An employment contract displaces at-will employment, which means every clause in it is a commitment you may have to honor in litigation. This is the 8-point review employers should run before a contract is sent — and the three moments in a contract's life when review matters most.
An offer letter is usually a short at-will summary of the role and pay. An employment contract is the document that changes the default: it may promise a term of employment, define what "cause" means, lock in severance, and attach restrictive covenants. Because it displaces at-will employment, every clause in it is a commitment you may have to honor in litigation. This guide covers the contract; our offer letter checklist covers the shorter document and the eight ways an offer accidentally becomes a contract.
Why it matters: A fixed term or a "termination only for cause" clause is the single biggest transfer of leverage in the document. If "cause" is undefined or defined narrowly (fraud, felony conviction), poor performance is not cause, and ending the relationship early means paying out the term.
Check: Cause is defined broadly enough to cover performance and policy violations, includes a notice-and-cure mechanism only if you intend to honor it, and the without-cause exit and its cost are stated explicitly.
Why it matters: Bonus and commission language is the most litigated part of employment contracts. "Discretionary" bonuses that are paid every year become expected; commission plans without a stated earning point leave the question of what is owed at termination to a court, and several states require written commission agreements.
Check: The earning event, payment timing, and what happens on termination are stated for every variable component; state commission-agreement statutes (California, New York, Illinois, and others) are satisfied.
Why it matters: Non-competes are now banned or sharply limited in a growing list of states and are increasingly disfavored elsewhere. A covenant that is void where the employee works gives you nothing and can taint the enforceability of the clauses around it. Non-solicitation and confidentiality clauses have their own limits.
Check: Each covenant is scoped in duration, geography, and activity to the employee's actual role, checked against the law of the state where the employee works (not where the company sits), and any state notice or consideration requirements were met before signing.
Why it matters: Confidentiality clauses that could be read to bar employees from discussing pay or working conditions violate the NLRA. A clause without the Defend Trade Secrets Act whistleblower notice forfeits exemplary damages and attorney fees in a trade-secret suit. Our employee NDA checklist covers this in depth.
Check: Confidential information is defined with express carve-outs for protected activity, the DTSA immunity notice is present, and the clause does not restrict agency cooperation.
Why it matters: Several states void assignment clauses that reach inventions made on the employee's own time without company resources and unrelated to the business, and require notice of that limit. Overbroad IP clauses are unenforceable in those states and create bargaining problems everywhere.
Check: The assignment is limited to work-related IP, contains the state-required notice where applicable, and lists any pre-existing IP the employee is excluding.
Why it matters: An arbitration clause is only useful if it is enforceable: mutual, clear about what is covered, consistent with the Federal Arbitration Act, and, since 2022, not applied to sexual harassment or assault claims. Cost-shifting terms and buried placement are the usual reasons courts throw them out.
Check: The clause is conspicuous, mutual, carves out claims the law does not permit to be arbitrated, and does not impose costs on the employee that a court would find unconscionable.
Why it matters: A contract that calls the role "exempt" or "independent" does not make it so. If the duties and pay structure do not meet the applicable test, the contract language becomes evidence that the employer knew the classification mattered and got it wrong.
Check: The stated classification is consistent with the duties described, the salary basis and threshold are met for exempt roles, and contractor agreements pass the tests in our misclassification checklist.
Why it matters: Without an integration clause, promises made in interviews and emails may be read into the agreement. Without a written-amendment requirement, a manager's casual assurance may modify it. A governing-law clause that names a state with no connection to the employee is likely to be disregarded and can look like forum shopping.
Check: The agreement states it is the entire agreement, requires signed writings to amend, and selects a governing law and forum that the employee's work location supports.
Before the template is adopted. An attorney should draft or review the base template once, against the states where you actually employ people. This is the review most small employers skip and the one that pays for itself fastest.
Before each contract is sent. Templates drift: someone edits the bonus language, a covenant gets copied from another state's version, a term gets extended in a negotiation. A consistent check of the specific document against the checklist above catches the drift. This is the step a document scanner is built for — it applies the same checks every time and hands your attorney a marked-up draft instead of a cold one.
When the law changes. Non-compete and pay-transparency rules are moving quickly at the state level. A contract that was compliant when the template was written may not be when it is next used.
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An offer letter typically summarizes an at-will position: role, pay, start date, contingencies. An employment contract changes the at-will default by promising a term, defining cause, guaranteeing severance, or attaching restrictive covenants. Because it creates enforceable commitments, every clause needs review.
Position and duties, compensation with every variable component's earning event defined, term and termination provisions with "cause" defined, confidentiality with the DTSA notice and NLRA carve-outs, IP assignment limited to work-related inventions, any restrictive covenants scoped to the state where the employee works, dispute-resolution terms, and integration, amendment, and governing-law clauses.
It depends entirely on the state where the employee works. Several states void them outright, others limit them by income threshold, notice, or consideration, and courts elsewhere scrutinize duration, geography, and scope. A covenant that is void in the employee's state gives the employer nothing.
The base template should be drafted or reviewed by an employment attorney licensed where you employ people. Each individual contract should be checked against a consistent checklist before it is sent, because templates drift through editing and negotiation. Software can run that consistent check; it does not replace the attorney's judgment.
The Defend Trade Secrets Act gives employees immunity for confidential disclosures of trade secrets to government officials or attorneys for the purpose of reporting suspected law violations. An employer that does not give notice of this immunity in any contract governing confidential information loses the ability to recover exemplary damages and attorney fees against that employee in a trade-secret suit.
A contract can state the classification, but the label does not control. Exempt status depends on the duties actually performed and the salary basis and threshold. If those tests are not met, the contract language becomes evidence that the employer knew classification mattered.
This guide is general information about United States employment law as of its publication date, not legal advice, and does not create an attorney-client relationship. Requirements vary by state and change frequently; have a qualified employment attorney review any document before it is used. DefensibleHR.ai is an AI scanner, not a law firm.