Executive Employment Agreements Require Special Attention
With San Diego employment contracts for regular employees, there are the standard provisions regarding job duties, dress code, anti-harassment and discrimination provisions, etc. However, with executive level employees, a well-drafted and well-considered employment agreement is essential both to protect your business and the executive employee. Here are a few tips.
Agree on the Essentials: Understand What is “Material” to Both Sides
It is easy to identify some issues that need to be included in the executive employee agreement – salary, benefits, job duties, etc. However, there are a host of other issues.
It is important to identify all the issues and also to gauge what is essential to the business and what is essential to the executive. Obviously, what is essential will be different in every case. If there is a misunderstanding and it is not clarified during the negotiation phase, the relationship might end up in disaster. We recently wrote about the case of Nollette v. LRICO Services, Inc., Case No. A143223, (Cal.App. 4th Dist. Sept. 14, 2017). In that case, what was important to Ms. Nollette was getting an ownership stake in the winery. She did not get that essential term reduced to a legally enforceable contract. Unfortunately for Ms. Nollette, things did not end up well for her in that regard.
Important Provisions in Executive Employment Agreements
Aside from essential terms that are unique to your specific business, here is a quick checklist of other important provisions of special concern for executive employment contacts. These should be considered “essential” terms for your business.
- Confidentiality: Out of necessity, an executive employee will be privy to various information that should be kept confidential; as such, an executive employment contract should impose the duty of confidentiality and should detail what that duty entails; the duty must be more than the normal duty owed by all employees
- Protection of trade secrets and other proprietary information: In particular, the duty of confidentiality must be emphasized with respect to trade secrets and ALSO an affirmative duty should be imposed to affirmatively protect trade secrets and other proprietary information
- Nondisclosure: In the same vein, the contract should impose a heightened duty of nondisclosure related to ALL aspects of the business, not just trade secrets
- Exclusivity: Any limitations with respect to the executive’s business-related activities outside of the scope of employment should be detailed; for example, generally, executive employee should not be directors of other corporations
- Duty of loyalty: All employees have a duty of loyalty, but a heightened duty should be imposed in the executive employment contract and specific prohibitions should be detailed
- Non-disparagement: Business reputation has become very important in the age of internet; as such, a duty of non-disparagement should be imposed on the executive employee both during the employment and for a reasonable period of time after separation
- Unusual or complicated compensation/bonuses structures: If compensation and benefits are anything other than straight-forward, the contract should be clearly set out the compensation formula; this a MUST if any compensation is dependent upon goal achievement
- Timing: The contract should clearly set forth time aspects for all areas of the employment relationship including start date, expected length of employment and vesting of benefits
- Tax issues: Unless negotiated, the contract should impose all tax obligations on the executive arising out of, for example, the taxability of benefits
- Reimbursement policies: Reimbursements are often allowed for executives and the contract should require adherence to the company policies and procedures regarding same
- Post-employment obligations: Noncompete agreements are not allowed in California, but the employment contract can and should limit post-employment behavior (such as contacting customers, raiding employees, use of trade secrets, etc.); such post-employment obligations should be specific
- Attorneys’ fees and costs provision: An attorneys’ fees and litigation costs clause should be included in event of breach by the executive employee
These provisions are in addition to normal provisions and obligations that would be found in a standard employment agreement.
Contact San Diego Corporate Law
For further information, please contact Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard has the experience to help draft and implement executive employment agreements and all other types of business contracts. Contact Mr. Leonard by email by calling (858) 483-9200.