In cases where you're being considered for a full time position, new hires are frequently asked to sign “Employment Agreements.” I put the phrase in quotes because often, these agreements don't have much to do with the services you'll provide and they really aren't so much as agreements as much as they are term sheets that outline duties and obligations on your part as well as important rights you end up giving up without knowing that you're giving anything up. In other words, the agreement offered by the prospective employer tends to be very one-sided such that there is usually very little to nothing that benefits you, the employee. The euphoria of landing the job often blinds people to the harsh realities that these legal documents present. In this article, I'm going to spell out a few items you need to be aware of before you execute such an agreement.

I want to differentiate the agreements discussed here with Independent Contractor Agreements (ICAs). ICAs are a related but different document because the legal status of an independent contractor is different than that of an employee. In the next article, I'll cover ICAs in detail. Back to the subject at hand, the following are a few items you need to be aware of before you execute an employment agreement:

  • Defined Terms
  • Confidentiality Provisions
  • Non-Compete Provisions
  • Intellectual Property
  • Exclusivity

This is by no means an all-inclusive list. Rather, this is a list of the “usual suspects” of items you want to be on the look-out for. Depending on the agreement, these items may be called something else or could include something entirely different from what is listed here. My goal is to illustrate the concept of what to be on the lookout for.

In many ways, Employment Agreements are much like a wolf in sheep's clothing. They appear to be one thing when in reality, they are something quite different. Often, such an agreement has a different title like “Confidentiality Agreement.” Regardless of what you call it, they all have one thing in common and that is the fact that in consideration for employment, you agree to be bound by the terms and conditions in the agreement. For the most part, where state law doesn't preclude enforcement, the terms and conditions tend be quite enforceable because there is a bargained-for exchange. The exchange is that in return for the job, you agree to their terms. There are always exceptions to that rule, which is why you'll want to always consult with an attorney before signing such an agreement. In addition to the list above, I'll share some tips that you'll want to consider before you sign that agreement!

Note that there are three instances already where I've used the word “before” and it's in bold. Too often, people realize the consequences of their actions after it's too late. If that job is meant to be and that employer is one that has your best interests at heart as well as its own, they will afford you a reasonable time to review the agreement, hopefully with your attorney. The key is for you to take that time. If there was ever a time for logic to prevail over emotion, this is that time. Often, whatever traits the employer saw in you to lead them to make you an offer are confirmed when you take the time to review their offer. It shows a level of thoughtfulness and maturity on your part that most companies appreciate and respect. The ones that don't are ones you want to steer clear of!

DISCLAIMER: This and future columns should not be construed as specific legal advice. Although I'm a lawyer, I'm not your lawyer. The column presented here is for informational purposes only. Whenever you're seeking legal advice, your best course of action is to always seek advice from an experienced attorney licensed in your jurisdiction.

It doesn't matter what you think “confidential” means or what the standard definition is. Often, to meet the needs of the employer, terms like confidential are defined in very broad terms such that anything the employer provides you, whether generally available or not, is regarded as “confidential.”

Defined Terms

A good legal document does as much as possible to avoid dependencies outside its four corners. In other words, the less you have to rely on outside sources to define things, the fewer ambiguities are likely to arise. One way to keep things within the document's four corners is through the use of defined terms. This is where you need to let go of the definition you think something has and instead, defer to what the document says a term means. If there's a defined term section, it will appear at or near the beginning of the document. This, of course, can cut both ways, as an unfavorable definition may be one you have to live with.

A common defined term is “Confidential Information.” If there's a definition within the agreement, that's what controls the agreement. It doesn't matter what you think “confidential” means or what the standard dictionary definition is. Often, to meet the needs of the employer, terms like this are defined in very broad terms such that anything the employer provides you, whether generally available or not, is regarded as confidential. Often, the definition goes a step further to specify that for purposes of the agreement, anything that falls within the definition of confidential also falls within the scope of the Uniform Trade Secrets Act (as specifically enacted by the respective state legislature.) What makes this potentially troublesome is that if a state's Trade Secrets act applies, that could trigger statutory remedies, should the employer elect to go that route if litigation results. It often doesn't matter whether or not the information is a bona-fide trade secret or not. The key is what the agreement specifies.

