Understanding Your Employment Agreement: What to Look for Before You Sign
The documents you sign when you start a job — the offer letter, the employment agreement, the arbitration clause, the handbook acknowledgment — define the legal framework of the relationship before the first day of work. Most employees sign them without reading them. What they contain can determine what happens when things go wrong.
The onboarding packet arrives — digitally or in paper — and the new employee signs everything. The offer letter. The employment agreement. The arbitration agreement. The confidentiality agreement. The intellectual property assignment. The handbook acknowledgment. Each document is presented as a formality, and each is signed as one.
None of them are formalities. Each one establishes rights, waives rights, or creates obligations that will govern the employment relationship for its duration and beyond. An employee who understands what these documents say — before signing — is in a fundamentally different position from one who discovers their contents only after a dispute arises.
The offer letter
The offer letter confirms the basic terms: the job title, the start date, the compensation, and the reporting structure. It may also include terms that have legal significance beyond the basics.
At-will language. Most offer letters include a statement that the employment is at-will — that either party can end the relationship at any time, for any reason. This language is standard and does not, by itself, limit your rights. You remain protected by every anti-discrimination, anti-retaliation, and wage-and-hour statute regardless of the at-will designation.
Compensation structure. Understand exactly how you are paid. Is the salary stated as annual or hourly? Is there a bonus, and if so, is it discretionary or tied to specific metrics? Are there commissions, and if so, what is the commission plan? Is the bonus paid quarterly or annually, and is it conditioned on continued employment at the time of payment? Each of these details affects your rights if the employment ends.
Equity compensation. If the offer includes stock options, RSUs, or other equity, the terms of vesting, exercise, and forfeiture are typically set forth in a separate equity agreement. Read it. Understand the vesting schedule, the cliff, the post-termination exercise window, and any acceleration provisions. Equity can represent a significant portion of total compensation, and its treatment upon termination is often the subject of disputes.
The arbitration agreement
This is the document that matters most and is read least. The arbitration agreement — which may be a standalone document or a clause embedded in the employment agreement — waives the employee’s right to a jury trial and requires disputes to be resolved through private arbitration.
What to look for. Does the agreement cover all claims, or only certain categories? Does it preserve the employee’s right to file a charge with the CRD or the EEOC? Does it require the employer to bear the arbitration costs (as Armendariz requires)? Does it limit the remedies available — damages, injunctive relief, attorney’s fees? Does it shorten the statute of limitations below the period the law provides? Does it include a confidentiality provision? Does it include a class action or PAGA waiver?
Each of these provisions affects the employee’s rights. Some — limitations on remedies, shortened deadlines, cost-splitting — may render the agreement unconscionable and unenforceable. But the employee may need to litigate the enforceability of the agreement before addressing the underlying claim, which adds time and expense.
Whether to sign. In most cases, the employee has no practical choice — the arbitration agreement is presented as a condition of employment, and refusing to sign means not getting the job. California attempted to prohibit this practice with AB 51, but the statute has been largely enjoined by federal courts. As a practical matter, most employees sign. But understanding what you signed — and knowing that the agreement may be challengeable — is important if a dispute later arises.
The confidentiality agreement
Confidentiality agreements — also called NDAs — restrict the employee from disclosing the employer’s confidential information. These agreements are generally enforceable in California, provided they protect genuinely confidential business information (trade secrets, proprietary data, client lists, business strategies) and do not overreach.
What to watch for. An NDA that defines “confidential information” so broadly that it includes the employee’s own skills, general knowledge, or experience in the industry may constitute an unlawful restraint on the employee’s ability to work. An NDA that prohibits the employee from disclosing information about harassment, discrimination, or other unlawful conduct may violate the Silenced No More Act (SB 331), which prohibits non-disclosure provisions that prevent employees from discussing workplace harassment or discrimination based on any FEHA-protected characteristic.
An employee should understand what the NDA covers and what it does not. The agreement should protect the employer’s legitimate business secrets without silencing the employee about unlawful conduct or restricting the employee’s ability to use their own expertise in future employment.
The intellectual property assignment
Many employment agreements — particularly in tech, creative, and research-oriented industries — include an assignment of intellectual property rights. The provision typically states that any invention, creation, or work product developed during the employment belongs to the employer.
California’s protection. Labor Code section 2870 limits the scope of IP assignments. An employer may not require an employee to assign inventions that the employee developed entirely on their own time, without using the employer’s equipment, supplies, facilities, or trade secret information, and that do not relate to the employer’s business or anticipated research and development. An assignment provision that does not include this statutory carveout — or that claims ownership of work the employee creates independently, outside of work, unrelated to the employer’s business — is unenforceable to that extent.
The employee should understand the scope of the assignment. If you have a side project, a personal creative endeavor, or an independent invention, the IP assignment may or may not reach it — and knowing where the line falls before you sign is important.
The employee handbook
The handbook is not technically a contract — and most handbooks include a disclaimer saying exactly that. But handbook provisions can create enforceable obligations under certain circumstances.
Implied contract. A handbook that promises progressive discipline (verbal warning, written warning, PIP, termination) may create an implied contractual obligation to follow that process. An employer that fires an employee without following its own progressive discipline policy may have breached an implied contract — even if the handbook contains an at-will disclaimer.
Policies that matter. The handbook’s anti-harassment policy, complaint procedure, and accommodation process are relevant to any future claim. If the employer’s policy promises a “prompt and thorough investigation” of harassment complaints and the employer fails to deliver, the policy itself becomes evidence of the employer’s failure.
Read the handbook — particularly the sections on discipline, complaint procedures, leave policies, and accommodation. If a dispute arises, the employer will point to the handbook to support its position. The employee should know what it says too.
The overall principle
Every document you sign at the start of employment is a contract or a quasi-contract that defines the relationship. The employer drafted every word. The employee’s leverage to negotiate is limited — but the employee’s ability to understand is not.
Read what you sign. Ask questions about provisions you don’t understand. Identify the arbitration clause and know what it says. Understand the equity terms. Note the NDA’s scope. Check whether the IP assignment includes the statutory carveout.
And keep copies of everything. The documents you sign on day one may be the most important evidence in a case that arises years later.
The documents you sign when you start a job are not formalities. They are contracts that define your rights, your obligations, and the legal framework that will govern any future dispute. Reading them before you sign — and keeping copies after — is one of the most important things you can do to protect yourself.
This article is general information about California law and is not legal advice. Every situation turns on its particular facts.