How does your employment contract limit your workplace rights?
Learn more about what you may have signed.About the Contract Fairness Project▶
More and more new hires and employees are being required to sign employment contracts. These agreements have come to dictate many of the rights we have at work, although too often we
don’t know what these contracts mean or whether they would hold up in court.
The Contract Fairness Project aims to shed a light on contracts that may be unfair or even illegal and bring transparency to employer-employee agreements.Submit Contract Learn More
Problematic Contract Terms:
A non-competition agreement (“non-compete”) prohibits an employee from working for a competitor, typically within a certain area and for a certain period of time after leaving a job.
Non-compete agreements are illegal in some states. In other states, they’re only valid if they are used for a legitimate business reason and are not too burdensome for the employee. An agreement might be found too burdensome if it lasts too long, covers too much geographic territory, or is too broad in terms of how it defines competitors.
Example: During employee’s employment with [Employer] and for a period of eighteen (18) months following the termination of employee’s employment with [Employer] for any reason, employee shall not, within a radius of 50 miles from any office(s) where the employee performed services as an employee of [Employer], directly or indirectly, own, manage, operate, control, be employed by, participate in or be connected in any manner with the ownership, management, operation or control of, any business that either: (1) offers a product or services in actual competition with [Employer]; or (ii) which may be engaged directly or indirectly in the business of [Employer].
Shortened Statutes of Limitation
Most laws give workers (whether employees or independent contractors) a certain amount of time to bring a lawsuit after something illegal has happened. This time limit is called the statute of limitations. But some contracts ask workers to agree to a shorter time limit than what’s listed in the law.
Courts decisions on shortened statute of limitations vary widely. In some circumstances courts have found them to be unenforceable, in other instances courts have upheld them. These court decisions vary based on jurisdiction, the legal claim at issue, and facts of the case.
Example: I agree that any claim or lawsuit relating to my service with [the company] must be filed no more than six (6) months after the date of the employment action that is the subject of the claim or lawsuit. I waive any statute of limitations to the contrary.
Independent Contractor Agreements
Whether a worker is truly an independent contractor (and not an employee) depends on facts like whether the worker exercises independent judgment and control over the work they perform, their schedule, and their business. Businesses often ask workers to contractually agree that they are independent contractors, but this kind of agreement does not determine the workers’ true status.
Courts will look at the facts to determine if a worker is actually under the direction and control of the employer and therefore properly considered an employee and will ignore an independent contractor agreement that is not consistent with those facts.
Example: The parties agree that [Worker] is an independent contractor and not an employee with respect to Employer. [Worker] acknowledges that she is not entitled to any payment or benefits from Employer, including but not limited to, workers’ compensation insurance coverage, unemployment insurance, disability, medical, pension, retirement, profit sharing, or any other insurance coverage or benefits.
Liquidated Damages Clauses
Some contracts require an employee to pay a certain amount of money as “liquidated damages” if they leave the leave the job before a certain period of time is up.
These clauses are likely not enforceable if they are just meant to prevent employees from leaving, or punish employees for leaving a job.
Example: Employee agrees that if Employee voluntarily terminates this Agreement…Employee will immediately pay to Employer as liquidated damages, an amount equal to Employee’s then annual compensation multiplied by the greater of (a) twenty-five percent (25%); or (b) the percentage of the current contract remaining.
A non-disparagement clause in a contract can try to limit an employee from making any statement that could be viewed as criticizing the employer.
These clauses may violate the law where they restrict employees’ ability to talk to each other about the terms and conditions of their work.
Example: You agree that you will not (nor will you cause or cooperate with others to) publicly criticize, ridicule, disparage or defame the Employer or its products, services, policies, directors, officers, shareholders, or employees, with or through any written or oral statement or image (including, but not limited to, any statements made via websites, blogs, postings to the internet, or emails and whether or not they are made anonymously or through the use of a pseudonym).
A “confidentiality” clause can be used in a contract to appropriately prevent an employee or independent contractor from disclosing or taking an employer’s confidential customer or proprietary information. However, some confidentiality clauses go further and restrict employees’ from even discussing the terms or of their work, such as wages, salaries, employment contracts, bonuses, or their working conditions.
Overly broad restrictions on employees’ ability to discuss their wages or terms and conditions of work can violate federal law.
Example: [Employee] shall not disclose any information pertaining to the wages, commissions, performance, or identity of the employees of [Employer].
A mandatory arbitration clause requires a worker (whether employee or independent contractor) to waive their ability to file a lawsuit in court. Instead the worker agrees that any work-related legal claim will be resolved in a private proceeding, called arbitration, before a third-party (called an arbitrator) and not a judge.
Mandatory arbitration clauses are generally enforceable under federal law. However, courts may find a particular arbitration clause unenforceable based on the facts of how it was entered into and its terms. Certain claims, such as a workers compensation claim or unemployment insurance claim are not waivable and cannot be arbitrated. Government agencies are not bound by private arbitration agreements and can still investigate workplace violations even if the employees there have agreed to arbitration.
Example: If an employment dispute arises while you are employed at [Company], you agree to submit any such dispute arising out of your employment or the termination of your employment (including, but not limited to, any wage claim, claims of unlawful termination, or any claim based on race, gender, age national origin, disability, sexual harassment, breach of contract or any other bias prohibited by law) exclusively to binding arbitration under the federal Arbitration Act, 9 U.S.C., Section 1. This arbitration shall be the exclusive means of resolving any dispute arising out of your employment or termination from employment by [Employer] or you, and no other action can be brought by employees in any court or any forum.
You and [Employer] shall each bear respective costs for legal representation at any such arbitration. The cost of the arbitrator and court reporter, if any, shall be shared equally by both parties, or as determined by the arbitrator.
Class Action Waiver
Many employment laws give employees the ability to join together in a class action to bring a single lawsuit about the same issue(s). Employment contracts may ask employees to give up this ability and agree that they can only bring an individual claim. Class action waivers can bar employees from joining together with other workers to bring a shared claim in court or in class arbitration. The Supreme Court has upheld class action waivers.
Example: All disputes or claims between you and [Employer] shall be exclusively resolved in binding arbitration on an individual basis; class arbitrations and class actions are not permitted.