What to Watch Out for in Employment Agreements

Common provisions in employment agreements may trigger the need for legal advice from a San Francisco employment lawyer

An employment agreement or offer letter is a contract that defines some or all the terms of employment, such as the employee’s compensation. When an employment agreement is in writing, employees should pay careful attention to its terms, so that they understand their own obligations and those of their employer. Employees who are uncertain about the meaning or significance of the terms in an employment agreement can get advice from a San Francisco employment lawyer.

Understanding Employment Agreements

Every employment relationship is governed by an agreement, whether written, verbal or implied in the parties’ conduct. In many cases, the employer provides an employee with a written agreement at the beginning of the employment relationship. However, oral agreements, such as a promise to compensate an employee at a specific rate, are enforceable, as well.

Some employers and employees, particularly when the employee is hired for an executive position, will negotiate the terms of the employment. In those cases, the parties will want the negotiated terms to be memorialized in a written agreement that defines the rights and responsibilities of both sides, and help them to avoid disputes or misunderstandings during and after the employment relationship. Written agreements are also useful to enforce oral promises made by the employer regarding the compensation to be paid to the employee because when an employee relies on an oral promise, there is a risk that the employer will deny making it.

Typically, a written employment agreement describes the duration of employment including whether the employment is at-will, the employee’s job duties, compensation and benefits, the conditions under which employment may be terminated, how disputes will be resolved, and other terms.

Commission Agreements

While most employment agreements do not need to be in writing, California law requires employers to give employees a written contract if any part of their compensation is based on commissions. The agreement must explain how commissions will be calculated and when they will be deemed to have been earned by the employee.

Disputes about nonpayment of commissions are common due to uncertainty about how a commission is calculated, when the commission is earned, and when the commission is payable to the employee. Sometimes the commission agreement provides clear answers to these questions; other times the answers are less clear. If an employee cannot obtain a clear answer after reviewing the commission agreement, and is considering leaving the employment, employment attorneys in San Francisco can help.

Non-Compete Provisions

A non-compete agreement refers to a restriction on an employee’s ability to enter into certain kinds of work, usually for a specific period of time or in a specific location, after employment ends. While non-compete agreements are common in other states, they are generally unenforceable in California.

Even though California courts typically will not enforce non-compete agreements that pertain to California employees, employers sometimes include non-compete agreements in an employment contract. They may be unaware of California law or they may expect that the employee is unaware that California will not enforce the agreement.

An employee who is asked to sign a non-compete agreement, whether as part of a broader employment agreement or as a stand-alone document, should seek legal advice from a San Francisco employment lawyer. A California employee who is threatened with a lawsuit for violating a non-compete agreement after employment ends should also obtain legal advice.

Duty of Loyalty

California employees owe a duty of loyalty to their employer. When faced with a conflict of interest, an employee must usually act in the interest of the employer rather than the employee’s personal interest. That principle is sometimes embodied in a written employment agreement. However, while an employee owes his or her employer a duty of loyalty, that does not mean that the employee is under an obligation to follow an employer’s unlawful instructions or to engage in wrongdoing on behalf of the employer.

When an employee’s duty is unclear, the employee should ask an employment lawyer in San Francisco for advice.

Confidentiality Agreements

Confidentiality provisions are common in employment agreements. Employees are routinely asked to sign confidentiality or nondisclosure agreements as stand-alone documents.

Confidentiality agreements prohibit an employee from disclosing the employer’s trade secrets, financial information, or other confidential information specified in the agreement. These agreements also typically require employees to return to all confidential information after the employment relationship ends. A “trade secret” is defined under the law as information that is not generally known or reasonably ascertainable by others by which an employer can obtain economic advantage over competitors or customers. However, some employers’ agreements are so broadly worded that they seem to make all information confidential.

Confidentiality agreements may be problematic if an employee accepts a position with a competing employer. While an employee is entitled to rely on the employee’s past experience and education when working for a new employer, he or she should not divulge confidential or trade secret information that was acquired during earlier employment. The distinction between what the employee knows and what the employee learned from prior employment is not always clear. Some employers assume that by working for a competitor the employee must necessarily disclose trade secret information, which is why it is often a good idea for employees to return all the employer’s confidential and trade secret information at the time the employment relationship ends.

Employees should seek the advice of a San Francisco employment lawyer before taking an action that might subject the employee to a lawsuit for breaching a nondisclosure agreement.

Legal Advice About Employment Agreements

Executives and other employees in the San Francisco area can get answers to their employment agreement questions by contacting the employment lawyers at Minnis & Smallets. We assist executives who are accused of breaching employment contracts and those who believe their employer breached a contractual responsibility. To learn how San Francisco’s premiere employment law firm can help you, call Minnis & Smallets at 1-415-551-0885 or submit our online contact form.