FAQs: EMPLOYMENT CONTRACTS AND
SEPARATION AGREEMENTS

What are the Typical Terms and Provisions of an Employment Contracts:

While most employees understand the salary provision of an employment contract, it is important not to ignore the other provisions, which are often just as, if not more, important. 

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For Cause Termination Provisions:  Usually the most significant benefit to an employee under an employment contract will be a set length for the employment.  However, most employment contracts include language allowing employers to terminate the employee "for cause" prior to the expiration of the employment term.  While some elements of a "for cause" provision are obvious and necessary - such as those allowing for termination if an employee loses a required professional license - other times "for cause" provisions may be so weak that they afford barely any protection to the employee.  Understanding an employer's ability to terminate the employment prior to the expiration of the employment term is crucial when reviewing an employment contract.

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Restrictive Covenants (e.g. non-compete, non-solicitation): Restrictive Covenants, including "non-compete" and "non-solicitation" provisions, are another type of provision present in many employment contracts which should be carefully scrutinized and evaluated prior to signing.  While non-compete provisions are generally disfavored by New York courts, they are not per se illegal.  Rather, courts will look at the length, geographic scope, and employee's position when analyzing a restrictive covenant.  Even if a restrictive covenant is deemed overbroad by a court, the court may decide to shorten the time period or narrow the geographic scope as opposed to invalidating the provision outright.

 

In New York, a restrictive covenant must be reasonable.  The restrictive covenant may be deemed reasonable if  (1) the restraint is not greater than what is required to protect a legitimate interest of the employer; (2) it does not impose an undue hardship on the employee; and (3) it is not injurious to the public.  Reasonableness under the test looks at the geographic scope and duration of the restriction.

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When a restrictive covenant is tied to an employee entitlement, New York courts may invoke the employee-choice doctrine.  Under this doctrine, a restrictive covenant may be held valid if the employee has the "choice" to comply with the covenant and receive the entitlement, or violate the covenant and lose the entitlement. 

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Intellectual Property: Employees who work in engineering, creative fields, or other fields where they create intellectual property should pay extra attention to employment contract provisions governing intellectual property ownership.  While intellectual property that an employee creates for their employer will generally be the property of the company, some employment agreements include provisions whereby any intellectual property an employee creates during the term of the employment, even an employee's own creations made outside of work on their own time, will also belong to the employer.  Employees who also work on personal projects or who also freelance should be certain they understand any intellectual property provisions of employment contracts.

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Can I Negotiate the Terms of an Employment Contract?

While you can negotiate the terms of an employment contract prior to signing, just as with any other contract, it is important to note that any material change you make to the contract as offered will likely be deemed a counter-offer.  Although most employment relationships start out on the right foot and many continue that way, employees should remain wary of signing an employment agreement under the belief that a good relationship with their employer means there is no need to review or negotiate an employment contract.  Unfortunately employment relationships can, and often do, sour, and the terms of the relationship will ultimately be governed by any employment contract in place.

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What are the Typical Rights and Obligations Present in Separation Agreements?

Absent a specified prior agreement requiring severance pay, employers generally offer separation agreements for the purpose of including a release of claims.  A release of claims is an provision whereby the employee waives their right to bring claims (i.e. lawsuits) against the employer. While releases can be tailored to only release certain types of claims, in the vast majority of situations the severance will include a general release of claims, which includes all claims of any nature (excluding certain claims such as wage violations which may not be released in this method as a matter of law).  Once an employee signs a severance with a release of claims, it is generally extremely difficult to set aside the release, and employees should expect that any release will be upheld.  Significantly, most releases release claims regardless of whether they are known or unknown, meaning that an employee who later finds out about employer conduct which would have constituted grounds for a lawsuit nevertheless cannot sue due to the release.

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Separation Agreements may also include provisions for non-disparagement, which obligate the employee to refrain from making disparaging remarks about the employer.  Some agreements may also include on obligation on the part of the employer to provide only an employee's title and dates worked to any potential employers who contact them.  This can be extremely beneficial to employees worried about potential negative references from their former employer.