How to read a job offer letter and employment contract before you sign

An offer letter arrives, you scan for the salary and the start date, and you sign. Months later you discover the bonus was “discretionary”, the equity vests over four years with a one-year cliff, and the non-compete you did not read says you cannot work for a competitor within 50 miles for a year after leaving.

None of that is hidden. It is all in the document. People do not read it because employment contracts are dull and because there is a feeling that questioning terms will make the employer think twice. In practice, employers expect questions.

This is a clause-by-clause walk through what you are likely to find, what each term means for you, and what to ask before you sign.

Offer letter versus contract

In the US, most people receive an offer letter rather than a full employment contract. The letter states the role, pay, start date and a few key terms, and usually says employment is “at will”. Other terms live in separate documents you may be asked to sign on day one: a confidentiality and invention assignment agreement, an arbitration agreement, an employee handbook acknowledgement. Ask for all of them before you accept, because once you have resigned from your current job your bargaining position has gone.

In the UK, employers must provide a written statement of employment particulars by the first day of work, and most provide a full contract. Canada and Australia are similar. Wherever you are, everything you were promised in interviews needs to be in writing, and anything in writing that you were not told about needs a question.

Base pay and how it is expressed

Check the number, the currency and the pay frequency. Then check for anything that qualifies it: “subject to satisfactory completion of probation”, “pro-rated for part-time hours”, “inclusive of any overtime”. In the UK, “inclusive” language matters because there is no statutory right to overtime pay. In the US, look for whether the role is described as exempt or non-exempt, which determines overtime eligibility (we explain that in salary vs hourly).

Look for a review date. “Salary reviewed annually” is standard and commits the employer to nothing. “Salary reviewed at six months with the expectation of movement to X subject to performance” is a real term, and if that was promised verbally, ask for it to appear.

Bonus: target, discretionary, guaranteed

Bonus language is where the biggest gap between expectation and reality usually sits. Three words to look for:

Target. “Eligible for an annual bonus with a target of 15% of base.” A target is what you would get if the company and you both hit plan. Ask what percentage of target was actually paid out for this role in each of the last two years. If it was 60% one year and zero the next, the bonus is worth far less than 15%.

Discretionary. The employer decides whether to pay anything at all. Common and not necessarily bad, but you should value it at zero when comparing offers.

Guaranteed. Rare, usually only for the first year and usually only if you negotiated it to cover a bonus you forfeit by leaving your current job. If you negotiated one, make sure the letter says “guaranteed” and states the amount and the payment date.

Also check the conditions: most bonus schemes require you to be employed, and sometimes not under notice, on the payment date, which matters if you ever plan to resign shortly before bonuses are paid.

Equity: the questions that matter

If the offer includes stock options, restricted stock units (RSUs) or shares, the headline number tells you almost nothing. Ask for, and get in writing:

• The number of units or options, not just a dollar value.
• The vesting schedule. Four years with a one-year cliff is common in US tech: nothing vests until the first anniversary, then the rest vests monthly or quarterly. Leave in month eleven and you get nothing.
• For options: the strike price and the current fair market value (the 409A valuation, in the US). Options are only worth the difference.
• What happens when you leave. How long you have to exercise vested options after departure (often 90 days, which can mean a large tax bill to keep them), and whether unvested equity accelerates on a sale of the company.
• The total shares outstanding, so you can work out what percentage your grant represents. A startup that will not tell you this is asking you to value a number with no denominator.
• Tax treatment. This varies by country and by option type. Get specific advice before exercising anything; the contract will not explain it.

Probation

A probation period of three to six months is normal in the UK, Canada, Australia and much of Europe, and increasingly appears in US letters too. During probation, notice periods are usually shorter on both sides and some benefits may not start. Check three things: how long it is, whether it can be extended (and by how much), and what changes when it ends. A contract that says “probation may be extended at the company’s discretion” with no limit deserves a question.

Notice periods

Notice is how much warning each side has to give to end the relationship. Look for asymmetry. A contract that requires you to give three months but lets the employer give one is legal in most places but worth pushing back on.

In the UK, statutory minimum notice from the employer is one week per year of service after the first month, up to twelve weeks, but contractual notice is usually longer and applies both ways. Watch for garden leave (you are paid but kept away from work and clients during notice) and pay in lieu of notice (PILON) clauses, which let the employer end things immediately by paying out the notice period.

