Employment Agreement Red Flags: A Checklist
A fast checklist of the clauses that most often work against the employee — grouped by covenants, pay, and exit.
Last reviewed: May 26, 2026 by the BizLeaseCheck Editorial Team
General information, not legal advice.
Overview
Most employment-agreement risk clusters in the restrictive covenants, the conditions on pay and equity, and the termination and dispute terms. This checklist links the deeper guides so you can spot the issues before you sign.
It is written for the employee.
Topics to check
A multi-year, nationwide, or "any competitor" non-compete; a customer non-solicit that bars accepting business rather than just soliciting; an invention-assignment clause with no own-time carve-out where your state requires one; and a perpetual, overbroad confidentiality clause that ignores the legal limits on barring government reporting.
These follow you after you leave, so resolve them before you sign — and treat non-compete enforceability as a state-specific question for an attorney.
Covenant not to compete (Cornell LII Wex)A bonus that is fully discretionary or forfeited unless you are employed on the payout date; commissions the company can re-plan at will; equity with a long cliff and no acceleration; a 90-day post-termination option-exercise window you could not afford; and a broad clawback tied to vague triggers.
Tie each number to the condition that can erase it, and negotiate the conditions, not just the headline.
IRS — Topic no. 427, Stock optionsA broad "cause" definition with no notice or cure; no "good reason" trigger; severance that is small or heavily conditioned on covenant compliance; a release that overreaches; and a one-sided mandatory-arbitration clause with a class-action waiver (remembering the EFAA carve-out for harassment/assault claims).
These decide what you walk away with — negotiate a narrow "cause," a real "good reason," and balanced dispute terms.
EEOC — Waivers of Discrimination Claims in Severance AgreementsKey takeaways
- Covenants: overbroad non-compete, broad non-solicit, no IP own-time carve-out, perpetual NDA.
- Pay/equity: discretionary or forfeitable bonus, long cliff, no acceleration, short exercise window, broad clawback.
- Exit: broad "cause," no "good reason," conditioned severance, overreaching release, one-sided arbitration.
- Non-compete enforceability is state-specific — treat it as a lawyer question.
- Resolve the covenants and exit terms before signing, when you have the most leverage.
Official resources
Legal-review notes
Guide confidence marker: Medium confidence.
- This checklist is general issue-spotting, not jurisdiction-specific legal conclusions.
- Non-compete, invention-assignment, and arbitration enforceability vary by state; confirm high-stakes terms with a licensed attorney.
Frequently asked questions
What is the biggest red flag in an employment agreement?
An overbroad restrictive covenant — a long, wide non-compete or an invention-assignment clause with no own-time carve-out — combined with a broad "cause" definition and conditioned severance. Together they limit your future and what you walk away with, so they deserve the most scrutiny.
How do I use this checklist?
Read the agreement once for the restrictive covenants, once for pay and equity conditions, and once for termination and dispute terms. Flag anything on this list, and resolve the covenants and exit terms before you sign. For high-stakes terms, have a state-licensed attorney review it.
When do I have the most leverage?
Before you accept. Once you sign, the covenants and exit terms are set, so negotiate the non-compete, equity acceleration, the definition of "cause," and severance up front. Employers expect some negotiation, especially on senior roles.