Employment Agreements – Negotiating Employment Agreements

Excerpt from “Chapter 16. Representing the Executive” by Wayne N. Outten, appearing in Executive Compensation, editors Yale D. Tauber and Donald R. Levy, copyright © 2003 The Bureau of National Affairs, Inc. Reprinted by permission. 

During the 1990s, formal written employment agreements became increasingly common, especially for employees, technical experts, finance experts, and top sales and marketing people. By 1999, according to a survey of employee search firms, employment agreements were included in 45% of employee placements. Given the employment-at-will rule in the United States, an employment agreement containing such terms as a fixed term of employment, “good cause” for termination, notice of termination, and/or minimum severance pay is generally more desirable for employees than for employers. Even so, employers sometimes want employment agreements to serve their interests, such as imposing restrictive covenants limiting an employee’s ability to compete or to solicit clients or employees.

In a tight labor market, when employers compete for top talent, employees have more leverage to insist on firm, written commitments regarding compensation, job security, severance pay, and other terms of employment. This is especially true when an employer is trying to lure an employee away from a secure or lucrative position or to relocate to a new area. Moreover, the compensation packages for many employees include not only cash and stock bonuses, but also equity grants (e.g., restricted stock and stock options), deferred compensation, and other interests that vest over time. An employment agreement can ensure and secure those interests during and after the employment.

Before addressing the provisions of employment agreements, the role of the attorney representing the employee should be addressed. Although an employee might obtain a fair employment agreement without an attorney, the odds are against it. Invariably, the employment agreement will be drafted by the employer’s counsel, typically using a model that the attorney has used for other employers (if the attorney is an outside counsel) or has used for other employees of the employer. In any event, that document is rarely balanced or sufficiently protective of the employee’s interests. Thus, the employee’s attorney can make a big difference in the negotiation and drafting of the terms and language of the agreement. A qualified attorney can almost always help an employee get a better, stronger agreement than would otherwise be the case.