Why you should actually read your employment agreement before you sign!

We recently had an employment agreement related issue arise here at the firm that reminded me how unequal the bargaining power can be in employment relationships. A very large Bank here in Chicago slipped into an equity incentive agreement-a provision which altered the statute of limitations for our client’s claims.  If you are sitting there asking, “What is she talking about?” you would be like most of our clients.  So, let me back up.

Employees oftentimes sign a number of documents before and during their employment such as an employment agreement, a non-compete agreement (or other restrictive covenants) or other agreements linked to other incentive compensation such as equity, stock or bonus plans. Most employees do not read these agreements–at least not carefully.  Employers know that and some are taking advantage of that fact by inserting releases or alterations of legal rights.

Which brings me back to our recent issue: the client signed an incentive compensation agreement which entitled him to certain compensation upon reaching certain objectives.  This is good, right?  The problem was, the client was terminated and believed he had legal claims unrelated to the compensation agreement.  One of our lawyers reached out to opposing counsel only to learn that the Bank was taking the position that the client was bound by a six-month statute of limitations period on claims that would otherwise have a statutory period of 300 days for filing.  The reason?  Apparently the client had agreed in her incentive compensation agreement to limit the statute of limitations period for any employment claim to six months.  Crazy, right?  One would think this certainly couldn’t be binding, right?  Especially as to claims that have nothing to do with the incentive compensation plan, right?  You would be wrong.  Illinois courts (including the Seventh Circuit Court of Appeals) have held that contractual alterations to statute of limitations periods are enforceable–even those that alter statute of limitations that are contained in federal or state statutes.

The result? Regular employees who may not understand legalese or even those who do not review the entire agreement are signing away their legal rights without knowing it.

This statute of limitation alteration is rare but we regularly see releases of other legal rights buried in employment agreements. Here are some of the more common ones to look out for:

1. Arbitration clauses: these are extremely common and are oftentimes hiding in employment or non-compete agreements. Opponents refer to these as Forced Arbitration Clauses because employees rarely, if ever, have the power to negotiate them out of their agreements. By signing an agreement with an arbitration clause in it you are agreeing to give up your right to file your claim in court (and to have it heard by a jury) and, instead, are agreeing to have a private arbitrator decide it. Courts regularly enforce these agreements, although each year groups such as the National Employment Lawyers Association, of which we are members, try to challenge the enforceability of these provisions. See, https://www.nela.org/index.cfm?pg=mandarbitration

2. Waiver of your right to a jury. Despite the fact that the 7th Amendment of the U.S. Constitution guarantees us the right to a trial by jury, employers sometimes will insert a waiver of this right into employment agreements and, once again, courts typically uphold these.

3. Choice of Law/Venue: You work in Chicago and would think that if you file a lawsuit against your employer it would be in Chicago or at least somewhere in Illinois right? Not necessarily. Employers who are headquartered elsewhere oftentimes slip in choice of law/venue provisions in agreements asking employees to agree that if they sue them they will do so on the company’s home turf–i.e. usually the city/state in which they are headquartered rather than the employee’s turf where s/he worked. With these choices of law/venue provisions employees could find themselves trying to litigate out of state which for obvious reasons can be more expensive and logistically difficult. These provisions also sometimes result in a different state’s laws being applied to the case than the state in which you are litigating.

When an employee signs an employment agreement it is usually a happy occasion, i.e. a new job, a raise or other type of financial incentive.  Because of that, employees tend to ignore the provisions in these agreements which do not seem right or, worse, are patently unfair.  The problem is that the employment relationship may not always remain as happy as it is on the day of the signing and these hidden provisions can really come back to haunt an unassuming employee.  The lesson that should be taken away is to read what you sign and if you do not understand any part of it talk to an employment lawyer who will.