Negotiating executive employment contracts

A strong employment agreement is the beginning of a good working relationship.

Many employment contracts end up being cookie-cutter agreements that fail to take in the circumstances surrounding the employment agreement. These "standard agreements" may often include unnecessary provisions; worse, they can lead to an unenforceable contract, create liability or leave both sides feeling as if they got the short end of the stick.

Negotiating an employment contract is the beginning of what each side hopes is a long and productive relationship. That means it is worth the time to create an employment contract that benefits both sides. When negotiating and drafting an employment agreement, a few issues that must be addressed include:

  • Compensation and benefits. The need to negotiate compensation is obvious, perhaps, but important nonetheless. There are a wide range of possibilities regarding compensation that can be factored into an employment agreement. A signing bonus, equity grants, future raises or reductions in pay, and severance pay are all negotiable points in an employment contract.
  • Job duties and scope of employment. At its most basic, an employment contract must give the employee a job title and basic responsibilities. Other issues could include relocation or demotion provisions, address work with other companies or non-profits during the time employed, and whether the employee will receive a seat on the Board of Directors.
  • Perquisites and employee benefits. This includes the basics like health and life insurance, but could also involve personal use of a company car or reimbursement of expenses.
  • Termination of employment. If an employee is not at-will, then giving reasons to end the agreement for cause is a must. Such causes could include committing a criminal offense, breaching the employment agreement, committing fraud or disclosing confidential information. A provision allowing for termination for any reason not prohibited by law is legally enforceable, as well.
  • Post-employment limitations and confidentiality. Many employment contracts contain anti-competition agreements as well. These agreements limit (with a narrow scope) the type of employment and geographical area an employee can perform once no longer employed with the present company. An anti-competition agreement must be carefully tailored to ensure it complies with the law.
  • Dispute resolution. Employment contracts should also include how potential disputes will be resolved. Confidential arbitration may be an option, for example. The contract should also name the governing law and where disputes should be litigated or arbitrated.

This is by no means a comprehensive list. What is appropriate to include in executive compensation agreements is highly dependent upon the industry, job duties and other factors unique to the situation.

Executives and board members looking to draft a comprehensive and enforceable employment agreement should contact a skilled employment law firm to discuss next steps and ensure the employment agreement meets the expectations of both parties.

Keywords: Employment contract, negotiation, anti-competition agreement