An employment contract is pretty damn important.

It's the legal basis for what you or someone does day in . . . day out. And there's a lot to potentially blow up in your face. 

Of course, there are a lot of issues to consider when evaluating a job offer or an employment contract--where the job is located, what school district would your kids go to, yadda yadda yadda.

But this site is concerned about the legal side of matters and as a startup lawyer I want people to understand this stuff. So what about the language in the actual contract? How do you think and evaluate the actual terms and terminology? Here's a checklist to help you do that.


____ 1. Understand the basics of employment contracts

There are terms that are going to be thrown around that you might not be familiar with. You need to understand them if you want to know what's going on in the contract. 

Here are the main terms you're going to come across:

Non-compete Agreement

You agree not to enter into or start a similar business to your employer. As I've said elsewhere, different states such as Texas scrutinize this type of provision differently. 


A promise to not reveal certain information to the outside world. Similar to the above about states scrutinizing this. In Texas be careful of NDAs that last in perpetuity as it is possible that any party can terminate that at will. 


A promise that you don't seek out employer's clients after you leave 

Anti-raid provisions

Promise that you will refrain from hiring your colleagues to work on a new venture after you leave employment

No-moonlighting clause

A promise that you will not participate in business activities, even in your off hours, unrelated to employer's business

Termination provisions

At-will; for cause; without cause: at-will means that the employer can fire you at any time for any reason (subject to public policy); for-cause means that employee was terminated due to misconduct or some other reason; without cause means without misconduct and usually is accompanied by a notice of dismissal 


Vesting is a method to get equity/shares of the company (or option to buy shares of the company) slowly over time instead of all at once. Your employer wants to motivate you and give you incentive to stick around. They don't want to give you shares of the company (equity) and have you leave immediately. That would suck for the employer.

There are multiple ways to do vesting. One way is to give you all of the equity up front (that equity will be considered unvested) and if you leave, you will have to give the shares back to your employer. A vesting schedule can be accelerated and (at least some) shares will vest immediately. There is single-trigger acceleration which requires one event to trigger acceleration (usually the company being acquired) and there is double-trigger which requires two events (usually the company being acquired and a firing.)

Representations and warranties

A statement of fact; and a promise that if the statement is false, then one party will compensate the other


A promise to do or not do something. Non-competes and the like are covenants 

Sale of employer

Provisions detailing what will happen to employment if the employer's business is sold

Computer use policy

Restrictions and rights regarding your use of employer's technology, equipment, computers. 

Invention assignment agreement

Provisions that say that IP created by the employee will belong to the employer

____ 2. Get what you're worth when it comes to employment contracts

Your compensation would be a lot easier to understand and compare to other offers if you just received a flat out number stating your salary. 

But that's not how it works. 

Your compensation includes: salary, relocation costs, bonuses, options, benefits, severance. Some of these are difficult to pinpoint a value on and some of these are conditional.  

So what steps should you take? 

____ Step 2.1: Figure out your worth

Your salary will be different depending on a lot of factors. You have to do research to figure out the fair market value for what you are offering. This is going to be different for each individual--but you should be able to get a good idea of your FMV. Look at what compensation others in similar positions with a similar skill-set in a similar place for a similar company are getting.

People often forget about the employer part of this. It's not all about you. It's also about where the employer is in its business lifecycle. If you go to work for an established company while your friend with the same skills decides to work for a brand new company, don't be surprised if your friend gets a lot more equity than you do. 

____ Step 2.2: Calculate the value of determinable benefits

Your salary is being discounted by the value of the benefits. If your skills demand that you are worth 120k a year and your salary is for 100k. Your salary is discounted by 20k. You should be receiving 20k worth of benefits to make up for it. 

- If you are currently spending 5k a year on health care out of your own pocket, but you will be receiving health care benefits that will cover these costs, add that in. 

- Consider employment taxes if you are weighing options between being an employee or being a contractor. If you are going to be an employee and not a contractor, your employer will pay some of your employment taxes. Add that in. 

- Look at all of the other benefits you might be offered. Add those in. 

____ Step 2.3: Figure out if the value of the variable benefits make sense

I  mentioned that some of your compensation will be difficult to determine. Some of that is conditional. Some of that will vary in amount. So how do you weigh all of this and evaluate it? 

Two ways:

i. Use the expected value

Let's say, because you did your research, you found out that over the past three years, the company gave a bonus of 2k one year, 0 another year, and 10k another year. How should you think of that? Add up [(1/3)*2,000] + {(1/3)*0} + [(1/3)*10,000] = 4,000

So add in 4k when thinking about your overall compensation. 

You can use this expected value concept to help think about if the amount of equity you are receiving makes sense. 

Let's say your salary is 100k when you are worth 120k. You need 20k in expected value of equity to cover that. You will have to make a reasonable guess as to how much the company will sell for. You get an option for 100,000 shares of stock. Strike price is $0.10. You make a reasonable estimate that there is a 25% chance that the company will be acquired at $2. How do you make this estimate? By looking at market conditions and the price at which the company raised money. The expected value of all of that stock is $50,000 Remember you have to pay the strike price, so calculate in $40,000. Keep in mind that this would be the expected value. If the company did actually sell for $2 a share, you could be receiving a lot more than $40,000. Of course, it's very likely that it could be nothing. 

Caveat: this method requires some assumptions and quantities you may not know, such as the investor liquidation preference. 

ii. Or use generally accepted guidelines

This is the easier way to think about how much equity compensation you should be getting. For a company that has just done a Series A financing, here is the range of equity granted when the person is hired. 

