90 Broad Street, 25th Floor New York, NY 10004 Telephone: (212) 422-0488 Telecopier: (212) 422-0158

News

Make Sure Your Contract Protects You Adequately

By Robert J. Benowitz Esq.

Mr. Benowitz, a partner at Rick, Steiner, Fell & Benowitz LLP in New York City, advises clients on employment transitions and contracts. This article is not intended to provide legal advice and should not be relied on as legal advice.

Many executives and professionals mistakenly believe their hard work is over once they receive a formal job offer. But one of the most difficult search tasks — negotiating an employment agreement — comes after the initial offer is made.

Successful executives exert the same amount of effort and vigilance when negotiating the terms of their employment agreement as they do during the search and interview process.

Face it, senior executives are almost never invited to join companies where there isn't some significant problem or issue to resolve. This applies at public or private corporations, as well as health-care, education and other nonprofit institutions. Perhaps your potential employer has management or product-quality issues, needs to repair its reputation or wants to "move in a different direction."

Whatever the reason the organization wants to hire you, your employment agreement must protect your reputation and future livelihood. If it doesn't, you must keep negotiating until it does or, in the worst-case scenario, abandon the deal.

Basic Necessities

While this seems obvious, several factors come into play in determining whether your employment agreement makes the grade. These include the scope of your responsibilities and your prospective employer's willingness to protect you. Since the passage of the Sarbanes-Oxley Act of 2002, enacted in the wake of the Enron and WorldCom scandals to combat corporate fraud and bolster accountability, this last consideration has become more crucial. Here are some deal-breakers to consider.

Reputation repair

Companies often hire senior executives to help them repair their reputations. In part, such a company is basically asking a new senior hire to spend his or her good reputation to help it, and there's nothing wrong with that. It's not unusual for firms to issue press releases regarding high-profile new hires to illustrate that changes are being made in the organization to "fix" acknowledged problems.

However, you can't risk losing the very assets -- your professional reputation and integrity -- that made you an attractive candidate. My firm recently represented a well-known and respected physician who was recruited to be director of a highly visible and troubled program at a major metropolitan medical center. High-profile regulatory action had been taken against the program, and its public image was somewhat tarnished, but not irredeemably.

To ensure he had adequate protection in his new job, the physician needed an employment agreement that would spell out his duties and responsibilities, including his ability to hire and fire. He also needed to be held harmless from claims that might arise if the medical center didn't implement the changes he recommended. Without appropriate legal protection, we would have advised our client to decline this offer.

Grounds for termination

Senior managers may be sought to help companies resolve internal or restructuring problems. Any organization that has had a revolving door at the top is likely in this category.

In this case, the employment agreement should provide for some reasonable term of employment, structured with a "for cause" termination provision defining the reasons you can be dismissed. On the other hand, if you are offered an "at will" agreement (which allows the employer to terminate you with or without cause, at any time), you probably shouldn't take it, especially if relocation is involved. This is practical since you probably would find it difficult to make changes without the security and time frame to implement them.

The exception might be if the agreement provides that you'll receive appropriate severance if the company terminates you without cause. The severance provision should cover you if there is a "change of control." This would include a merger, reorganization, consolidation, the disposition of all or most of the organization's assets, or any other event which results in a substantial reduction of your responsibilities or compensation.

Legal Responsibilities

With the recent changes in corporate-governance rules, officers of public companies have more legal responsibilities than ever. This includes those at not-for-profit institutions, such as The New York Stock Exchange. Along with being appropriately indemnified, senior officers should have agreements stipulating they'll receive funds for legal, accounting and other necessary professional help in case of a regulatory investigation or other type of claim against the company and/or the executive.

Whether such a provision is included is typically up to the organization's board, since under most by-law provisions, the board has discretion to authorize advance payment of "defense" costs directors, individual executives and employees incur because of an investigation or lawsuit. Ideally the employment agreement should obligate the board to advance professional fees to the fullest extent possible and without delay. Otherwise, an executive could face extraordinary out-of-pocket defense costs, perhaps while receiving only severance pay.

A Second Chance

But what if you didn't negotiate a favorable employment agreement when you were hired and now face termination? While it's always better to negotiate adequate termination provisions going in, you may be able to improve them when discussing the terms of your separation. A senior executive who had been "asked to resign" recently retained us. The company's acts made it appear that our client was at fault for some of its financial problems. When negotiating, we alleged that our client's reputation was damaged by how the firm positioned his termination in various regulatory filings and press releases. This helped us to achieve severance benefits that were significantly better than those in his original employment agreement.

In sum, it's crucial to actively manage your career to protect all your assets, including your reputation, family and personal wealth. Before accepting an offer, conduct the required due diligence to ensure you appreciate all the vagaries of the organization. While you may be willing to make some compromises for a "great opportunity," you must fully understand the risks inherent in taking the position. Don't sign your employment agreement unless you understand and agree with its provisions. Consider whether you need legal assistance. In the end, the benefits of having experienced counsel will far outweigh the costs or the risks of going it alone

Home //  Firm Overview //  Practice Areas //  Attorney Profiles //  News //  Email //  Directions

The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.

Copyright © by Rick, Steiner, Fell & Benowitz, LLP. All rights reserved. You may reproduce materials available at this site for your own personal use and for non-commercial distribution. All copies must include this copyright statement.