Employment agreements have become a popular tool in the business world, in both big and small business. Employment agreements establish vital terms and avoid misunderstandings such as “at-will” or other termination provisions.
We have a great deal of experience in drafting and negotiating a variety of employment agreements, and, while it is best to seek experienced counsel in these instances, some of the key issues to address are as follows:
- Benefits – vacation, personal time off (PTO), health, life and disability insurance, stock, retirement, ownership options/rights
- Compensation – base salary, periodic bonus, incentives, stretch bonus
- Confidentiality – see “Non-disclosure or Confidentiality Agreement” below
- Dispute Resolution, Arbitration – process, location and law governing resolution or litigation
- Duty of Loyalty – balancing loyalty to employer with right to compete once employment has ended
- Ownership Grants – percentage, type of ownership, stock options and exercise price, vesting period
- Expense Reimbursements – scope, timing, relocation benefits
- Fiduciary Duties – relationship of trust, emphasis dependent upon the influence the employee has on business operations
- Golden Parachute – benefits or payments to executives in the event the company is taken over or the executive is terminated, with or without cause
- Intellectual Property – scope of rights to inventions, trade secrets
- Liability Protection – Directors & Officers’ insurance, indemnification
- Post-employment – see “Non-compete” and “Non-solicitation” below
- Scope of Employment – title, duties, relocation terms, other activities (volunteer efforts, board service)
- Term – length of employment, cause for termination, severance
In addition to the items outlined above, employers and employees may also want to consider more in-depth restrictive covenants in employment agreements, which address key factors in the business’ operation. The essence of the law is that restrictive covenants will be enforced only if legitimate protectable interests of the employer are served, and will not be enforced if merely as punishment of the former employee for having left employment. Restrictive covenants generally fall into three categories: non-solicitation, non-disclosure and non-competition.
- Non-solicitation – One of the “protectable interests” of an employer is customer contacts and the goodwill generated by those contacts. The rationale for protecting customer contacts is that a customer’s goodwill toward a company is often attached to the employer’s individual employees, and the employer’s product or service becomes associated in the customer’s mind with the employees. The employee is in a position to exert a special influence over the customer and entice the customer’s business away from the employer to a competitor. It is this special influence which justifies enforcement of non-solicitation covenants. In the case of solicitation of employees, a Missouri statute provides that a clause prohibiting non-solicitation of employees may be reasonable under certain conditions and for a period not to exceed one year.
- Non-disclosure or Confidentiality Agreement – Covenants of non-disclosure, or confidentiality agreements, protect the plan, processes, proprietary and trade secret information developed by the employer and disclosed to an employee while the employer-employee relationship existed and which are unknown in the industry and which give the employer an advantage over the competition.
- Non-compete – These agreements, also known as non-competition agreements or non-compete clauses, serve as contracts between employees and employers to ensure that the former does not enter into competition with the latter during and at the conclusion of employment.
With our significant experience in employment-related matters, we have helped clients analyze, draft, review and revise agreements impacting employment relationships, including if necessary, termination or severance agreements.