Dangerous Contract Terms: Know the Risks
Some contract terms aren't just bad—they're dangerous. A 5-year non-compete could end your career. A clawback clause could leave you owing money. Unlimited confidentiality could prevent you from working. This guide identifies the most dangerous terms and explains the risks.
Most Dangerous Terms
1. CLAWBACK THAT EXCEEDS YOUR REMAINING PAY: You get $50k signing bonus. Clawback: "Full repayment if you leave within 24 months." You leave at month 12 after earning $40k salary. Company demands $50k back from your final paycheck. You owe money. This can create negative final pay. DANGEROUS. 2. VESTING CLIFF >1 YEAR: You lose 25%+ of equity if you leave early. In high-risk startup, all your compensation might be equity. Long cliff = all compensation at risk. 3. NON-COMPETE NATIONWIDE + ENTIRE INDUSTRY: Effectively prevents you from working in your field for years. Could force career change. 4. PERMANENT NDA: You can never speak about your work even after leaving (forever). Can prevent consulting, advising, or future job references. 5. IP ASSIGNMENT OF PERSONAL PROJECTS: Company claims ownership of anything you code, design, write—even personal projects on your own time. Can destroy side gigs or startup ideas. 6. FORCED ARBITRATION: You give up right to sue. Arbitration usually favors companies. If company wrongfully fires you, you can't get jury trial. 7. UNILATERAL MODIFICATION: Company can change any term unilaterally (including salary, benefits, hours). You have no job security.
Questions to Ask About Dangerous Terms
(1) CLAWBACK: "Will clawback ever exceed my remaining salary?" (If yes, decline.) (2) NON-COMPETE: "Can I work for non-direct competitors in my field?" (If no, too broad.) (3) NDA: "Does confidentiality apply to working conditions, safety violations, whistleblower reports?" (If yes, concerning.) (4) IP: "Does company claim ownership of my personal projects not related to company work?" (If yes, bad.) (5) SEVERANCE: "What happens to my equity if company lays me off?" (If nothing, risky.) (6) ARBITRATION: "Can I choose to sue in court instead of arbitration?" (If no, they have advantage.)
How to Protect Yourself
(1) BEFORE SIGNING: Review contract thoroughly using this guide. Ask hard questions. Don't skip this. (2) DURING NEGOTIATION: Propose narrower terms. "Can we limit non-compete to 1 year + 50 miles?" (3) GET IT IN WRITING: Verbal changes don't count. Email confirmation from HR. (4) SAVE EVERYTHING: Keep copy of signed contract, all emails, all amendments. (5) IF YOU SIGN BAD TERMS: Understand your risks. Plan exit strategy (when can you leave?). Consult lawyer if uncertain.
Frequently Asked Questions
If I'm stuck with a dangerous clause, what can I do?
Options: (1) Ask company to amend (hard, unlikely). (2) Consult lawyer about enforceability (some bad clauses are unenforceable). (3) Plan exit date (when can you leave/change careers). (4) Seek legal advice before taking action (non-compete violation can result in lawsuit).
How common are dangerous clauses?
More common than you'd think. Many startups use aggressive non-competes, clawbacks, and IP assignments. Established companies often use binding arbitration. You need to review carefully.
If a clause is unenforceable, can I ignore it?
Not recommended. Even if unenforceable, company can sue you. You'd need to prove unenforceability in court. Litigation is expensive. Better to negotiate good terms upfront.
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