Employment Agreements
Employment agreements document the terms of an employment relationship. Written employment agreements are the exception rather than the rule. There are times, however, when it makes business sense to enter into a solid, written agreement governing the employment and post-employment relationship.
Employment agreements typically include a description of role and responsibilities, duration of employment, salary and benefits, limited grounds for early termination, effect of early termination, and any post-employment obligations.
Many employment agreements contain non-competition agreements that can limit what jobs an employee can take after leaving the employer, and both employers and employees should be mindful in entering into such agreements.
Employers look to delineate employee obligations and clarify limits on employer obligations. Executives and employees of all levels look at agreements with an eye toward spotting cracks that might mean not receiving expected protections. For instance, seeking protection from premature and arbitrary discharge means careful review of termination clauses and "cause" definitions. A narrow "for cause" clause provides some protection from discharge (without penalty in the form of severance) over a disagreement about the adequacy of the executive's performance. When performance is included as a ground for termination, a “notice and cure” provision may afford an opportunity to cure problem, or an opportunity to negotiate an exit if the employer prefers to move forward without compliance with the notice and cure provision.
A second form of protection may be allowing an executive to resign for good reason with severance upon a material negative change in the employment relationship. The changes that may be relied on to trigger such a clause typically include a material decrease in pay, duties, authority, budget, or reporting relationship; a material geographic change in work location; or other material breach of the employment agreement. Executives should expect that the good reason clause will include a notice and cure provision.
Executives may also be concerned about the potential risk tied to destabilizing organizational changes. A change of control clause will define certain events — such as the sale of the company — that trigger certain payments and benefits. Often change of control agreements are vague or overly complicated. Executives may look for specific, clear, practical, and easy to understand change of control provisions.
Employment agreements typically include a description of role and responsibilities, duration of employment, salary and benefits, limited grounds for early termination, effect of early termination, and any post-employment obligations.
Many employment agreements contain non-competition agreements that can limit what jobs an employee can take after leaving the employer, and both employers and employees should be mindful in entering into such agreements.
Employers look to delineate employee obligations and clarify limits on employer obligations. Executives and employees of all levels look at agreements with an eye toward spotting cracks that might mean not receiving expected protections. For instance, seeking protection from premature and arbitrary discharge means careful review of termination clauses and "cause" definitions. A narrow "for cause" clause provides some protection from discharge (without penalty in the form of severance) over a disagreement about the adequacy of the executive's performance. When performance is included as a ground for termination, a “notice and cure” provision may afford an opportunity to cure problem, or an opportunity to negotiate an exit if the employer prefers to move forward without compliance with the notice and cure provision.
A second form of protection may be allowing an executive to resign for good reason with severance upon a material negative change in the employment relationship. The changes that may be relied on to trigger such a clause typically include a material decrease in pay, duties, authority, budget, or reporting relationship; a material geographic change in work location; or other material breach of the employment agreement. Executives should expect that the good reason clause will include a notice and cure provision.
Executives may also be concerned about the potential risk tied to destabilizing organizational changes. A change of control clause will define certain events — such as the sale of the company — that trigger certain payments and benefits. Often change of control agreements are vague or overly complicated. Executives may look for specific, clear, practical, and easy to understand change of control provisions.