Issues to Consider When Drafting Employment Agreements for Executives
Written by: Richard M. Albert
Employers often find it useful to have written employment agreements with employees, especially executives. Additionally, many executives insist upon such agreements before accepting a new position. Such agreements can delineate various issues relevant to all involved, including duties and responsibilities, compensation arrangements, and when and how the employment relationship can be ended.
While there is no standard template applicable to all such arrangements, there are certain considerations any employer should account for in developing employment agreements with key executives:
- The agreement should describe, in some manner, what the job responsibilities will be for the executive. The level of detail will vary depending on the circumstances, but it is important that there be a shared written understanding of what will be expected of the executive.
- All wage and benefits arrangements should be clearly spelled out. This includes those arrangements that take effect as of date of hire, as well as when and how those arrangements will be modified in the future.
- It is critically important that the agreement include details about termination of the employment relationship. Conditions under which the relationship can be voluntarily terminated by the executive, or involuntarily terminated by the employer, should be described in as much detail as possible. Similarly, any compensation due the executive upon termination should be clarified. If the executive is required to take action in order to receive compensation at termination — such as executing a release of claims — that should be clearly delineated as well.
- The agreement should include a mechanism for resolving disputes that may arise in the course of the executive’s employment. Often, such disputes are referred to arbitration (http://tinyurl.com/c8xpza7), while other processes, such as mediation, also can be required as desired.
- To the extent that the employer has concerns about the executive competing if he/she takes other employment, those concerns should be dealt with in the agreement. While various state laws place limits on such “non-compete” provisions, employers are well advised to include appropriate language in executive employment agreements if there is a real concern that the executive could damage company interests by competing while in the employ of a different organization.
Employment agreements provide an excellent opportunity for employers to clearly lay out the parameters and expectations of its employment relationships with its executives. Additionally, such agreements can provide an orderly way for executives to leave the organization should that need arise. Employers who do not currently utilize formal employment agreements with key executives should consider the benefits of doing so in the future — even to the extent of developing such agreements for executives already employed.
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