Employment Agreement

An employment agreement is a comprehensive contract governing an employment relationship between company and employee, used primarily for executives and international employees. It covers compensation, equity, severance, restrictive covenants, indemnification, and other material terms in greater detail than the simpler offer letter used for most US employees at-will. The document covers role and responsibilities, base salary and equity grants, term and termination triggers, severance entitlements, restrictive covenants (non-compete, non-solicit, confidentiality, IP assignment), indemnification, and dispute resolution. Offer letter and employment agreement serve similar purposes but at different complexity levels.

The standard contents:

Role and responsibilities:

• Job title and reporting structure.
• Specific role responsibilities.
• Performance expectations.

Compensation:

• Base salary and review schedule.
• Variable compensation (bonus, commission).
• Equity grants with vesting and acceleration provisions.
• Benefits eligibility.

Term and termination:

• Employment term (at-will for most US; fixed-term for some).
• Termination triggers (with cause, without cause, by employee).
• Severance entitlements.
• Notice periods.

Restrictive covenants:

• Non-compete (where enforceable).
• Non-solicitation (customers and employees).
• Confidentiality.
• IP assignment.

Severance:

• Termination without cause: typically 3-12 months of salary, benefits continuation, equity acceleration.
• Termination for cause: typically no severance.
• "Good reason" definition for executive resignations.

Indemnification:

• Company indemnifies executive for actions taken in good faith on behalf of company.
• D&O insurance coverage.

Dispute resolution:

• Arbitration vs litigation.
• Governing law and jurisdiction.

Employment agreement vs offer letter:

Offer letter: simpler, used for most US employees at-will, references handbook and other policies.

Employment agreement: comprehensive, used for executives, international, and other senior roles, contains all terms directly.

Both can include:

• Compensation, equity, benefits.
• IP assignment, confidentiality.
• At-will employment language (US).

Employment agreement adds:

• Detailed severance provisions.
• More specific role definition.
• Indemnification.
• Detailed restrictive covenants.

When to use employment agreement vs offer letter:

Use employment agreement for:

• C-suite executives.
• VP-level senior leaders (sometimes).
• International employees.
• Fixed-term contracts.
• Where significant severance is negotiated.

Use offer letter for:

• Most US-based employees.
• At-will employment standard cases.
• Where company handbook covers most terms.

What founders get wrong: Using inconsistent documents across similar roles, or using simple offer letters for executives who need full employment agreements with severance and indemnification provisions. The right discipline: use the right document for the role; standardize within each tier.

Related: Offer Letter · IP Assignment · Non-Compete Agreement · Restrictive Covenants · Employee Handbook

FAQ

What is an employment agreement?
A comprehensive contract governing an employment relationship, used primarily for executives, international employees, and certain senior roles. More detailed and contractual than offer letters used for most US employees.

How is employment agreement different from offer letter?
Offer letter: simpler, used for most US employees at-will, references handbook. Employment agreement: comprehensive, used for executives/international/senior roles, contains all terms directly. Different complexity levels for different roles.

When should I use employment agreement vs offer letter?
Employment agreement for C-suite, sometimes VP-level, international employees, fixed-term contracts, and roles with significant severance. Offer letter for most US-based at-will employees where company handbook covers most terms.