CEO: 5-8% 
CTO: 2%-3% 
COO: 2-4% 
CFO: 1-2% 
Board Member: 0.4-1.25
Lead Engineer: 0.5-1.5%
Senior Engineer:0.33-0.66
Junior Engineer: 0.2-0.33

Caveat: you may not know what kind of percentage you're receiving. 

____ Step 2.4: See if the compensation and the benefits match what you are worth

Does the compensation being offered, including all of the benefits, add up to what you can get elsewhere? If so, then the compensation part of the employment contract might work out for you. 


____ 3. Evaluate the employment contract

So you understand the terminology. You know what kind of compensation will be reasonable. The next task is to really evaluate the language in the contract. 

____ Step 3.1: Know what to look for

What you are looking for is how the employer is treating a few key issues that are central to everything underlying the contract. It's a mindset that you must adopt when reading an employment contract. Here are the issues:


Think about the money and where it's flowing. You will have to track the money and see when you're getting paid, how much, when that ends, etc. 

Risk and Protection

The company wants you to work for them and pay you for it. However, they will use tools such as non-competes, anti-raid provisions, etc. to limit their risk so that their engagement with you isn't harmful. 

The employer will also use certain standards and qualifiers. Almost every adjective can establish some kind of standard. Do you have to use good efforts in some task or best efforts? 

So with every provision or even sentence you look at, you need to have in the back of your mind how the employer is using words and terminology to mitigate risk, give protection, and use standards and qualifiers to control the situation. 

Here's the deal--

There's ALWAYS going to be risk and you can't eliminate it 100%. You have to keep in mind to not overblow risk factors, standards, and qualifiers and kill the deal. The main thing to keep in mind is REASONABLENESS. Does the terminology sound reasonable to you? If not, see about getting it changed. Although, know your place and your negotiating power. If you don't have much power and it's a small point, all drawing someone's attention to a certain term may do is make them adjust the terminology to favor them even more. Analyzing these thing is all about having a balancing act. 

Contract Endgame

All relationships come to an end. There are going to be provisions on how the employment can end. Pay attention to them because how it ends can have consequences. 

____ Step 3.2: Gather information to analyze the contract

Get information together. Know who the company is. Make a list of all of the issues that are important to you BEFORE you go through the entire contract. Doing it before is important because you want to remember those things before you get bogged down by little details and poorly worded legalese. 

____ Step 3.3: Take 10 seconds to look over the whole thing

You don't need to read the employment contract yet. You don't even need to skim it. Just do a brief overview. You want to get a good, overall idea of what you are dealing with. You want to get an idea of how everything is organized and what terms and clauses are included and their general location. I do the same thing as when I first look at a textbook. I look at the table of contents and just flip through the book. 

____ Step 3.4: Read the most important provisions

Read these first, because let's face it--these things are the most important to you. 

Basics of the contract

This is usually the first paragraph. It should state who the parties are to the contract, i.e., you and your employer.

Consideration/exchange provisions of the contract

Read and make sure that the section that details what is being exchanged is correct. What is it that is being exchanged? You are giving your work in exchange for compensation from the employer. Make sure that the dollar figures, etc. are what have been discussed before and are correct.

Endgame provisions of the contract

When does the employer have rights against you and vice versa? 

____ Step 3.5: Read the contract definitions section

Often this is not included. But if there is a "Definitions" section, skim it for now. 

____ Step 3.6: Read the whole contract from the beginning

Read the contract carefully. When you come across a defined term (often these are in bold), then go to the definitions section and make sure that it lines up to your understanding of what the term should be. While you read the contract, you can jump from reading one section to another if they are related and separated. Once you have done that, go back to where you left off. Make a notation after you've read every section. 

While you read, keep in mind the key ideas I mentioned: the money, risk & protection, standards & qualifiers, and the endgame.

____ Step 3.7: Scrutinize the contract provisions


See if all of the names, dates, and such are correct. You would be surprised at how often these facts are incorrect. Make sure that they are consistent and correlate across documents. 


Don't trip up on this. A term may be defined differently from how you know it. It may be defined differently from anything you've come across. Familiarize yourself with how that term is being defined in that document. 


Figure out the timing of the contract--the term of it, how it could end early, how it can renew, what causes default or cause, what the remedies are, how you can terminate the contract and what happens in that case. 

If it's an at-will employment and the employer can fire you any time, don't fret--that's normal. 


The equity you will get will likely vest. Pay attention to the vesting schedule. Make sure that it's reasonable. Reasonable is 4 years with a 1 year cliff. That means that no equity will vest until 1 year has passed (i.e. the cliff.) At that point, 25% of the equity will vest to you and the rest of the 75% will vest on a monthly basis for a total of 4 years. 

Also, pay attention to what happens if the company gets sold. The vesting schedule should accelerate if the company gets acquired. 


The main thing to keep in mind with covenants is that they need to be REASONABLE. Provisions such as non-compete agreements need to be reasonable in order to be enforceable. This means that non-competes should not extend past two years after you leave the employer.

Watch out for any promises that aren't limited or scoped in any way. 

Ambiguity & Vagueness

Ambiguity should be addressed and fixed. Vagueness, on the other hand, doesn't necessarily mean anything that bad. Remember not to be a deal killer. A contract doesn't need to be 100 pages.

Mathematical formulas

A lot of formulas get stated incorrectly. Follow the money. Think about the timing of the flow of money. If there are formulas present for calculating your compensation, run different hypothetical numbers and see if it makes sense. A problem with the formula will have a lot of potentially harmful effects. 

Signature blocks

Make sure the signature blocks set up properly. Make sure that there is a line for the title of the person who is signing on behalf of the organization.

____ 4. Execute the Contract

Once you have understood the terminology of the employment contract, you're satisfied with the compensation, and you've evaluated the contract and it all seems reasonable and correct, all you have to do is sign the contract and you're done--now get to work.