Employment Contract Warning Signs: 10 Red Flags in Your Job Agreement & How AI Catches Them

Why Employment Contract Red Flags Matter

You can negotiate salary. You can negotiate title. You can even negotiate vacation days. But the clauses buried on pages 7–12 of your employment contract — non-competes, IP assignments, arbitration waivers — those are harder to spot and way more consequential. A bad salary costs you money for a year. A bad non-compete can block you from working in your industry for three.

Most people skim the boilerplate and sign. Then 18 months later, when they want to leave for a competitor or start their own company, they discover what they actually agreed to. By then, it's too late.

Here are 10 employment contract red flags — the ones that actually cause problems — and how AI can catch them before you sign.

1. Overly Broad Non-Compete: Worldwide, Multi-Year, All-Competitors

A non-compete restricts where you can work after leaving the company. The problem isn't the existence of the clause — it's the scope. A reasonable non-compete covers the company's actual market for 6–12 months. An unreasonable one covers the entire world, for 2–3 years, across 'any business the company may enter in the future.'

The most egregious example we've seen: a junior marketing coordinator at a SaaS company was asked to sign a 3-year non-compete covering 'all technology companies worldwide.' That's not a non-compete — that's a career ban.

• Geographic scope: should be limited to the company's actual operating region. 'Worldwide' for a local business is unreasonable and often unenforceable.
• Duration: 6–12 months is standard. 18–24 months is aggressive. 3+ years is a red flag.
• Industry breadth: should name specific competitors or a narrow industry segment. 'Any business that develops software' is too broad — it covers everything from video games to enterprise ERP.
• State law: non-competes are banned or severely restricted in California (void except in limited sale-of-business contexts), Colorado (must meet minimum salary threshold), Oregon, Washington D.C., and several other states. The FTC attempted a nationwide ban in 2024 but it was blocked by courts — know your local law.

2. IP Assignment: They Claim Everything You Create, Even on Weekends

Companies should own the work you do for them. That's standard. But some IP assignment clauses go much further — claiming ownership of everything you create during your employment, regardless of whether it's related to company business, done on company time, or made with company equipment.

This means the app you build on weekends, the blog you write, the open-source contributions you make — the company can claim them all. And some do.

• Check for carve-outs: the contract should exclude inventions made on your own time with your own equipment that are unrelated to the company's business. Several states (California Labor Code § 2870, Illinois, Washington, Delaware) mandate these carve-outs.
• Pre-employment inventions: list your prior inventions and side projects in an exhibit. Without this, the company might later claim you brought those ideas to them.
• Disclosure obligation: many contracts require you to disclose all inventions to the company. Combined with a broad scope, they can claim anything you disclose. If you have side projects, negotiate a specific exclusion.
• Moral rights waiver: some contracts include a waiver of 'moral rights' — the right to be credited as the author and to object to modifications. Important for creative professionals but standard in employment.

3. Vague or 'Discretionary' Compensation: The Bonus That Might Be Zero

The word 'discretionary' in a bonus clause means the employer can pay you nothing regardless of performance. 'Eligible for a discretionary bonus of up to 20%' doesn't guarantee 20% — or anything. If the bonus is a meaningful part of your total compensation, discretionary language is a red flag.

• Instead of 'discretionary,' push for 'target bonus of X% based on achievement of company and individual performance metrics, as determined by the Board in good faith.'
• For commission-based roles: the contract must define when commission is 'earned' (e.g., upon contract execution by the customer) vs. 'payable' (e.g., within 30 days of invoice payment). If you leave, you should still receive commissions on deals you closed.
• For equity: check the number of shares/options (not just the percentage), vesting schedule (4 years with 1-year cliff is market), exercise window (90 days post-termination is standard but short — some companies now offer extended exercise up to 10 years), and whether there's acceleration on termination without cause or change of control.
• Sign-on bonus: check the clawback provision. If you leave within 12 months, do you have to repay it? Pro-rated clawback is fair; full clawback at 11 months is not.

4. One-Sided Termination: You Give Notice, They Don't

Many employment contracts require you to give 30, 60, or even 90 days' notice before resigning — while the employer can terminate you immediately, without notice, for any reason. This is not symmetrical, and it's not fair.

A reasonable contract either (a) has no notice requirement for either side (pure at-will), (b) requires the same notice from both parties, or (c) requires the employer to pay in lieu of notice if they terminate without cause.

• Check for symmetry: if you owe 60 days' notice, the employer should owe the same — or pay you 60 days' salary if they terminate without cause.
• Termination for cause: should list specific, serious grounds (fraud, felony conviction, willful misconduct, material breach). A vague definition ('any conduct the company deems unsatisfactory') lets them fire you 'for cause' — denying severance, accelerating option expiry, and damaging your reputation — for minor issues.
• Garden leave: some contracts place you on 'garden leave' during your notice period — you're still employed and paid, but can't work or start your new job. Check if the notice period runs during garden leave or only after it ends.
• Constructive dismissal: does the contract address what happens if the company significantly reduces your responsibilities, pay, or status? If not, they can effectively fire you without triggering severance by making your job intolerable.

5. Mandatory Arbitration: Losing Your Right to Sue

Mandatory arbitration clauses require you to resolve disputes through private arbitration rather than in court. Arbitration can be faster and cheaper, but it also means: no jury, limited discovery, limited appeal rights, confidential proceedings (no public record), and — critically — almost all include a class action waiver preventing you from joining collective lawsuits.

