Employment Contract Red Flags to Check Before You Sign

Overlooking a red flag in your employment contract can have lasting consequences. After all, you’ll be living with the job conditions you agree to, and it’s always nerve-wracking not to know if you’re being treated unfairly. Once you learn to spot the warning signs, you can better protect yourself. This article discusses key employment contract red flags and explains how to negotiate a contract to safeguard yourself from unfair practices.

One of the biggest red flags is excessive control over your activity — employers can use the non-compete clause to severely restrict employees’ related activities. When a clause is broad enough, it effectively bans you from working in your entire industry across an entire continent. Non-compete enforceability varies substantially by state. Previously, the FTC enforced Section 5 of the FTC Act; now, although Section 5 is still used to sue specific companies for anti-competitive contracts on a case-by-case basis, individual employees cannot use Section 5 to sue their employers. Check the law in your state before assuming a non-compete will or won't hold up.

“Since my entire career focus is in this industry, I want to ensure I can continue earning a living if things ever unexpectedly don’t work out. Could we update this section to an X-month window limited strictly to direct competitors in my immediate metro area?”

Don’t underestimate the importance of your own intellectual property and how it is decided. Many companies create clauses that essentially claim anything you make as theirs — if you use their laptop, their code, or their time. Moreover, even work you do on your own time can still be assignable if it relates to the employer’s business.

“Can we narrow the IP scope to work done using company resources or directly related to the company’s business, and attach Exhibit A to highlight my existing projects?”

Remember, it’s okay to offer suggestions — companies have their own ways to ensure contract compliance, and you need to focus on protecting yourself. 

When you push back on a contract clause, HR’s goal is to close the deal without sending it back to corporate legal. It’s true that sometimes HR wants to finish the paperwork quickly — but they can do so in other ways, such as using an electronic signature tool or shortening parts of the hiring process. Here’s what HR commonly says and what you should ask instead. By doing so, you move toward a solution that both of you can agree on.

Handling compensation at termination requires separating it by type: 

• Forfeiting unvested equity upon departure is standard practice across the U.S.
• Discretionary bonuses are typically lost if you leave before payout
• Earned commissions or performance bonuses for completed milestones should be protected
• Accrued PTO payout depends on location, as states like California and Illinois treat unused PTO as earned wages that must be paid out.

“I want to make sure my compensation for work already completed is protected. Can we agree that accrued PTO will be paid out if I am terminated?”

While relatively rare, legal conflicts at your job aren’t extinct. Mandatory binding arbitration forces you to resolve disputes behind closed doors with a private arbitrator, and legal review of their award is usually much narrower than a standard court appeal, though federal law provides limited grounds to challenge one. The EEOC provides official guidance on mandatory binding arbitration of employment discrimination claims and employee rights under federal civil rights laws. Importantly, signing an agreement does not prevent you from filing an EEOC charge, and federal law allows you to opt out of mandatory arbitration for sexual assault or harassment claims. Uncapped fee-shifting means that if you lose, you are required to pay all of the company’s expensive legal bills. 

“To make sure any potential dispute stays fair and manageable for both of us, can we remove the fee-shifting clause so each side covers their own lawyer fees? Can we also specify that the company handles the main administrative costs for arbitration?”

If state laws and the clause allow it, companies can take back sign-on or relocation money if you leave before the defined timeline. You essentially end up with a perk turned threat. If the company lays off your entire team a month before the agreed-upon term, you will be hit with a huge bill. This is a situation where you cannot win unless you’re lucky (or you’re the employer).

“I’m thrilled to accept the offer and fully committed to making a long-term impact here! However, I noticed this clause. If the company initiates a layoff through no fault of my own, I shouldn’t be penalized financially. Can we update this so clawbacks apply only if I resign voluntarily or am terminated for cause?”

A 3-month rule is a typical 90-day probationary period that allows employers to evaluate your performance. During these initial 90 days, benefits like health insurance or 401(k) matching may not yet be active — this prevents extra paperwork if you don’t match in the end. It’s generally a good adjustment period for both parties, since you also get to see whether you like the company and what it offers. 

This clause is dangerous when written too broadly. While at-will employers can adjust day-to-day policies, duties, or future benefits, a blanket clause like this could allow them to cut your base pay, alter commission formulas after you’ve already completed the work, or relocate your job with zero advance notice. 

“I want to make sure our core agreed-upon terms remain secure. Can we update this sentence to clarify that any changes to this contract require mutual written consent?”

If HR promised you something verbally, or if you agreed on a specific clause with your new manager, an integration clause can make it much harder to enforce earlier promises that didn’t make it into the signed document. It becomes a problem if you see that an agreement you previously had (a bonus, a particular shift) isn’t mentioned in the contract. But are verbal agreements legally binding? Our article explains this in detail. 

“During our interviews, we agreed on X and X. Just so that everything we discussed is captured, can we attach those specific points as an addendum or explicitly reference the offer letter in this section?”

This is one of the most dangerous clauses because it makes you financially responsible for the company’s risk management. If a client sues the business because of a software bug you coded or a project delay you managed, the company can simply turn around and demand that you pay for their corporate defense lawyers and cover lawsuit damages.

“Although I’m excited to join the team, there’s a clause I’d love to address before signing the contract. Standard employment relationships usually rely on corporate liability insurance, not personal employee indemnification. Can we strike this section entirely, or limit it strictly to gross negligence and intentional illegal acts?”

In the end, advocating for yourself when checking for red flags is also a chance to establish a respectful and balanced professional relationship. Can it feel intimidating? Probably — after all, it’s scary to push back when you’re almost there, with a job in your pocket. But, as they say, it is that serious; your employment contract decides how you’ll be treated and protected, and it’s not the time to stay quiet. However, it also helps to remember that most of the time, you can have constructive and friendly communication with the people on the other side, so enter any dialogue with a positive outlook. Who doesn’t like a win-win situation?