The key thing is to not treat these defined terms as information-only items. These defined terms are how the agreement and its terms get interpreted. There may be a separate term that discusses confidentiality. That section is dependent on how confidential information is defined in the first place. This means that quite often, you'll have to look at multiple areas in a legal document to get the full context of what a specific provision means. This means that you often have to read EVERYTHING. In the world of agreements and contracts, there's no such thing as an unimportant detail when the entire agreement hasn't been analyzed fully.

Should you elect to consult an attorney (and you should), he or she will either knock out the broad provisions entirely or will attempt to pare them back in order to not make the agreement so one-sided. Additionally, your attorney may also write a carve-out that spells out what is expressly not confidential. Typical elements I like to have in such clauses are things like common practices and methods, any prior knowledge of the employee, and anything that can be deemed to be in the public domain.

Tip

In sum, make sure you review carefully all defined terms and locate every instance of those terms in the agreement. In all cases, the defined term should be capitalized. In the example here, the term should always be referred to as Confidential Information. The sections where the term is used will incorporate the definition by reference, which means you have to look at multiple locations to get the full context of what a provision means.

Another tip is to search through the document to find and highlight usages of each defined term. With this exercise, you gain context for how the defined terms are used throughout the document. In all cases, defined terms should be capitalized because they refer to a specific and identifiable thing within the context of the agreement.

Non-Compete Provisions

The agreement you're asked to sign may have non-compete provisions. If there's one area that is can be overly broad, it is this. The good news is that often, most states have struck down broad non-competes on public policy grounds. States like California, with its extensive civil code, have essentially voided non-competes. None of this is meant to imply that you shouldn't look to make this aspect of an agreement more balanced rather than one-sided in favor of the employer.

The problem is in balancing an employer's legitimate protectable competitive interest with an individual's right to work wherever he or she chooses. All too often, employers have taken a scorched-earth approach to consider anybody, no matter where they're located, to be a competitor. The same scorched-earth approach is used to define what's “confidential.” All too often, employers attempt to define everything related to them as confidential for purposes of the agreement.

A good starting point is to begin with what the employer's legitimate protectable competitive interests are. The following are legitimate items for an employer to protect:

  • Customer lists
  • Exclusive customer relationships
  • Internal documents, sales presentations, and things that entities external to the employer would not have cause to know
  • Anything that is a legitimate trade secret

Areas where non-compete areas tend to be overly broad include:

  • Treating any other company in the employer's industry as being invalid for the employee to work for upon separation
  • Lengthy time period of duration
  • Indefiniteness as to geographical area

If you use the information technology industry as an example, just about every geographical area has dozens, if not hundreds, of companies in the space. That alone doesn't make them all competitors or threats to one another. Indeed, there are direct competitors. That's our system, as no one company is allowed or entitled to a monopoly in the space.

The bottom line is this: As a general matter, while the employer offering the agreement is entitled to protect their legitimate competitive interest, the employer is not allowed to subject you to a per se ban on employment with another employer in the space. There are two important points here: This is largely a matter of case law and each state has dealt with this matter differently (although there is a lot of common ground as well.)

Tip

Specific facts and circumstances matter and will determine your specific course of action. For example, if you were hired for specific skills that you have such that it separates you from most others wherein the company has a cognizable competitive advantage by virtue of your employment with that company, then you may in fact be subject to more restrictions than somebody else. For instance, if you work in an industry where your knowledge and experience is inextricably related between competing companies, you might be subject to more restrictions than someone whose work is less specific. If you fall into that category, then it's in your best interest to analyze the non-compete provisions and negotiate terms that contemplate your departure. In most cases, you'll want to pare back the language to only include things that relate to a company's legitimate protectable interest, such that it doesn't pose a threat to future employment in your geographical area. Consulting with an experienced lawyer in your jurisdiction is the first step in getting you where you need to be.

Intellectual Property

Another area where prospective employers like to take an overly broad stance is with intellectual property (IP) and more specifically, YOUR intellectual property rights. As an employee, whatever you create on company time, on the company premises, and using company equipment belongs to the employer. This is the default rule, meaning that in the absence of an agreement, this is the rule a court will uphold should a dispute over IP rights occur. Another default rule deals with situations where you are working on your own time, away from the company premises, and using your own equipment. In these cases, assuming you're not using any confidential or other proprietary information belonging to the employer, what you create belongs to you. This is why prospective employers often insert broad IP language into an employment agreement.