• Is it mutual? Some contracts require employees to arbitrate all claims while letting the employer sue in court for certain claims (trade secrets, non-compete enforcement). That's one-sided.
• Who pays? The employer should pay the arbitrator's fees for most claims. If the contract splits fees 50/50, the cost alone may prevent you from pursuing a claim.
• Class/collective action waiver: almost universal in arbitration clauses. Check if you can still file charges with the EEOC, NLRB, or state labor board — these rights cannot be waived by contract.
• Opt-out: some employers allow you to opt out of the arbitration clause within 30 days of starting. If yours does, seriously consider it.
• Enforceability: the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (2022) allows employees to opt out of arbitration for sexual harassment and assault claims, regardless of what the contract says.

6. Overbroad Confidentiality: Everything Is a Trade Secret

Confidentiality clauses define what information you can't share. They should protect genuine trade secrets, customer lists, and proprietary processes. But some define 'confidential information' so broadly that it covers the company's org chart, the fact that you work there, or even your own salary.

Broad confidentiality isn't just a restriction — it's a trap. If you mention your job responsibilities in a job interview, are you breaching confidentiality? If the definition is broad enough, the answer is legally unclear — and uncertainty favors the company.

• Scope: should be limited to information 'not generally known to the public' and 'that derives independent economic value from not being generally known.' The 'independent economic value' test is the legal standard for trade secrets — push for it.
• Exclusions: should explicitly exclude information that is or becomes public through no fault of yours, information you already knew before joining, and information you independently developed without using company resources.
• Salary confidentiality: some contracts explicitly prohibit discussing salary. Under the NLRA, non-supervisory employees have the right to discuss wages and working conditions — these clauses are unlawful for most employees but still appear in contracts.
• Duration: for trade secrets, perpetual protection is standard. For general confidential business information, 2–5 years is market. Perpetual duration for non-trade-secret info is a red flag.

7. Unilateral Role or Location Changes: Your Job, Redefined Without Consent

Some employment contracts give the employer broad discretion to change your role, responsibilities, reporting structure, compensation, and work location — without your consent. You accept a marketing manager job in Chicago, and six months later you're a sales coordinator in Dallas.

These clauses are often phrased innocuously: 'Employee's duties and location may be modified at the Company's discretion.' That one sentence gives them unilateral power over your daily working life.

• Push for: 'Material changes to Employee's primary responsibilities, reporting structure, base compensation, or work location require Employee's prior written consent.'
• If you can't get consent language, push for a 'good reason' resignation clause — if the company makes a material adverse change to your role, responsibilities, or location, you can resign and still receive severance.
• For remote workers: the contract should specify that your position is remote and any requirement to relocate or work in-office constitutes a material change requiring consent.

8. Non-Solicitation That Blocks Your Entire Network

Non-solicitation clauses prevent you from recruiting former colleagues or soliciting company customers after you leave. Some are reasonable — don't poach your entire team on your way out. Others are overbroad — they cover anyone who works at the company during your tenure plus 12 months after, including people you've never met.

• Employee non-solicitation: should be limited to people you directly worked with or supervised. 'All company employees and contractors' is overbroad for most roles.
• Duration: 12 months is standard. 24 months is aggressive but sometimes seen in executive contracts.
• Passive recruiting: if a former colleague reaches out to you about a job, does the non-solicit block you from hiring them? It shouldn't — push for language that permits hiring people who initiate contact or respond to general job postings.
• Customer non-solicitation: should apply only to customers you had material contact with or received confidential information about. 'All company customers, past, present, or prospective' covers people you've never heard of.

9. Moonlighting Bans: No Side Projects Allowed

Moonlighting or outside activities clauses prohibit you from doing any other work while employed — consulting, freelancing, running a side business, even volunteering on a board. Some require 'prior written approval' for any outside activity. Others ban it outright.

If you have a side hustle or plan to start one, this clause is a dealbreaker in its current form. Even if you don't, an absolute ban prevents you from testing a business idea before quitting.

• Push for a carve-out: 'Employee may engage in outside business activities provided such activities (i) do not compete with the Company, (ii) do not use Company resources or intellectual property, and (iii) are conducted on Employee's own time.'
• Non-profit and board service: explicitly exclude volunteer work, non-profit board service, and academic activities.
• Approval not required: if the contract requires company approval for outside activities, push for 'approval not to be unreasonably withheld or delayed.' Without this, HR can sit on your request indefinitely.

10. Missing or Unfair Severance: No Safety Net

Severance is what you get if the company lets you go without cause. Many employers frame it as a benefit — it's actually insurance. Without severance, a termination without cause means you walk out with nothing, no notice, no payout.

Standard severance is 1–2 weeks of salary per year of service, with a minimum of 4–8 weeks. Executive severance is typically 3–12 months, depending on seniority and negotiations.

• If your contract is silent on severance, you have no contractual right to anything. The company might offer something out of goodwill, or they might offer nothing. Assume nothing.
• Severance almost always requires signing a release of claims — you give up your right to sue in exchange for the payment. The Older Workers Benefit Protection Act (OWBPA) has specific requirements for releases covering age discrimination claims for employees 40+: 21-day consideration period, 7-day revocation period, and written advice to consult an attorney.
• Change of control severance: if the company is acquired, does your severance accelerate or increase? This is standard for executive roles — negotiate for 'double trigger' (termination within 12 months of acquisition).
• COBRA: most severance agreements cover COBRA premiums for the severance period. If yours doesn't, push for it — COBRA can cost $600–1,200/month.

Let AI Catch the Red Flags You Miss

You've read through 10 red flags. Your employment contract might have 3 of them, or 7, or none. The problem is: you're not trained to spot them, and after 10 minutes of legal reading, your attention fades. That's exactly when people miss things.

Our AI employment contract checker scans your entire agreement in 30 seconds — every clause, every definition, every cross-reference. It catches the red flags above plus 10+ more, gives each one a severity score, and suggests specific replacement language you can take to HR.

First 3 reviews are free. No sign-up. No credit card. Upload your job offer and know exactly what you're signing.