Transitions in Employment

Archive for the ‘Employment Agreements’ Category

When it comes to financial advisers switching firms, the old adage – loose lips sink ships – holds true.

When a financial adviser is plotting to jump ship, the temptation to tell clients is often strong.  Stifle it, and stay mum.

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New firms often don’t appreciate being drawn into lawsuits or arbitration over solicitation. Clients don’t like it, either.

“You’re also potentially subjecting your clients to be asked to testify as to the nature and scope of your communications,” said David Harmon, an employment attorney and partner at Norris McLaughlin & Marcus in New York. “If you want to keep yourself out of trouble, you don’t inform clients.”

For full article, click here to go to the Wealth Management Journal for the Wall Street Journal.

Part I: Negotiating the Employment Package That Is Best for You – The Fine Print Matters

6. Be Sure of the Meaning. An illustration of the importance of the meaning of the terms is found in the definition of “active working status.”  We recently handled a negotiation for an executive who had received an employment agreement that provided that only employees who are in “active working status” on the bonus payment date would be eligible to receive a bonus for the prior performance year. Without fine-tuning the definition and its relationship to the termination provisions, the executive could have been denied compensation and benefits that had accrued during his years with his employer, regardless of the reason for termination.
7. Review the Restrictions. Now, more than ever before, companies need to protect their trade secrets, confidential and proprietary information, property, customer and employment relationships through the imposition of restrictive covenants. Employers take various approaches to these covenants. These restrictions are in effect during the employment relationship and post-employment; sometimes only during the period in which severance is paid, sometimes regardless of whether the executive is on the sidelines for months, or in some cases, years. The goal for the executive is to limit the time and geographic range of the restrictions and confine them to certain competitors or customers. Essentially, the executive has to determine the extent to which he or she is comfortable with signing away post-employment flexibility should the employment relationship fail.

Negotiation of the compensation package can be the most significant part of a career move. Remember to examine the “fine print,” and seek counsel as needed, to understand the interplay of the provisions of the employment agreement, and accompanying equity and benefit plan documents, to ensure a successful employment relationship, or the best protection if things don’t work out.

5. The Termination Scenarios.  Defining the circumstances under which the employment relationship can be terminated is essential. Considerable attention should be paid to the definitions of “cause” and “good reason.” Not focusing on the details of the definitions can have costly ramifications. Employers seek a broad definition of “cause” to afford greater latitude in terminating an executive and avoiding an obligation to pay severance.  In response, the executive strives for a narrow definition of “cause” that avoids discretionary and qualitative terms. On the other hand, the executive should strive for inclusion of provisions that enable him/her to trigger a termination for breach by the employer and still receive maximum contract benefits and payouts. This is typically referred to as a “good reason” termination. It is also helpful to consider how the executive will be treated in the event a change in control of the employer occurs.  And all termination must be viewed against the backdrop of IRS Code Section 409A, creating a labyrinth of possible tax liabilities.

For steps 1 through 4, please see posts:

Part I: Negotiating the Employment Package That Is Best for You – The Fine Print Matters
Part II: Negotiating the Employment Package That Is Best for You – The Fine Print Matters 
Part III: Negotiating the Employment Package That Is Best for You – The Fine Print Matters 

As discussed in my last post, there are several critical steps to take in the negotiation of an employment package.   Let’s move on to steps #2 and 3.

2. Show Me the Money.  In evaluating the salary component of a compensation package, it is essential that the executive be realistic not only about his or her financial requirements but also about the value he or she brings to the employer and what the market will bear.  The executive should gather his or her own market intelligence and be an informed participant in the negotiation.  Knowing the “going rate” for executives with similar skills, talents and experience is the best way to gauge the strength of the compensation offer.
3. Spell out the Equity.  The employment package should specify the level of equity grants, how they will vest and their forfeiture provisions.   The equity grant provision(s) must take into consideration the terms and conditions of the governing plan documents, and relevant IRS requirements, federal securities laws, and other applicable rules and regulations.

Please subscribe and return for future posts on other critical steps.

There are several critical steps to take in the negotiation of an employment package. Clients come to us at all stages during the employment process –  at the commencement of a job search,  upon receipt of a term sheet by a potential employer, when an offer letter or employment agreement is to be negotiated, or following termination. Regardless of when an individual chooses to engage counsel, attention must be paid to seven critical steps.  This series of posts will take you through those seven critical steps.

1. Get it in Writing.  Rare is the situation where the executive does not receive an offer letter or an employment agreement from a prospective employer.  One should always request the protections of such a document before starting a new job.  In fact, many jurisdictions require the delivery of a written offer letter based on the nature of the position offered.  While the employment agreement provides multiple protections for the employer, including, for example, the imposition of covenants of non-competition, confidentiality and non-solicitation, it also benefits the executive as it provides a road map to the employment relationship and the compensation package.   By defining the executive’s position, compensation, and benefits, an employment agreement does more than simply govern the terms of the executive’s employment while employed. Rather, it provides the framework for the parties’ post-employment relationship, including severance, if any, that may be paid in the event of termination and the nature and extent to which post-employment restrictions may apply.

Please subscribe and return every week for posts on other critical steps.

Hard to believe that the CFO of a public company felt the need to use social media to vent his frustrations about his employer, a public company. Not only did the CFO of Francesca’s Holdings Corp. use his Twitter account to vent about the company’s Board but he maintained a blog and a publicly viewable profile on Facebook. There is one word for this type of activity reminiscent of a recurring segment of the Weekend Update skit on SNL: REALLY!?

In addition to the potential violations of confidentiality and non-disparagement provisions contemplated by a “tell-all” book about Goldman Sachs, Greg Smith should also consider garden leave and/or non- competition/non-solicitation restrictions. If Smith had a new job lined up before resigning, did he make the new employer aware of the restrictions to which he was bound?   If these post-employment restrictions are  reasonable in scope and duration, and protect Goldman’s legitimate interests, Smith (and possibly his new employer)  will need to be mindful of not overstepping the boundaries of the restrictions.

Several reports have been published indicating that Greg Smith, the former Goldman Sachs employee who resigned on the Op-Ed page of the New York Times last week, has been approached by several literary agents seeking a “tell-all” book about Goldman.  Meanwhile, in the Wall Street Journal, Francesco Guerrera quoted a Wall Street executive, in “Wall Street Can Learn from the Goldman Flap,”  saying, “Every firm has 100 Greg Smith’s waiting to happen.”

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Employment deals require that the attorney think and serve as a strategic advisor, as the consigliere (akin to the Tom Hagen model from Coppola’s The Godfather).  One must see the “big picture,” as well as the details, all in line with the overall strategy.  And one MUST listen to the client and address his/her goals, being reasonable about what can and cannot be accomplished.  Determination to deliver by the attorney is key to a successful deal.

The compensation package of Eugene Isenberg, former CEO and now chairman of Nabors Industries, Ltd., including a proposed $100 million termination payment, illustrates the far extreme of executive compensation.  While institutional shareholders brought suit to challenge his compensation, wasn’t there due diligence before investments were made?

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