How broad can the prospective employer's language be? Some agreements I've reviewed have had language that states that anything the employee creates, whether on his own time or using his own equipment at any time belongs to the employer. The problem is that if you sign such an agreement in consideration for employment, such a provision may be enforceable. I say “may” because depending on your jurisdiction, such a provision may be unenforceable, as it would violate the law. The question is whether or not you want to roll the dice, hoping your jurisdiction's laws will save the day in the event that you didn't read that agreement!

Tip

The key is that regardless of whether it's your own equipment or time, a company has a reasonable expectation that its confidential and proprietary information isn't misappropriated for another person's gain. Barring that, such employer has no reasonable expectation to lay claim to ownership of your efforts done on your own time, your own equipment, and away from the company's premises. Any employer's attempt that takes such a broad view of what it thinks it's entitled to as to your IP rights should be rejected entirely.

Exclusivity

If overly broad terms regarding confidential information and intellectual property rights weren't enough, prospective employers often try to limit your ability to take on side work. Be on the lookout for anything that limits your ability to earn income from other sources. The language can be explicit where the language is an all-out prohibition on side activities or subtle like “You will devote all of your efforts…” These proposed restrictions are often an outgrowth of a company's desire to make sure their confidential and proprietary information isn't appropriated. Throughout this article, that's been the common theme - a company seeking to protect its interests. The question is, what about your interests? Unless you are willing to scrutinize an agreement that you are asked to sign, nobody else is going to look after your interests. That's as simple as it gets.

Remedies

The issue of remedies gets into the monetary and other damages that your prospective employer is entitled to should you be found to have breached the agreement. These clauses can be all over the map. Often, the language presumes that any breach for any reason results in “irreparable harm” to the company. If the one-sidedness of the items discussed thus far isn't bad enough, the insult to injury can often be found in the terms a company tries to impose in the event that a breach occurs.

Keep in mind that normally with these agreements, your “at-will” status as an employee remains unchanged. That means that for any reason that doesn't violate state or federal law, you can be fired. The circumstances around what could trigger a breach and the potential remedies for such breach should be carefully scrutinized. Just like the case with exclusivity, there's no more important tip than what has already been stated.

Summary

With any contract or agreement, you get what you negotiate. The items presented in this article, while they're the most common items to focus on, only represent a handful of the entire landscape of items you'll encounter in a contract. Sometimes, the course of action is to delete the entire provision or a few key words. For example, you'll often encounter this phrase: "including, but not limited to." The term “including” is fine. It's the rest of it, the “but not limited to” that's problematic because what started as an exclusive list became something that includes anything, whether explicitly stated or not. It's terms like these that your attorney will be on the lookout for. This is when you need to offer new language. This is where the services of an attorney become important, because if you're not careful, the new language you come up with might be more restrictive than what your prospective employer wanted in the first place!

Finally, be on the lookout for the “cobbled-together” agreement. These typically arise from a non-lawyer who starts adding the language they want. That's often problematic. The other problem is with the language they don't touch as the agreement may have started with a very different deal in mind. If you find yourself scratching your head about language that has nothing to do with your deal, it's quite possible that you're dealing with a cobbled-together agreement.

In the News

Since the last issue, there was a much publicized copyright infringement case decided that involved Robin Thicke and Pharrell Williams on one side. On the other side was the estate of Marvin Gaye. The work in question was Gaye's song “Got to Give It Up.” The question was whether the Thicke/Williams song “Blurred Lines” borrowed too much from Gaye's song, and whether it was enough that it constituted copyright infringement. As you would expect, Thicke and Williams cited fair use and also offered testimony that while there may have been some similarities, it wasn't close enough to constitute infringement. The jury disagreed, and this gets to the point that whether or not things sound similar enough or whether fair use applies is a question of fact, not law. That means a jury or a judge decides and those decisions can be quite subjective. There aren't many high-profile cases involving infringement that make it to a verdict. Usually, these cases settle. Thicke and Williams also made an interesting policy argument that argued if what they did was infringement, then no artist could use as inspiration other works, which is something the copyright law is supposed to protect.

Similarly, the Google/Oracle API case now sits with the Supreme Court of the United States. The Federal Circuit's controversial opinion reversed the trial holding that in addition to the code, the mere structure and method signatures were copyrightable. The Supreme Court has asked the DOJ to weigh in on the Federal Circuit's opinion. My opinion, and it's one shared by many, is that the Federal Circuit got this one wrong. Otherwise, only one entity could have an API that covered “Orders.” Stay tuned, as there's probably no more important case regarding our industry.