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10 things to consider before signing your employment contract

Last updated on: December 7, 2011 17:31 IST

10 things to consider before signing your employment contract

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So you have cleared all the rounds of group discussions and infinite rounds of interviews and landed a job. Next you just need to sign this contract and that's that! But hold on! Before you sign on the dotted line, there are a few things you should do.

Don't let the relief of having reached the end of your job search make you complacent. While an employment contract will vary from industry to industry and based on seniority, but the basic tenets of reviewing your contract don't change. You quickly check the hygiene factors.

Check that your name is spelt correctly, the designation is the one you interviewed for. Check that it mentions your date of hire, the address of the office you would be working from (if it is a fixed office, desk job.) Ensure that the contract clearly lists your salary structure, including benefits, bonus, variable pay etc. If the contract mentions any annexure or attachment, check that it includes the mentioned attachment. Don't sign without seeing the addendum.

Once you have done a quick check on the contents, it is time to drill deeper. The basic thinking here is "Don't sign anything you don't understand".

It doesn't mean you have to necessarily ask the company what it means but you can search the Internet, ask friends and seniors, and if it is too full of legal speak; feel free to consult a legal expert. In most cases, for well-reputed and big firms, the contract would be a standard agreement. At the entry level you wouldn't have too much leeway in terms of negotiating the individual items, but for others you may. There is no harm in trying anyways. It goes without saying that you have to go about doing it in a very professional manner so as not to jeopardise your job prospects.

Following are the key sections and items you should check in detail, if present, in your contract. Use your judgment and try to negotiate for the terms to be at least fair and just; if not in your favour.



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Compensation structure

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Ensure that the salary structure is clearly detailed in the contract and is as per what you were conveyed / had negotiated. If there is a variable pay, bonus component, stock options or any such other performance based compensation, ensure that it is listed separately.

Make sure the criterion that triggers the bonus is clearly listed (at the least it should say 'based on scorecard' or something to this effect). Also check the other benefits, that you are entitled to, and from how many days since joining. Also check for any compensation lock-in if any, which specifies the quantum of rise in salary and salary revisions if any.



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Job responsibilities and reporting structure

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If feasible, make sure the contract states your major job responsibilities (would depend on the nature of the job). Then cross check this with what you had applied for. Bring it to the notice of the company if you have any discrepancies. Also get who you would be reporting to, included in the contract (designation of the person at the least). This way you are covered to some extent for instances where an additional layer is subsequently added to the hierarchy.


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Probation period

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For your first job after graduation, you would probably have a probation period before you become a permanent employee. Check the length of the probation period. If possible, ensure that the criteria for evaluating your performance at the end of the probation period are clearly explained.


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Leave policy

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Check the amount of vacation time you are entitled to. If there are different kinds of leaves, check which ones can be carried forward and / or encashed as against the ones that lapse at the end of the year. Evaluate if there is a provision to set-off your leaves against your notice period.


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Notice period and termination clause

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Confirm your notice period and ensure that the causes that can lead to your termination are explained. For eg in the US, employment is 'at will' where as in countries like China, you can't always fire at will. If eligible, check your severance pay provision.

So if the company terminates your employment they would be entitled to pay you a certain amount. As a corollary, check the months of notice the company has to give you before they can terminate you. In the same vein if you don't serve the full notice period check the amount of money you would be entitled to pay the company for leaving before time.

Check whether this is stated in gross salary or net salary terms. In the best case, you would want both, you and the company to have the same notice period for parting ways.



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Bond

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This is the counter part of severance pay and quite prevalent in India especially among IT companies. While I am not the right person to comment on its legal aspects, if your employer requires you to sign a bond, check the clauses. Check the duration you need to work before you can leave, the amount you would have to pay if you violated the bond period and so on. There have been instances where some firms ask for original graduation certificates or passport as collateral (especially if the posting is abroad). I would be wary of such firms. If you have to give monetary surety, understand the nature of the surety and the financial instrument in concern.


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Intellectual Property

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If you are working in a research set-up or a very specialised industry, your employment agreement would include a clause relating to who owns the intellectual property on the work done or inventions and discoveries while employed at the company. In most cases the IP would belong either to the company or jointly owned with the employee. See if the contract allows for joint patents. Do evaluate what is required of you in lieu of joint patents.



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Non-compete clause

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Again depending on the nature of your industry the contract might include a non-compete clause, which would prevent you from working for competitors or starting your own firm in the same domain. Try to keep the definition of this as narrow and specific as possible. So an explicit listing of competitors and time frames is better than a generic clause. As an example, "You can't work with firms A, B and C for 2 years after quitting" is better than "You can't work with competitors". The broader the definition, the higher the chance that you may unknowingly violate it.



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Confidentiality or Non-Disclosure

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Similar to the non-compete clause, depending on the nature of your work and industry specifics; you would have to sign a confidentiality or a non-disclosure agreement. The same concept of keeping it narrow applies here as well. The narrower and more explicit the definition, the lesser the chance of you accidentally violating it.




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MFN

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Similar to the Most Favored Nation status in international diplomacy, if you can get a similar clause included in your agreement, it will ensure that when someone is hired after you in a similar role and designation, at a higher salary, all other things being equal, your salary will be adjusted to be on par with the new joinee.


At an entry level, you might not have much leeway about some of the things mentioned above, but I hope that via this article you at least have some idea about what you are getting into when you sign the dotted line.

Although this article may be a good starting point, it is best to seek legal advice when in doubt. The author is not liable for any damages that may arise out of acting on the advice given in this article.

Sanket J Dantara is the author of From Cubicles 2 Cabins: A survival guide to your first job and can be reached at elfseries@gmail.com.




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