Negotiating Executive Employment Agreements: Cutting A Path Through The Regulatory Thicket
Wendi S. Lazar and Katherine Blostein write about negotiating executive compensation agreements, and current issues. The landscape of executive compensation has changed significantly since the financial crisis of 2008. As a result of the ensuing downturn and increased public scrutiny, executives’ leverage in negotiating the terms and conditions of their employment and equity agreements has decreased. The overwhelming outcry about excessive pay from shareholders and the public following the downturn resulted in new legislation that limits executive pay for top executives at public companies and imposes compensation restrictions and disclosure requirements on large companies generally. However, in the intervening years, the Securities and Exchange Commission still has not enacted rules implementing a significant portion of the new legislation, and therefore much uncertainty remains. In addition, the past several years have seen a return to performance-based compensation, as well as a movement towards eradicating excessive guaranteed bonuses on Wall Street and among other bonus-based businesses. Wendi S. Lazar and Katherine Blostein write about negotiating executive compensation agreements, and current issues. Bloomberg BNA, Pensions and Benefits Daily. Reproduced with permission from Pension & Benefits Daily, 127 PBD, 07/02/2014. Copyright 2014 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com
Wendi S. Lazar and Katherine Blostein. Bloomberg BNA, Reproduced with permission from Pension & Benefits Daily, PBD, 11/02/2011. Copyright 2011 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com
The financial crisis of 2008 and the ongoing down-turn in the economy has had a significant effect on executive compensation and on executives’ leverage in negotiating the terms and conditions of their employment and equity agreements. The overwhelming outcry about excessive pay from shareholders and the public has resulted in federal regulations that limit executive pay for top executives at public companies and impose compensation restrictions and disclosure requirements on large companies generally. In addition, there has been a return to performance-based compensation, as well as a movement toward eradicating guaranteed bonuses on Wall Street and among other bonus-based businesses.
However, because of a need for top talent in tough times, companies are adjusting to the newly imposed restrictions and, where possible, are finding creative ways to structure compensation packages for employees. Unfortunately, public opinion is not as easily assuaged. The current challenge for companies and their counsel negotiating executive agreements is to balance the need for attracting and compensating top talent against potential negative public opinion. How hard and where to push becomes a concern in order to ensure that these agreements pass muster with the companies’ shareholders.
With these considerations in mind, attorneys representing executives should be aware of the most recent trends, developments, and regulations that will affect negotiations in the current economy.
Executive Pay: Skydiving With a New Parachute; Recent regulations affecting Executive Compensation.
Wendi Lazar and Katherine Blostein survey the new laws and regulations associated with the current economic downturn and the resulting shifts in the form, nature, and timing of executive compensation. Recently enacted laws like the American Recovery and Reinvestment Act of 2009 and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as Section 409A of the Internal Revenue Code, impose firm restrictions on the compensation of top executives; the restrictions vary based on the size of the employer and whether it is publicly traded. This article concludes that “the days of paying excessive executive compensation unchallenged by regulators and shareholders [are] over.” The authors emphasize the need for attorneys negotiating executive employment agreements to be aware of these and other developments and their impact on the type of compensation packages employers are offering their top executives. Attorneys also must ensure that all agreements about compensation are memorialized in an employment agreement or other contract, including provisions for the treatment of deferred compensation in the event of termination.
*Originally published as Wendi S. Lazar and Katherine Blostein, “Changing Economy Impacts Executive Pay,” BNA Pension & Benefits Daily, 172 PBD, Sept. 09, 2009.
Reproduced with permission from Executive Compensation Library on the Web, XCLW, 06/06/2011. Copyright
Multiple Issues In Corporate Raiding Of Employees: Outside Counsel
Wendi S. Lazar and Katherine Blostein, New York Law Journal (online), May 1, 2009
Now that bankruptcy proceedings have replaced mergers and acquisitions, poaching key employees rather than buying a division can be cost effective. Corporate raiding of employees, however, raises serious legal and financial concerns for everyone involved, but particularly for employees and their counsel.
