Four Factors to Consider When Negotiating an Employment Contract

High-level executives usually rely on employment law attorneys to negotiate employment contracts, and for good reason: it’s an opportunity to clearly outline expectations and minimize future disputes. In any employment contract, compensation and benefits are key. However, there are many other factors that are essential to a productive and mutually rewarding employment relationship and should therefore be included in a contract. When we assist an executive in negotiating an employment contract, here are four of the key points we typically focus on:

Term and Termination
In the absence of a contract term that specifies otherwise, the default rule is that the employment relationship is “at-will.” This means that either the employer or the executive can terminate the employment relationship at any time, with or without notice, for any reason or for no reason. For executives who devote extensive time and resources to pursuing a career at a specific company, the threat of being let go at any time may be too much of a risk. For this reason, many executives negotiate terms into their contracts with specific provisions detailing the narrow circumstances in which the employment relationship can end.

Severance
Typically, the law does not require companies to pay severance to departing employees. When employers do pay out severance, they may condition it on an employee’s willingness to sign away his or her rights to bring legal claims against the company. By adding severance provisions to an employment agreement that are not tied to an employee’s agreement not to sue, an executive will be in a better position to protect the investment put into his or her career.

Restrictive Covenants
Employers may insist on including restrictive covenants in employment contracts with high-level executives. Restrictive covenants can include non-competition provisions, non-solicitation provisions, confidentiality provisions, and other items designed to help protect the employer’s investment in the employee. These covenants can significantly impact an executive’s ability to continue working in his or her chosen field after the employment relationship ends. It is essential to negotiate these provisions in order to minimize the burden on the employee to the extent possible.

Arbitration Provisions
Many employment contracts include language addressing how disputes regarding the employment relationship should be resolved. Some employers insist on requiring executives to give up the right to file a lawsuit and instead submit any dispute to arbitration. Arbitration sometimes gives executives much less legal protection that litigation in court, so it is important to recognize what an employee may be giving up when he or she signs a contract with an arbitration provision.