Avoiding Common Employer Pitfalls: Drafting Employment Agreements

Employment agreements can be a valuable tool for setting expectations, protecting company assets, and defining the employment relationship. But when poorly drafted, they may expose employers to unnecessary risk, litigation, or financial liability. Below are some of the most common pitfalls employers should avoid when preparing employment agreements, along with practical guidance for each.

1. Assuming an Employment Agreement Is Always Necessary

Not every employee needs a formal employment agreement. In many cases, especially for at-will employees and most non-exempt employees, an offer letter paired with standalone policy acknowledgments or agreements (e.g., confidentiality or non-compete agreements) may be more appropriate. Over-contracting can inadvertently create obligations — such as guaranteed employment terms or severance rights — that the employer never intended. In addition, stand-alone agreements should be carefully drafted to ensure enforceability.

Tip: Use discretion. Reserve full employment agreements for executives, employees with equity interests, or roles involving sensitive information or custom compensation structures.

2. Failing to Preserve At-Will Employment Status

One of the most common — and costly — mistakes is undermining at-will employment through poor drafting. Vague language about “permanent employment,” automatic renewal terms, or guaranteed bonuses can be interpreted as limiting the employer’s ability to terminate the employee without cause.

Tip: Clearly state that employment is at-will and may be terminated by either party at any time, with or without cause or notice, unless otherwise agreed in writing or include detailed termination provisions.

3. Using Unenforceable Restrictive Covenants

Non-competes, non-solicits, and similar restrictive covenants are often included in employment agreements — but that doesn’t mean they’re enforceable. Many states limit or prohibit certain restrictive covenants. Courts frequently strike down overly broad restrictions, particularly those lacking geographic or temporal limitations or those that are not narrowly tailored to protect legitimate business interests.

Tip: Draft covenants that are reasonable in scope, tailored to the specific role, and compliant with the laws of the employee’s work state. Regularly review your template clauses to keep up with evolving state laws.

4. Overlooking State-Specific Requirements

Employment law is heavily state-specific. Certain states impose unique requirements on employment agreements, such as mandatory notice periods, limits on non-competes, or required disclosures for commission arrangements. Using a one-size-fits-all agreement across jurisdictions can lead to invalid terms or compliance failures.

Tip: Review applicable state and local laws before finalizing any agreement — especially if the employee works remotely in a different state from company headquarters or locations.

5. Inadequately Addressing Compensation and Bonuses

Vague compensation terms can lead to costly disputes. Employers often fail to specify whether bonuses are discretionary, under what conditions they are earned or paid, and what happens upon termination. Similarly, commission structures should be clearly outlined to avoid ambiguity and ensure compliance with applicable wage laws. State law varies on when bonuses or commissions are earned if it is not specifically outlined in the agreement.

Tip: Be clear and precise. Define how and when compensation is earned, any conditions for bonuses, and the impact of termination on variable compensation.

6. Failing to Include Confidentiality and IP Assignment Clauses

Protecting company information and intellectual property (IP) is essential — especially in knowledge-based and technology industries. Some employers mistakenly assume that confidentiality or IP protections are covered by policy documents, when they should be clearly defined in a binding agreement.

Tip: Include robust provisions requiring employees to protect confidential information and assign any inventions or work product created during the course of employment to the company.

7. Ignoring Termination and Severance Provisions

Many agreements fail to address what happens upon termination, especially with regard to notice, severance, equity, or unpaid bonuses. This can lead to disputes or unexpected liabilities. In executive agreements, vague or absent termination clauses are a common source of costly litigation.

Tip: Clearly outline the terms of termination, including any severance eligibility, how final pay and accrued benefits will be handled, and the treatment of equity or bonuses upon separation.

8. Neglecting to Include Entire Agreement and Modification Clauses

Employment disputes often involve conflicting claims about oral promises or side agreements. Without a clear integration clause, employers may struggle to enforce the written agreement as the sole governing document.

Tip: Include an “entire agreement” clause that disclaims prior understandings and confirms that modifications must be in writing and signed by both parties. If there are other agreements that are applicable to the relationship, incorporate those by reference.

9. Overcomplicating the Agreement

While legal protections are important, overly complex or legalistic agreements can alienate employees, slow down the onboarding process, and lead to misunderstandings.

Tip: Use plain, clear language wherever possible. Avoid excessive legal jargon and tailor the agreement to the employee’s role and level within the company.

Final Takeaway

Employment agreements should be thoughtfully tailored, legally compliant, and strategically used. Employers are encouraged to review their agreements with legal counsel to ensure enforceability and alignment with current laws and best practices.

If you have questions about drafting an employment agreement, or would like a legal review of your current documents, we are here to help.

This summary is provided for informational purposes only and is not intended to constitute legal advice nor does it create an attorney-client relationship with Rimon, P.C. or its affiliates.

Tara Humma is a Litigation attorney who focuses her practice on labor and employment matters. Tara has over a decade of experience representing public and private employers of all sizes in states across the country. Tara represents clients in all phases of employment litigation, from initial pleadings, discovery, and motion practice to trial preparation and appeals. Her experience includes a broad range of litigation matters including, but not limited to, claims brought under Title VII of the Civil Rights Act, the Americans with Disabilities Act (ADA) (including accessibility cases), the Family and Medical Leave Act (FMLA), the Fair Labor Standards Act (FLSA), breach of contract cases related to employment contracts and restrictive covenants and various other state and federal employment laws. Read more here.