What should be in my executive employment contract?

Problem:

I’m in negotiations with a potential new employer about a senior executive position. What should I ask to be included in my employment contract and should I have a lawyer look at it before signing?

Our response:

Over the years we’ve seen many senior executives coming to us after their relationship with their employer turns sour.

There are usually many questions to be answered over how they can plan their exit, negotiate severance terms, and deal with a specific dispute arising from the decision to sever ties.

I’m often surprised at just how little time went into negotiating the initial employment contract and how simply legal headaches could have been avoided by dealing with major issues at the outset.

While the important commercial terms of the contract are easy to identify, such as, salary, bonus payments and benefits, the level of detail and wording used in employment contracts varies greatly.

Your position can be prejudiced if you fail to take the appropriate advice on matters such as notice periods and restrictive covenants.

For example, ‘gardening leave’ clauses, entitling an employer to ask their executive to ‘sit out’ their notice period away from the office can be an inconvenience, especially if the employer assigns the departing executive to ‘special projects’ in a bid to get some final value out of them before their notice period is served.

In the case of an executive with a long notice period, a payment in lieu of notice (Pilon) clause may also cause problems as it could reduce the executive’s ability to negotiate an immediate severance payment.

You may have been offered share options, either as part of the original job offer, or during the course of the employment. What happens to those shares in the event of you leaving the company or having your contract terminated, is also something that should be appropriately addressed in an employment contract.

If the position is a director’s position, what personal liability is there in the event that the company gets into difficulties, particularly if the business is a Plc with responsibilities to external shareholders?

Other matters executives would be well advised to challenge and negotiate at the outset could include:

• Provisions that can deny the executive any bonus payment if, at the date of the bonus payment, they are no longer in employment, have resigned, or have been served with notice
• Provisions expressly entitling an employer to appoint someone else to perform the executive’s role jointly, or to change their role, reporting line or job title
• Clauses that may allow the employer to remove or vary the terms of contractual benefits.

Taking professional advice at the outset will help ensure clarity as to the terms governing your relationship with your employer thus saving you time and money in arguing later. Similarly, if the terms such as post-termination restraints have been negotiated robustly at the outset of the relationship, this should ensure you can get on with building your career elsewhere in the event you choose to leave.

For more information on negotiating your employment contract, or help with any other employment law matter, contact our Employment team on 01772 258321