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An effective tool in understanding the
employee/employer relationship is the employment
contract. Recognize that your ability to
get the best terms in a contract is directly related to how
desirable and scarce your skill set is relative to an
employer’s need. That being said, strive to
maximize your position relative to the leverage you have with
an employer. Here are some highlights from our last career
management session that sheds some light on how to do this.
To Be or Not To Be … Under Contract
Although there are clear benefits to having a contract for an employee, keep
in mind your contract goes both ways. The pros of an
agreement are that it can give you a concise summary of the
terms of your employment avoiding any misunderstanding.
It binds your employer to whatever terms are set forth in
the contract and generally (but not always) contracts provide
some level of long-term protection and security for
you the employee. On the flip side, this very same contract binds you
the employee. Depending on what is agreed to, it could invite
a potential breach of the contract, which could lead to
damages against you. If the contract has a term, an employer
may be able to prevent you from working during the term of
the agreement. For your own protection make sure you clearly
understand your obligations, duties and the criterion by which
your performance is measured.
What are you being hired for?
… Put it down in writing
An area often
glossed over, yet the most crucial to your long-term happiness in a job is the
description of your duties. An employer will often offers your
title; position and some general catch phrases expecting
you to fill in the blanks. do not to stop there. Your
ideas and the employers ideas can differ greatly. Flesh out
your real duties in a job description. Make sure your
responsibilities are clearly outlined. This is as important to
employer as it is to you. It is unlikely you will get objections
about building out this section of your contract.
A little extra time here prevents you from being one of the
folks who three months into a job says, “This job is really
different than I thought it would be.”
Your
term.
Do you
have one or are you “at will”?
When going into a new
role it can be beneficial to both you and your employer to
have set time-frame or term in your contract. This can be
renewed at the end of the term. Terms are particularly
attractive to employers when dealing with persons of unique or specific skill sets. If you feel your skill sets warrant it,
(i.e. you are one of 50 people in the country capable of doing
what you do) push to get a term.
When setting a term, make
sure it automatically roles over and you are not exposed at
the renewal time to termination without negotiated benefits,
(severance, bonuses, stock options etc...).
If you do not have the
leverage, (skills in demand, contacts or influence) or do not
desire a specific term you are employed “at will”. An “at
will” employee can be terminated by either party with or
without notice or cause. In a tough economy many people find
out just how "at will" they are. Keep in mind that “at will”
employees can still be entitled to severance if they have
made provision in their employment agreement. An employee
with a specific term may not be entitled to severance if there
is specific language in their agreement, in other words it was
not negotiated ahead of time or included in the employment
contract. Pay special attention to the termination
language in your contract. This could mean the
difference between keeping your credit, a roof over your head
or feeding your family in the event of the company going
under, new ownership or a host of other adverse situations.
Termination.
It will never happen, but just in case …
Regardless of your term
you should always clearly define both the reasons and the
benefits you receive upon different types of termination.
It never hurts to ask about including these situations.
By asking you signal the employer you are astute and consider
contingencies. These are key qualities in leaders. Here are some things to think about:
Termination for cause: This section of an agreement
allows the employer to terminate regardless of term if an
employee does specific things. “Cause” usually encompasses
things like illegal conduct, failure to perform duties,
incompetent performance of duties and insubordinations. It is
important what ever is agreed to that it is clearly defined.
The more leverage you have, the more limited a definition you
will be able to negotiate. In an ideal scenario you would just
have illegal conduct outlined as “cause”. If you cannot get
everything you want in terms of the definition, you may want to
ask to have a notice period with time to cure any deficiency.
Typically a termination for cause does not grant the employee
any severance rights.
Termination for good reason: This is the parallel
for the employee to “cause”. Like cause it should be clearly
defined. Typically an employee can terminate for reasons such
as a change in title, job duties, reporting structure, salary,
and job location. If you have the leverage to include this in
your agreement, make sure that by enacting this terms you get
the full benefit of any severance that you would have received
for a termination without cause.
Termination for death: It’s probably not debatable
that you’ll not be working after you die, but if you have a
severance clause, you should ask to have this paid to your
family if you die while employed. This is often overlooked and
not a big expense to employers if they do it through an
insurance policy.
Termination for
disability:
You should define disability and your coverage.
Termination for reasons other than death, disability or cause:
An employer may want to terminate your emplacement even if you
have a term in your agreement. If you have a term this would
be a “without cause” termination. Make sure this allows you to
get the full benefits of any negotiated severance. Sometimes
employers will put a notice period for 30 or 60 days, which
allow them to be release from the contract. Make sure you
understand the consequence in these types of situations and
the effect they may have on severance payouts.
Severance …
Breaking up can be hard,
but service can make it feel all right
Both employees with
specific terms and “At Will” employees can and should have
severance provision in their agreement. The extent of
these terms will depend on your leverage. In thinking about
severance people often focus on their base pay. One word
of advice is to think of your entire compensation package: Base pay, bonus, stock and benefits.
COBRA alone can cost your more than $600 a month out-of-pocket
for a family of three. If you have agreed on
six month of base pay, try to negotiate for six
months of bonus pay as well as six months of benefits
(health, life …).
In looking at stock plans, it is not uncommon
for options to vest immediately upon termination. If you have
a multi-year contract, don’t think in terms of one year
for severance pay out. If you have the leverage ask
for the remaining term of your contract if it is greater than
the time period proposed. In all cases strive to make your
severance trigger in all cases of termination other than
cause.
Compensation …
If it’s not there it’s probably not there.
Compensation is
the area most misunderstandings occur. All
forms of compensation should be clearly defined in your
contract including signing bonus, relocations expenses, pre-term compensation, wages, salary, commissions, cash incentive
plans, retirement plans, savings plans and stock.
Common areas of
misunderstanding are in bonus and stock option plans.
If a large part of you compensation is determined on bonus or
commissions
define the milestones in your agreement that trigger specific
payouts. Attach the entire bonus plan to your agreement and
have the hiring person sign off or initial it.
Additionally, if there is not a defined stock option plan with
in the company but you will be eligible once
it is defined, either push for definition if you have the
leverage, or don’t work this into your value equation. Use the
bird in the hand theory. If it isn't there yet, it can't
be considered. Maybe or some day are undetermined
variables.
Additional considerations
regarding your base salary include negotiating CPI increases
and terms preventing your employer from lowering your salary.
Medical, vacation and insurance benefits should be at the same level of benefit that everyone
else at your level gets. Try to get
your benefits extended for a specific term should you be
terminated.
Non-compete clauses:
Competing in California
During our session we
had a lot of questions on competition in the state of
California. Non-competition covenant in employment agreements
are enforceable during the term of an agreement. The are also
enforceable if you are using trade secrets to compete.
Otherwise convents to compete are unenforceable in the state
of California.
The Best Advice:
Hopefully this
summary has given you a taste of some of the things you should
think through as you negotiate your agreement. Keep in mind the companies
internal legal council IS NOT YOUR ATTORNEY. Avoid
taking direction from this person. Their counsel
is there to protect their client, not you. If you find yourself in the
position of negotiating a contract the best advice is
to hire your own attorney. The cost, relative to the downside,
is minimal.
Avoid be
pressured into signing "within twenty-four hours" or "you have
two hours to respond." One of the best indications of a
company's atmosphere and culture is their hiring practices.
Pay attention to how they treat you during the negotiation
process. This is how you will be treated once you become
an employee.
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