EMPLOYMENT CONTRACTS, SEPARATION AGREEMENTS, AND EXECUTIVE COMPENSATION

Employment Contracts:

 

Employment contracts are binding agreements which lay out the terms and conditions of an employee's employment.  These terms and provisions in employment agreements can have a massive impact on many  facets of an employment relationship, and may include obligations that survive even after the employment has ended.  Some examples include non-compete provisions, non-solicitation provisions, and non-disclosure provisions. 

 

Employment contracts vary significantly depending on the particular industry, the parties contracting, and the rights and obligations the contract seeks to create. An employment contract is not the same as an employee handbook.  Employment contracts for a set employment term will often include many of the following provisions: length of the employment; salary, benefits, and commission and bonus (if any); job duties and responsibilities; method of renewal and notice procedure for non-renewal; termination for cause and a description of what constitutes cause, and; non-compete provision.  An employment agreement for a term of employment longer than one year must be in writing under the New York Statute of Frauds.

Contracts in employment are often reviewed and analyzed by the courts differently than contracts in other areas.  At DSS Law, our attorneys regularly handle contracts specifically dealing with employment law issues. This allows us to better advise our clients on the particulars of contract law as it relates to employment issues.

Separation Agreements:

 

Separation Agreements are a type of contract offered to employees upon a termination.  They usually include a payment to the employee (severance) in exchange for the employee giving up certain rights, such as the right to sue the employer in the future.  They may also require the employee to commit to certain obligations, such as non-compete provisions and non-solicitation provisions. 

 

While employers are generally not required by law to provide severance or separation pay, some employees may contract for severance pay, and many employers may offer a severance or separation agreement even absent a requirement to do so.  Oftentimes these agreements include provisions concerning intellectual property rights and duties relating to confidential information, as well as restrictive covenants and confidentiality and non-disparagement clauses. 

It is important to understand your rights and obligations when signing or drafting any separation agreement.  By signing a separation agreement, an employee usually agrees to release their employer from all claims whether known or unknown to the employee at the time they sign.  The separation agreement may also contain provisions that may make it much more difficult for an employee to obtain future employment.  Employees with valid legal claims also may have leverage to negotiate higher severance amounts and/or more favorable separation agreement provisions. 

Executive Compensation:

 

Executive Compensation is a broad term used to describe various compensation agreements and packages.  Such compensation is often tied to performance and/or retention conditions .  These compensation packages can be offered at the start of an employee's employment or at anytime thereafter.  Executive Compensation agreements are increasingly offered with a myriad of employee obligations such as restrictive covenants. 

 

Employees should also be aware of the different forms that compensation in these agreements can take as well as the implications of each form of compensation.  Equity award agreements can award employees either the full value of the underlying equity, or they may provide only for the appreciation value of the equity between two specified points in time.  Restricted stock and restricted stock units fall into the former category, while stock appreciation rights and options fall into the latter.

 

Deferred compensation in these agreements usually vests according to specified vesting schedules and conditions or they may be subject to forfeiture provisions.  Employees who are terminated or who resign should make sure to fully understand any obligations and vesting conditions in their agreements as well as any potential effect subsequent agreements (such as separation agreements) may have on their compensation agreements.

Issues regarding vesting, payments, and forfeiture often arise when an employee resigns or is terminated.  An employee's right to receive their deferred compensation will often depend both on the language of the award agreement as well as various legal principles, which can be quite different depending on which state governs the agreement.  Employee's should consult with experienced and knowledgeable executive compensation attorneys to make sure they receive all of the compensation they are legally entitled to.

 
 

 

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