Poaching a coveted employee or raiding a team is bound to leave behind an angry employer who wants revenge. The hardest job for employee-side counsel is to keep the client from becoming a defendant in a lawsuit against both the employee and the new employer.
Knowing how to prevent or minimize an employee's liability in this situation is critical. Counseling employees on terms and conditions to be negotiated with the new employer before departure will protect them from economic loss and protracted and costly litigation.
The Epidemic Of Employer Misclassification Of Employees As Independent Contractors Under The Fair Labor Standards Act, And The Courts' Response
Justin M. Swartz, and Mariko Hirose, and contributions by Piper Hoffman, 2009
The Fair Labor Standards Act (FLSA)’s compensation requirements, such as minimum wages and overtime pay, apply only to “employees.” Chao v. Mid-Atl. Installation Servs., Inc., 16 F. App'x 104, 105 (4th Cir. 2001). Employers can get around these requirements and lower their tax bills at the same time by classifying workers as “independent contractors” instead of “employees.” Employers classify as independent contractors many workers who do not meet the legal definition: the Department of Labor estimates that up to 30% of U.S. employers misclassify workers. Courts have found rampant violations across certain industries.
Arbitrability Of Sarbanes-Oxley Whistleblower Claims
This article explores the arguments presented by member firms and registered employees, and outlines what arbitration panels have decided. Laurence S. Moy. Pearl Zachlewski, Linda Neilan, and Katherine Blostein. The Neutral Corner, Newsletter of FINRA Neutrals, Volume 1, 2008.
Since the passage of the Sarbanes-Oxley Act of 2002 (SOX), arbitrators handling employment claims may be faced with a throny question concerning SOX whistleblower claims: Should a SOX claim be litigated in court or arbitrated? Ultimately, the question comes to whether SOX whistleblower claims constitute "employment discrimination" claims, and are thus exempt from arbitration under Rule 13201 of the Code of Arbitration Procedure for Industry Disputes (Code). This article explores the arguments presented by member firms and registered employees and outlines what arbitration panels have decided.
Justin Swartz and Rachel Bien, Section of Labor & Employment Law, American Bar Association, Vol. 35, Number 4, Summer 2007
Few doubt the merits of diversity in the workplace. Indeed, a host of organizational leaders from chief executive officers to top military brass have recently touted the importance of a diverse labor force. As a result, an entire industry has emerged, geared toward eradicating workplace inequality.
Many thoughtful ideas have made their way onto "best practices" lists that identify methods to increase the representation of historically underrepresented groups in corporations and firms. (See, e.g., Equal Employment Opportunity Committee Diversity Task Force web page, which links to several lists of "best practices," http://apps.americanbar.org/dch/comadd.cfm?com=LL104000&pg=2
Despite all of this attention, however, the challenge of actually achieving diversity remains. As Alexandra Kalev, Frank Dobbin, and Erin Kelly wrote in a recent article examining the effectiveness of employers' efforts to promote diversity, "We know a lot about the disease of workplace inequality, but not much about the cure." "Best Practices or Best Guesses? Assessing the Efficacy of Corporate Affirmative Action and Diversity Policies," 71 Am. Soc. Rev. 589, 590 (August 2006).
At the 2007 National Conference on Equal Employment Opportunity Law in Charleston, South Carolina, the Section's Equal Employment Opportunity Committee (EEOC) presented two panels that focused on efforts to increase diversity in private sector workplaces, including law firms. The consensus that emerged from both panels was clear: truly overcoming inequality in the workplace requires more than changing hearts and minds. It demands a structural, top-down approach with incentives for meeting concrete diversity goals.
Ethics Corner: Third Circuit Vindicates Plaintiff's Attorney
Justin M. Swartz and Cara E. Greene. July, 2007. Ethics Corner is a regular contribution by the ABA, Labor & Employment Law Section’s Ethics and Professional Responsibility Committee.
