understanding executive employment agreements...understanding executive employment agreements mary...
TRANSCRIPT
![Page 1: Understanding Executive Employment Agreements...Understanding Executive Employment Agreements Mary Drobka Jeff Belfiglio July 13, 2011. 2 Big Picture More than contract law or drafting](https://reader034.vdocuments.mx/reader034/viewer/2022052006/601a1462201f18179d6c7136/html5/thumbnails/1.jpg)
Understanding Executive Employment Agreements
Mary DrobkaJeff BelfiglioJuly 13, 2011
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Big Picture More than contract law or drafting Employment and tax laws, regulations and court
rulings impact significantly Industry-specific regulations, laws or practices
also impact Significant risks of recycling forms or examples
without modification Know origins of form/template
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Overview Review some common sections/provisions Share drafting tips Identify traps Highlight selected laws, regulations Questions
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Preamble Tip: check exact legal name of employer Trap: New hire’s consideration = initial employment Existing employee’s consideration = ?
Best practice: Recite new consideration whenever executive is existing employee
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Position, Duties, Reporting Plan for future changes, if possible Initial job Initial location Initial duties Initial reporting relationship Modification by employer
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Position, Duties, Reporting Plan for future changes, if possible Initial job Initial location Initial duties Initial reporting relationship Modification by employer
Trap – attaching job description without reserving employer right to update, change Limitations on outside activities
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Term of Agreement Indefinite = at-will
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Term of Agreement Indefinite = at-will Executive may accept, provided agreement specifies
performance and compensation periodically reviewed Specific period = only terminable for cause prior to end,
unless otherwise provided Tip – anticipate what happens if continue in employment
beyond term without extension or new agreement Trap – will notice to renegotiate trigger severance in
event negotiations unsuccessful?
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Compensation – Base Salary Base salary = dollar amount per specified pay period,
less required/agreed upon deductions Trap – avoid “not less than”
In accordance with employer’s regularly established pay days Less agreed or required deductions WA state law limits certain deductions without employee’s
consent See WAC 296-126-025 and -028 Administered in accordance with employer’s usual
practices Tip – “administered” could mean increases or decreases
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Bonuses, Incentive or Deferred Compensation
Specify criteria to be used and who decides Complete vs. limited employer discretion
Tip – Refer to plan or carefully detail all conditions precedent Continued employment on payment date? Pro-rate for partial year? Payment on other than regular pay day?
Section 409A considerations Section 162(m) considerations
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Insured Employee Benefits & ERISA Plans
Best practice – “in accordance with Employer’s plans sponsored for its other employees” Tip – reserve right to modify unilaterally Trap – promising insurance coverage different
from or on different terms than rest of workforce Trap – promising early eligibility for employer
contributions or vesting
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Other Uninsured Employee Benefits Best practice – on same terms as rest of workforce and
subject to unilateral modification by employer Vacation/PTO – determine if agreement modifies any
standard practices as to earning, accrual, carryover, and/or payment at termination Tip – limit carryovers and cash outs if unlikely executive will
account for personal absences WA state law does not require cash out unless employer
obligated by contract, policy or established practice
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“Executive” Benefits Best practice – reimburse expenses “in accordance with
expense reimbursement policies”
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“Executive” Benefits Best practice – reimburse expenses “in accordance with
expense reimbursement policies” Tip – Board Compensation Committee’s review of any
unique reimbursable expenses Trap - Car or car allowance; accounting personal use Relocation assistance – repay if terminate within
specified period from hire date? Expressly authorize deduction from compensation to repay
Indemnification – Incorporate by-law provisions Possible trap – Incorporate RCW 23B.08.500 to .590 Another trap – Promises regarding D&O insurance/policy
terms
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Confidential Information Customizing definition significantly enhances
enforceability; evidence of consideration, too Trade secrets should always be one non-
exhaustive example No temporal limit, if truly confidential Tip – watch for unusual state laws, and try to
limit applicability with choice of law Breaches exempt from arbitration
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Non-competition Recite protectable interests Scope - no greater than needed to protect legitimate interests Always customize Ask if nonsolicitation of customers/coworkers
suffice? Temporal limit – no longer than necessary to protect legitimate
interests Geographic limits vs. customer-focused restrictions Traditional remedies: actual damages; injunctive relief; possibly
liquidated damages Self-help remedies: forfeiture or cancellation of severance
benefits, deferred compensation, stock options or other equity Watch for more restrictive state laws; manage risk with choice of
law and mandatory forum selection provisions Exempt from arbitration
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Termination Without Cause Usually triggers severance payment, when
employer terminates Tip – if prior notice required, preserve employer
option to limit services during notice period
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Termination Without Cause Usually triggers severance payment, when
employer terminates Tip – if prior notice required, preserve employer
option to limit services during notice period Specify if severance will be paid in lump sum(s)
or through salary continuation Pre-condition on signing severance & release
agreement and recite features of standard agreement: 21 days to consider; 7 days to revoke; effective date is 8th day after signed; specify date severance paid or begins
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Termination for Cause Usually no severance when employer terminates Usually triggers loss of bonus, deferred compensation,
stock options, etc. Immediate or effective after short notice/opportunity to
cure Tip – pay attention to definition of “cause” – often
heavily negotiated Any other act or omission that constitutes Cause under the
common law of Washington Bankruptcy, financial insolvency, etc. Unsatisfactory performance or misconduct Death (but not disability?)
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Overview of Section 409A Issues –Severance
Payment upon disability or death “Good Reason” definition Using available exceptions vs. compliance Six-month delay Timing of release
COBRA assistance – 409A and tax issues
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Change of Control – Overview Single or Double Trigger? Single trigger requires 409A definition Double trigger─if can leave voluntarily, also must
comply with 409A─does not fit exceptions Golden Parachute limits─Cut back? Gross up?
Best net of taxes?
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Boilerplate If include arbitration/ADR, exempt restrictive covenants
and carefully select service/rules
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Boilerplate If include arbitration/ADR, exempt restrictive covenants
and carefully select service/rules Preserve employer’s right to assign agreement
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Boilerplate If include arbitration/ADR, exempt restrictive covenants
and carefully select service/rules Preserve employer’s right to assign agreement Integration clause should expressly provide handbooks
and policies are not contracts and preserve employer’s right to modify Notices: will email = written notice? Amendments in writing, except? Consider Section 409A saving clause