The Role of an Executive Contract Lawyer
Presented with a proposed employment contract, executives are often:
- reluctant to ask for additional consideration;
- not sure what additional consideration would be reasonable to request; and
- not aware of contract language that can or should be rejected or modified.
An executive contract lawyer can provide advice with respect to these three areas and other areas as well while at the same time always being attentive to the executive’s legitimate desire not to become antagonistic or burn bridges with senior management.
Protecting Job Status and Regular Compensation
No one is entitled to permanent employment. Employers are entitled to terminate employees at any time and for any nondiscriminatory or nonretaliatory reason. However, changing employers is risky and executives rightly should expect a degree of job and compensation protection. An executive contract lawyer can ensure that appropriate contract language provides both.
Job protection can be in the form of contractually specified severance payments to the executive if the executive is terminated before the end of the contract term without “good cause” or if the executive resigns for “good reason” because the employer, for example, has reduced the executive’s regular compensation or earning potential.
Other contract terms that can similarly provide protection to the executive include:
- required advance written notice before termination;
- a reasonable opportunity for the executive to cure any alleged breach;
- a narrower definition of “good cause;”
- a broader definition of “good reason;” and
- a no-mitigation clause.
Change of Control Provisions
New owners following a Change of Control often will want to make extensive changes in senior management. In addition to protecting job status and regular compensation, an executive contract lawyer can assist in defining what constitutes a Change of Control (whether a broad or narrow definition) as well as the necessary trigger or triggers for enhanced severance benefits.
A single trigger could be the Change of Control event while a double trigger could be the Change of Control event as well as an executive separation within a specified time after the Change of Control because of an employment termination “without cause” or a resignation for “good reason.”
Examples of enhanced severance benefits include enhanced severance payments, automatic vesting of equity components, and gross-up provisions for additional taxes to be paid by the executive associated with the enhanced severance payments.
Non-Competition and Non-Solicitation Provisions
Restrictive covenants including agreements not to work for a competitor, solicit employer clients or encourage the departure of other employees of employer (“Restrictive Covenants”), benefit employers by allowing them to retain intellectual capital, inhibit “brain drain,” and protect their client relationships and goodwill and their employees.
In most jurisdictions, Restrictive Covenants are enforceable if they are not overbroad in terms of the activities prohibited, the geographic restrictions in which competition may not occur, and the period of time during which the restrictions apply.
An executive contract lawyer can assist executives in identifying carve-outs or exceptions to non–compete restrictions including, for example, geographic exclusions, job position exclusions, particular industry exclusions, application of the noncompete only to companies specified in the contract, and application of the noncompete only to companies over a certain market cap/gross revenue level.
Carve-outs or exceptions to non-solicitation of employees could include limiting the restrictions to solicitation of current employees and permitting solicitation of the executive’s key staff. Carve-outs or exceptions to non-solicitation of clients could include limiting the restrictions to solicitation of those clients of the employer with whom executive had material dealings during the 12-month period before the executive’s separation.
Indemnities Protecting the Executive
An executive contract lawyer can also assist in minimizing the executive’s financial exposure for executive’s actions taken on behalf of the employer and for executive’s actions, if any, negatively impacting executive’s former employer. This is typically done through indemnification provisions in the executive employment contract.
Minimizing the executive’s financial exposure can take many forms including, for example:
- obtaining employer representations in the executive employment contract that the employer has and will have adequate D & O insurance;
- the employer agreeing to indemnify executive (including paying executive’s attorneys’ fees), in addition to, or as a supplement to, any D & O insurance, for any claims based upon actions taken by the executive in the course and scope of executive’s employment; and
- the employer agreeing to indemnify executive (including paying executive’s attorneys’ fees), for any claims by executive’s former employer against executive including, for example, alleged trade secret breaches, alleged violations of executive’s non-compete non-solicitation agreements, alleged unfair competition violations, or any other alleged tort claims.
Attorneys’ Fees Provisions: Retaining an Executive Contract Lawyer
In the event of a dispute at the time of separation, executives and employers are much more likely to amicably resolve their disputes if each will potentially have to pay the attorney’s fees incurred by the other side if the other side prevails in litigation, whether by a jury verdict or the decision of an arbitrator or otherwise.
An executive contract lawyer can, among other things, determine and address whether the proposed language of the executive employment contract, or the applicable law, or both will provide the executive with the ability to recover attorney’s fees in the event that the executive is the prevailing party in any subsequent dispute.
Additionally, the legal fees associated with retaining an executive contract lawyer may be minimal given that employers often agree to pay executives’ legal fees in obtaining the assistance of an executive contract lawyer in negotiating and revising a proposed executive employment contract.
Contact an Executive Contract Lawyer at Rogge Dunn Group
The Dallas employment lawyers at Rogge Dunn Group handle all aspects of executive contracts to best situate the executive for meaningful contract negotiations. To learn more about the executive contract lawyers at Rogge Dunn Group, you may contact Bryan Collins ([email protected] 214-239-2762), Rogge Dunn ([email protected] 214-220-0077), or any of our other executive contract lawyers.
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