Monday, July 20, 2015

Why Your Employment Agreement is Unreasonable

Why Your Employment Agreement is Unreasonable Most employees don't bother reading the employment agreement. After all, if you're not planning on doing anything dishonest then it doesn't matter, right?

The problem is that many companies have a lawyer draft an agreement that gives them the most leverage possible under any circumstances knowing they can choose when and how to use it. This means employees who sign such an agreement WILL break that agreement whether they realize it or not. They are placing themselves at the mercy of a company which may not even be run by the same management a year from now.

Apparently I must point out that I am not a lawyer, nor do I play one on TV. The information below is provided for educational purposes and should not be considered legal advice.

Intellectual Property
Here are some examples from an agreement I refused to sign this past week.
Employee recognizes that Intellectual Property relating to his/her activities while working for [Company] and conceived or made by him/her, alone or with others, within one year after termination of his/her employment, may have been conceived or made in significant part while employed by [Company].  Accordingly, Employee agrees that such Intellectual Property Rights shall be presumed to have been conceived during his/her employment with [Company] and are to be assigned to [Company] as [Company] Intellectual Property unless and until Employee has established the contrary.

This clause clearly states that the company owns any intellectual property created while employed with them and for a year after leaving the company. It shifts the burden of proof to the employee to show that they are the rightful owners of their work, even if that creation was done completely outside of work hours and without any company resources.

This might not be an issue for the majority of employees, but software developers often work on hobby projects and, in more than a few instances, hobby projects have turned into million-dollar ideas. This would also include the authoring of articles, books and videos. Good luck proving that they don't own it when you clearly signed an agreement stating otherwise.

How about that bit about owning what you create within a year of leaving the company? How in the world would they even know about it? Here's your answer.
Employee agrees to disclose promptly in writing to [Company] all Intellectual Property made or conceived by him/her for one (1) year after his/her employment terminates, whether or not he/she believes such Intellectual Property is subject to this Agreement, to permit a determination by [Company] as to whether or not the Intellectual Property should be the property of [Company].

By signing this agreement, you are no longer eligible to work for any company that requires signing a non-disclosure agreement, because you've already committed to disclosing anything you create to your previous employer for an entire year!

The clause below seems fairly standard and might look familiar.
During his/her employment with [Company], and for one (1) year thereafter, Employee will not participate, directly or indirectly, as a partner, officer, director, stockholder, consultant,  employee,  agent,  independent  contractor  or  otherwise,  in  any business  that  is directly or indirectly competitive with the business of [Company].

It's completely understandable that a company might want to keep their employees from taking all the training and inside knowledge they've gained during their employment to their competitor. One might even overlook the use of the word "indirectly" as a qualifier for which companies are considered competitors. This is a purposefully vague word that can be used to argue that virtually any company is a competitor in some indirect way. I find this especially concerning since there's no way of knowing what kinds of products or lines of business might be included for the purpose of competition by the time I leave the company.

The standard response to this concern is that the clause would never be upheld in court. My question is, why should I put myself in jeopardy of ever having to go to court in the first place?

No matter what the wording, it's always a good idea to get a lawyer to look over any agreement before you sign. Those clauses were put there for a reason, and as well-intentioned as the other party might be, intentions mean absolutely nothing if you're ever taken to court. Personally, I'd rather avoid the headache and expense of having to defend myself in court no matter how unenforceable the agreement might be. An honest employee agreement should make it clear what lines must not be crossed to avoid ever finding yourself in court.


  1. I could not agree more. As I said on Twitter, I refuse to sign anything resembling a right to inventions agreement. Furthermore, anything that would limit the ability to do business with someone else (non disclosure, non compete) has to be limited, enumerated and short term. The phrase "including but not limited to" is always a red flag. Most contracts I have seen benefit the employer and not the employee. Even if the employer is not able to legally enforce the contract the to such degree where it would be detrimental to the employee, it would cost the employee a fortune in legal fees and the employers know this. What happened to the world where we did business on the strength of a handshake? Why would you hire someone who you trust so little that you have to protect yourself with Draconian contracts?


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