume you didn’t read all of Example 1, but it goes without saying that it’s verbose, and the very definition of why people's eyes glaze over at legal contracts. Example 2 is essentially conveying the same information in a concise manner. Example 3 includes the bare minimum information that both parties need to know. While arguments could be made for well-written to fall somewhere along the spectrum of Example 2 vs. 3, we can all agree Example 1 is poorly-written.

Is the contract easily explained?

Employment agreements are usually given after a verbal offer from a recruiter and/or hiring manager. It’s important to remember that you have resources to help explain the contract to you. For any clause that is unclear, the HR rep should be able to provide clarifications. If they’re unable to do so, or require lengthy back-and-forths with the company’s legal counsel, then the contract hasn’t been properly ‘ironed out’ yet.

In rare cases, we’ve see companies include a ‘non-legalese, simple English’ version of their contract for the candidate’s benefit. If it’s possible to summarize each clause into just 1~2 short sentences, the contract is easily explained. At Ask Ginkgo, we sometime come across the opposite where a clause if so convoluted that it’s impossible to capture the relevant detail without 3 or 4 bullet points. These clauses are not easily explained and can be a sign of a contract aiming to complicate as opposed to communicate.

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For the top law firms, their contract templates command thousands of dollars per use. Part of that high price comes from the thousands of hours poured into making these contracts well-written. For the companies that don’t opt for top dollar contracts, individuals are sometimes left to shoulder the consequences of messy clauses. We wrap up this week’s post with the silver lining, though, that poorly written contracts may leave the most room for negotiation. Judge for yourself the next time a contract ends up in front of you!

For advocacy and beyond,
The Ask Ginkgo Team