If employment termination is like a divorce, receipt of a new job offer is like getting a big shiny engagement ring. Understandably, therefore, senior executives and professionals are reluctant to ruin the chemistry of a soon to be consummated courtship with protracted negotiation of the pre-nuptial agreement, i.e., the employment contract. As a result, many otherwise well-educated, savvy and accomplished executives and professionals forego legal advice altogether before saying “I do.”
As experienced former HR executives, we have years of experience with employment agreements and are sensitive to the need to strike the delicate balance between negotiating the best possible deal for a client while ensuring that he or she not be left at the altar. Often this means the lawyers should advise but remain in the background. Sometimes, however, depending on the client’s situation and personal preference, it is appropriate for the lawyers to take the lead in the negotiation of an employment contract. We take either approach as circumstances dictate after careful consultation with the client.
Confidentiality and Non-Disclosure Agreements
We negotiate the terms of confidentiality and non-disclosure agreements in order to reduce overly restrictive obligations on clients. We also counsel employees on the validity of agreements they have already signed and how to comply with their obligations under those agreements. If necessary, we defend employees faced with litigation alleging that they violated the terms of a confidentiality and non-disclosure agreement.
Many employees enter into confidentiality and non-disclosure agreements as part of an overall employment agreement when they start work, during the course of their employment, and/or as part of a separation or severance agreement upon termination of their employment. In most cases, employees have an obligation not to disclose confidential information even if they have not signed an agreement.
Executives, professionals and partners can face severe consequences for violating their obligations, contractual or otherwise, not to disclose or use an employer’s confidential information. Often it is difficult to determine whether the information to be used or disclosed is, in fact, confidential and thus subject to the restrictions imposed on the former employee. Thus, it is important for individuals who are subject to such restrictions to seek legal advice sooner rather than later to determine the validity and scope of their confidentiality and non-disclosure obligations.
Retention and Change in Control Agreements
We negotiate, review and draft retention and change in control agreements and counsel clients about the interpretation of agreements they have already signed. Our experience drafting and negotiating many different types of retention and change in control agreements on behalf of corporate clients affords GardnerFrankhouser a unique perspective on issues that could cause our clients problems in the future.
The purpose of a retention and/or change in control agreements is to incentivize an employee to remain with an employer for a specified period of time during which there is typically great uncertainty about the sustainability of the business in its current form. The most common situation is when there is an anticipated sale or merger of the business and the employer is concerned that the departure of a key employee could impair the employer’s ability to run its business and/or preserve the value of the company to prospective purchasers. Thus, the employer will offer the employee a special “stay” bonus to remain with the employer through a specified date.
Although it sounds simple enough, there are often complex issues associated with even the most rudimentary retention agreement. One frequently negotiated issue is whether the “stay” bonus should be paid if the employer terminates the key employee before the expiration of the period of time during which the employee would otherwise be required to remain in order to qualify for the “stay” bonus.
Change in control agreements frequently have tax implications for clients. We understand complex tax regulations such as IRC section 409A and IRC section 280G, known as the Golden Parachute Tax, and we work with tax experts to ensure that our clients do not incur unnecessary penalties as a result of non-compliance with these regulations.
As former senior HR executives, our experience with a variety of equity agreements enables us to counsel employees in understanding the terms of such contracts with their employers.
Equity agreements govern the terms and conditions of equity compensation granted to employees. Common examples of such compensation are stock options, restricted stock, restricted stock units, phantom stock, and stock appreciation rights. They also may include non-compete and non-solicitation agreements.
When an employer breaches an equity agreement, we attempt to resolve the issue in an amicable fashion. If necessary, we will pursue claims in litigation, arbitration or in any other forum provided for by employment agreements.