Input: Using ChatGPT version 3.5, GCT lawyers asked AI to generate an “Employment Agreement” based on the following prompts:

· “Draft me an employment contract using today’s date.”

· “Make it a more substantial agreement.”

Output: The resulting Employment Agreement was a substantially deficient and ambiguous document, which contains provisions that may be unenforceable in Court. While AI output improves as more details relevant to your specific circumstances are provided, it has a key limitation—AI programs do not necessarily stay up-to-date with changes in the law or incorporate binding legal precedent.

Relevantly, on April 23, 2024, the Federal Trade Commission (“FTC”) issued a new rule banning non-compete agreements in the United States for most American workers. The Employment Agreement generated by ChapGPT days after this decision still included a non-compete revision directly contrary to that FTC ruling.

Below, we walk through the issues with each provision of an AI generated Employment Agreement including: 1) unenforceable clauses; 2) failures to clearly define terms and obligations; and 3) key missing provisions you would expect to see in a well-drafted contract, including an assignment of intellectual property developed in the employee’s scope of employment.

Ensuring the enforceability of an agreement on the front end can prevent an employer’s involvement in unnecessary or ultimately unsuccessful litigation.

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Dear [Employee Name],

We are delighted to offer you employment at [Your Company Name] in the position of [Position Title], starting from [Start Date]. This contract sets forth the terms and conditions of your employment with us.

1. Position and Duties: You will serve as a [Position Title] reporting directly to [Supervisor/Manager Name]. Your primary duties and responsibilities shall include but are not limited to:

• [Detailed description of job responsibilities].
• [Any specific projects or tasks assigned].
• [Any expectations for performance and deliverables].

ISSUE:

· This contains no obligation for the employee to abide by the company’s rules, regulations, and guidelines, which can be important when enforcing an employee’s obligations under the agreement.

2. Employment Status: You will be employed on a full-time/part-time basis [select one]. Your standard work hours will be [specify hours per day/week], [specify days per week] per week, subject to change as required by business needs.

ISSUES:

· This should affirmatively state that the employment is “at will”.

· Is the employee exempt or non-exempt? Exempt employees are salaried and receive a monthly wage divided into pay periods. Additionally, exempt employees are not subject to the Fair Labor Standards Act’s (FLSA) overtime regulations and are therefore not entitled to overtime pay. A non-exempt employee, however, is typically paid hourly and is entitled to overtime pay if they work more than a specific number of hours (generally 40 hours) in any given week.

3. Compensation: Your starting annual salary will be [Salary Amount], payable in [frequency: weekly/bi-weekly/monthly]. You will also be eligible for performance-based bonuses, subject to evaluation and approval by management.

ISSUE:

· This provision does not include any language allowing for changes to salary based on performance in order to allow for a salary decrease if needed. Although this is not a common scenario, situations do arise when an employee is unable to perform at the job they were hired for and a company needs to demote them to a lower position. When this arises, a company may understandably want to decrease the employee’s salary to match what is reasonable given the new position and a failure to include that in the agreement may mean a company is opening itself up to liability.

4. Benefits: You will be eligible for the following benefits:

• Health insurance coverage, including medical, dental, and vision.
• Retirement savings plan (e.g., 401(k)) with employer matching contributions.
• Paid time off, including vacation days, sick leave, and holidays.
• [Any additional benefits offered by the company].

ISSUES:

· This does not specify when an employee is eligible to begin receiving benefits. Is there a 90-day period? It is common for a company to implement a specified period of time in which the employee must be employed at the company before they receive health care benefits, retirement benefits, paid time off, etc.

· Fails to specify the amount of the employer match and provides no context at what level of contribution the company is required to make to the employee’s 401(k). As written, the provision can be interpreted (another word you do not want associated with a contract provision) to require a company to match an employee’s 401(k) contribution dollar-for-dollar.

5. Confidentiality and Non-Disclosure: You agree to maintain the confidentiality of any proprietary information, trade secrets, and client/customer data of the company. This obligation shall continue both during and after your employment with us.

