When drafting employment agreements, most of our clients are primarily focused on compensation. However, the majority of legal issues arising from employment agreements involve other aspects of the employment arrangement. Here are four key considerations to keep in mind when entering into an employment agreement with a new employee.
1) Resignation for “Good Reason”
Some agreements will, given the at-will nature of the employment relationship, provide a mechanism for an employee to resign for “good reason” and still be entitled to the benefits of a termination without cause. Resignation for “good reason” may include reasons such as, decreasing the employee’s pay, changing the work location, or replacing the supervisor. In these situations, employees may be entitled to benefits as-if they were fired for no cause, so employers should be careful about what falls into this category.
2) Termination “For Cause”
Rather than relying on simple boilerplate language which may or may not fit their needs, companies may want to think broadly about the types of things that can go wrong in its industry when defining “for cause”. For example, several of our clients have added specific defined clauses that include sexual harassment and other forms of harassment and marijuana use.
3) Bonuses/Variable Compensation
If you pay bonuses, performance-based commissions, or similar variable compensation, it is important to address upfront how this aspect of the compensation will be addressed upon termination of the relationship. Much of the actual and threatened employment litigation we see surrounds this very issue.
4) Non-Compete Provisions
Non-competes are usually enforced as long as they are reasonable in duration and geographic scope. Today’s world is flat. Companies operate world-wide, and employees work remotely from their home offices to transact business around the world. Accordingly, it is important to pay attention to the details not only of your non-compete provisions, but also of the clients with whom your employee(s) will be interacting, before asking them to sign a standard non-compete provision.
If you have questions about the best way to draft and execute employment agreements, or any other questions related to your business, please call or email us.
Joseph E. Fournier is an Attorney and a CPA who has more than twenty years of experience in a variety of business legal matters, including start-ups and company formations, drafting shareholder and operating agreements, contracts, employment law, commercial litigation, tax planning and audit defense, and mergers and acquisitions (M&A). He also handles estate planning matters, such as business succession planning, wills, trusts, and probate.