In Canada, common-law reasonable notice can be far longer than the statutory minimum, and clauses that limit you to the minimum are not always enforceable; for senior roles, a short conversation with an employment lawyer pays for itself.

In the US, at-will employment (below) means notice is usually a courtesy rather than a legal requirement, though executive contracts often set notice terms.

At-will language

Most US offer letters say something like: “Your employment is at will, meaning either you or the company may end it at any time, with or without cause or notice.” This is the default in every US state except Montana, and the letter is simply confirming it. It does not mean you can be fired for an illegal reason (discrimination, retaliation, and so on), and it does not override any severance terms the letter also sets out.

What to look for is anything that contradicts it in your favor. A letter that promises “a guaranteed twelve months of employment” or “severance of three months’ base if terminated without cause in the first year” is giving you something at-will employment would not.

Outside the US, at-will does not exist in the same form; dismissal generally requires notice and, after a qualifying period, a fair reason.

Non-compete, non-solicit and confidentiality

These are the restrictive covenants, and they are the clauses most likely to affect your next job rather than this one.

Non-compete. You agree not to work for a competitor, or in a defined industry or area, for a period after leaving. Enforceability varies hugely. California, along with a few other states, generally refuses to enforce non-competes for employees, and several others limit them by income level or duration. The US Federal Trade Commission’s attempted nationwide ban was blocked in court, and the position keeps shifting, so check the current law in your state. In the UK, non-competes are enforceable only if they go no further than necessary to protect a legitimate business interest, and courts often strike down long or broad ones; the government has consulted on capping them at three months. In Canada, Ontario banned most non-competes for non-executive employees in 2021, and other provinces apply a strict reasonableness test.

Even where a non-compete may not be enforceable, it can be used to threaten you and your next employer. Ask for it to be removed or narrowed: shorter duration, limited to named competitors, limited to the specific business line you work in. Employers often agree.

Non-solicit. You agree not to poach clients or colleagues for a period after leaving. More often enforced than non-competes and generally more reasonable. Check whether “solicit” includes responding to someone who approaches you (some drafts try), and whether the client list is limited to clients you actually worked with.

Confidentiality. Standard and reasonable. Make sure it excludes information that is already public or that you knew before joining, and that it does not purport to stop you reporting illegal conduct to a regulator.

Intellectual property and invention assignment

Most contracts assign to the employer anything you create in the course of your employment. That is fair. What is not fair, and what you should push back on, is language that captures everything you create at any time, on any equipment, whether or not related to the business. If you have a side project, an open-source contribution, a book, a small business, get it listed as an excluded prior invention in a schedule to the agreement. Several US states, including California, limit how far invention assignment can reach into work done on your own time without company resources.

Other clauses worth a second read

• Arbitration agreements. Common in the US: you give up the right to sue in court over employment disputes. Often not negotiable, but know that you signed one.
• Clawback or training repayment. Some employers require you to repay signing bonuses, relocation costs or training fees if you leave within a set period. Check the amount, the period, and whether it applies if they end your employment.
• Hours and location. If you agreed to remote or hybrid work, it should be in the letter or contract, not just in an email from the recruiter. “Your normal place of work is [office address]” gives the employer the right to require you there.
• Entire agreement clause. Says that the written document is the whole deal and nothing said in interviews counts. Standard, and the reason everything you were promised needs to be on paper.

Questions to ask before signing

Send these in one email, politely, with a note that you are keen to accept once you have the answers.

1. Can you send all documents to be signed on or before the start date, including any confidentiality, IP, arbitration or restrictive covenant agreements?
2. What percentage of the bonus target was paid for this role in each of the last two years?
3. For equity: number of units, vesting schedule, strike price and current valuation, post-termination exercise window, and total shares outstanding.
4. Is the non-compete negotiable in duration or scope?
5. Can [existing project or business] be added to the excluded inventions schedule?
6. Can the agreed [remote days, review date, guaranteed first-year bonus] be added to the offer letter?

Reasonable employers answer these within a few days. If a question makes an employer noticeably cooler towards you, treat that as a data point about what they will be like to work for.

When to pay for advice

For most roles, careful reading and a few emails are enough. Pay for an hour with an employment lawyer when the package includes significant equity, when a non-compete could realistically block your next move, when severance or guaranteed terms are being negotiated, or when you are in Canada and being asked to sign away common-law notice. A lawyer will often spot a drafting problem the employer will fix without argument.

Print the documents, read them with a pen, and do not resign from your current job until the version you sign matches the deal you were offered.