ISSUES:

· There are no definitions for key terms like “trade secret”, “proprietary information”, or “data”, and it fails to provide any examples of what types of information are subject to this provision. It should also separately define “confidential information” and “trade secret” information.

· The provision is potentially unenforceable under Illinois law because it continues indefinitely for confidential information—it should include a limitation on temporal scope. This can be contrasted with information that is a “trade secret” of the company, which is protected indefinably (or as long as the information remains a trade secret).

· This does not include any of the standard carve-outs for confidentiality provisions, including when an employer or employee may be required by Court Order to disclose certain confidential information as part of a lawsuit. 

6. Non-Compete Agreement: During your employment and for a period of [number] months after the termination of your employment, you agree not to engage in any business activities that compete with the interests of the company within [geographic area].

ISSUES:

· Non-compete provisions are barred for most employees based on the FTC ruling.

· Depending on where you are located, there were pre-existing limitations to non-compete provisions prior to the FTC ruling. In Illinois, the Freedom to Work Act provides that Employers be prohibited from entering into a “covenant not to compete” with any employee unless the employee’s actual or expected annualized rate of earnings exceeds $75,000.

· Since there is not a severability provision in this agreement, the whole contract could be voided if even one provision is held to be unenforceable. A severability clause allows other parts of the agreement to remain in effect even if others are illegal or unenforceable.

7. Termination: This employment is at-will, meaning that either party may terminate the employment relationship at any time, with or without cause and with or without notice. However, if the company terminates your employment without cause, you will be entitled to [severance benefits, if applicable].

ISSUES:

· This does not include any obligation to return company property/documents, including requiring the deletion of company confidential and trade secret information from the employee’s personal devices and accounts on termination of employment.

· This provision essentially handcuffs the company to its employees because it facially requires a severance package, even where one may not be required.

8. Governing Law and Dispute Resolution: This contract shall be governed by and construed in accordance with the laws of [State/Country]. Any disputes arising out of or relating to this contract shall be resolved through arbitration in [City/State], in accordance with the rules of the American Arbitration Association.

ISSUES:

· This does not allow for mediation or other potential forms of alternative dispute resolution, which may result in a resolution without the need to incur the costs of an arbitration.

· It does not allow for equitable or injunctive relief, which is generally obtained in Court, not through arbitration. There are times that a company may be in imminent danger of significant losses because a former employee has misappropriated and is using the company’s trade secret or confidential information with a competitor.

Please signify your acceptance of this employment offer by signing and returning a copy of this contract by [Acceptance Deadline].

We are thrilled to have you join our team and look forward to a mutually rewarding partnership.

Sincerely,

ISSUES: This agreement is missing various key provisions you would expect to see in employment agreements:

1. Fee Shifting: In jurisdictions that allow fee shifting (such as Illinois), it is prudent of an employer to include a provision that requires a breaching employee to re-pay the legal fees and costs incurred by the company in enforcing the employee agreement.
2. Integration: This avoids confusion over exactly what contractual provisions the employee is bound by because it states that the terms of the employment agreement are the complete and final agreement between the parties.
3. Intellectual Property Assignment: An employer will want to protect its rights to any intellectual property that is created by an employee as part of their role with the company.
4. 14-day notice: Include a notice advising employees to discuss the terms of the agreement with an attorney and providing them at least 14 days to review and sign (required in IL).

Note that there may be other specific provisions that are relevant to your business, and the particular role and duties of the employee.

Brad, AJ, Sarah and the employment team at GCT are available to assist with the drafting or revision of Employment Agreements to ensure they are kept up to date with the fast changing legal landscape of employment law.

Golan Christie Taglia, with 30 years of dedicated service, has consistently delivered successful outcomes while prioritizing top-tier quality and personalized attention for clients. With a diverse clientele that includes entrepreneurial ventures, high-net-worth individuals, middle-market businesses and nonprofit organizations, GCT stands as a strong and trustworthy firm for its clients.