Employment Contract Templates: What to Look For and What to Avoid
Employment contract templates are tempting—cheap or free, easy to use. But using a generic template for hiring (if you're the employer) or signing a bad template (if you're the employee) can create legal problems. This guide explains what good templates include, what red flags appear in bad templates, and when to hire a lawyer instead.
What Good Employment Contracts Include
Key sections in a good employment contract: (1) PARTIES: Who is the employer and employee, (2) ROLE & DUTIES: Job title, reporting structure, responsibilities, (3) COMPENSATION: Base salary, bonus structure, how/when paid, (4) EQUITY: If applicable, grant size, vesting schedule, strike price, acceleration terms, (5) BENEFITS: Health insurance, PTO, 401k, parental leave, etc., (6) TERM: Start date, at-will employment, notice period, (7) CONFIDENTIALITY: What info is confidential (and time limit), (8) IP ASSIGNMENT: Who owns work product (should carve out personal projects), (9) NON-COMPETE/NON-SOLICITATION: If included, should be narrow and reasonable, (10) SEVERANCE: If applicable, what triggers severance and amount, (11) DISPUTE RESOLUTION: Whether arbitration or court litigation applies, (12) GOVERNING LAW: Which state's laws apply (matters for enforceability). Good contracts define terms clearly (no vague language), are balanced (protect both employer and employee), and address edge cases (what happens if company is acquired?).
Red Flags in Bad Templates
Watch for: (1) ONE-SIDED PROTECTIONS: Non-compete only applies to employee (not company), clawback applies to employee but not company, (2) VAGUE LANGUAGE: "Fair market value" without defining it, "competitive compensation" without numbers, (3) MISSING KEY SECTIONS: No severance defined, no clarity on vesting, no definition of "for cause," (4) OVERLY BROAD RESTRICTIONS: Non-compete covers entire industry for 3 years nationwide, non-solicitation of "any customer," (5) NO TERMINATION PROTECTIONS: "At-will, can be terminated anytime without severance," (6) IP ASSIGNMENT TOO BROAD: All work product belongs to company, even personal projects, (7) ARBITRATION-ONLY: No right to sue in court for discrimination, wage theft, etc., (8) UNILATERAL MODIFICATION: "Company can change any term anytime," (9) UNLIMITED CONFIDENTIALITY: "All information is confidential forever," (10) EQUITY CLAWBACK: "Company can reclaim vested options/shares if you compete." These red flags suggest the template was drafted to favor employer heavily.
When to Use Templates vs Hiring a Lawyer
Use templates if: (1) You're hiring for junior roles (low risk), contract is straightforward, simple terms, (2) You're employee signing standard contract from established company (they've been vetted by many lawyers), (3) No equity, no restrictions, simple at-will employment, (4) Cost is constraint and contract seems standard. Hire lawyer if: (1) You're hiring for executive/high-value role, (2) Contract includes significant equity, non-compete, or clawback, (3) You're leaving a company and current non-compete might apply, (4) Any clause you don't understand, (5) Contract has vague or conflicting language. Templates are good starting points, but personalization is critical. Generic template for SF tech company might not work for Texas manufacturing. Also: templates don't account for your specific situation (your non-compete risk, your equity negotiations, your role-specific concerns).
Frequently Asked Questions
Are employment contract templates legal?
Yes, templates are legal starting points. But a template alone might not address your specific situation. A template written for generic junior role might not work for VP role with equity. And using a template without reviewing it closely can create problems (accepting bad non-compete, clawback clauses, etc.).
Should I use a free employment contract template?
Be cautious. Free templates are often outdated or biased toward employer. Better: Buy a template from reputable source (LegalZoom, Rocket Lawyer, etc.) or hire lawyer ($500-1,000) for custom contract. For simple roles, free template is okay if you review carefully. For complex roles, hire lawyer.
What should I change in a template before using it?
Review: (1) Restrictive clauses (non-compete, non-solicitation, IP assignment)—narrow them, (2) Severance terms—add them if missing, (3) Equity terms (if applicable)—add vesting, acceleration, clarity, (4) Governing law—set to favorable state if possible, (5) Notice period—limit to 2 weeks, make reciprocal, (6) Add carve-outs for personal projects, compliance reporting, etc. Don't just use template as-is.
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