The Third Circuit recently overturned a district court order disqualifying a plaintiff’s attorney who had conducted an ex parte interview of the defendant’s administrative assistant. EEOC v. HORA, Inc., No. 05-5393, 2007 U.S. App. LEXIS 15705 (3d Cir. June 29, 2007) (unpublished decision). Characterizing the disqualification as “draconian,” the Circuit held that the district court abused its discretion because the lawyer did not violate any ethics rules, and, even if she had, there was no prejudice to the defendant.
The plaintiff’s lawyer, Jana Barnett, represented Manessta Beverly in a sex harassment and retaliation case against a Days Inn franchise and its management company. During discovery, Barnett conducted an ex parte interview of Debbie Richardson, an administrative assistant at the Days Inn. The district court disqualified Barnett for conducting the interview, finding that she violated Pennsylvania Rules of Professional Conduct (“PRPC”) Rules 4.2, 4.4, and 5.7.
The Third Circuit reversed, holding that Barnett did not violate Rule 4.2 because the administrative assistant was not a member of the organization with whom ex parte contact was forbidden. The Third Circuit recently overturned a district court order disqualifying a plaintiff’s attorney who had conducted an ex parte interview of the defendant’s administrative assistant.
Can Law Firm Partners Sue The Firm For Employment Discrimination?
Employment attorneys Wayne Outten and Justin Swartz. This article originally appeared in Law Journal Newsletters' Law Firm Partnership & Benefits Report, February 2004. For more information, visit www.ljnonline.com.
This article will first discuss reasons that law firms, especially large firms, are susceptible to discrimination suits by their partners. Next, it will explain two threshold requirements for law firm partners to sue their firms for employment discrimination. Both of these requirements turn on whether certain partners are deemed employees. Third, the article will discuss the Supreme Court’s Clackamas decision and lower court decisions that preceded Clackamas but used similar analyses. Finally, it will note that,under some federal and state laws, law firms are vulnerable even if their partners are not deemed employees.Discussion of: reasons law firms may be susceptible to discrimination suits by their partners; two required thresholds for filing such a suit; Supreme Court's Clackamas decision; and finally a note on why some law firms are vulnerable even if their partners are not deemed employees.
Retaliatory Counterclaims: Turning The Tables On The Overly Aggressive Defendent
Authored by employment attorneys Justin M. Swartz, Tarik F. Ajami, and Mark R. Humowiecki. This article sets forth the advantages and disadvantages of these different options and the basic legal principles that are common to retaliatory counterclaims no matter what course you choose.
Twenty days after filing your class action complaint, you receive defendant’s Answer. Curiously, not only does the company deny each and every allegation, it also asserts counterclaims alleging that it is entitled to the disgorgement of salary paid to the named plaintiff because of his “crude, improper, and disruptive conduct” while an employee. Not only is this counterclaim entirely baseless as a legal and factual matter, it is also a form of retaliation against the plaintiff that aims to intimidate him and other employees from enforcing their rights.
Recently, we have seen a spate of frivolous, retaliatory counterclaims asserted against our clients in both individual and class employment actions. Such counterclaims present an opportunity for the smart plaintiff’s attorney to take the offensive with respect to her adversary and to appear the more reasonable party before the court (while also showing how nefarious her adversary is). Your options for responding to such counterclaims are myriad. Factors such as the strength of the counterclaim, the nature of the underlying litigation, the actual chilling effect of the retaliation, and the dispositions of the adversary and the judge will dictate the most appropriate strategy.
You may simply amend the complaint to assert a retaliation claim or seek to convince the opposing counsel to withdraw the counterclaims. Alternatively, you may want to aggressively litigate the retaliation from the beginning by moving to dismiss the counterclaims or even seeking to enjoin further retaliation and to impose other measures to repair the chilling effect of the retaliation. This article sets forth the advantages and disadvantages of these different options and the basic legal principles that are common to retaliatory counterclaims no matter what course you choose.