Executive Employment Agreements John L. Knorek and Robert S. Katz - - PDF document

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Executive Employment Agreements John L. Knorek and Robert S. Katz - - PDF document

8/23/2017 Executive Employment Agreements John L. Knorek and Robert S. Katz Basics of Negotiating or Proposing an Employment Agreement Compensation/Bonuses/Incentive Benefits Deferred Compensation Scope of Duties Terms


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8/23/2017 1

Executive Employment Agreements

John L. Knorek and Robert S. Katz

Compensation/Bonuses/Incentive

Benefits

Deferred Compensation

Scope of Duties

Terms and Termination

Change of Control

Non-Compete/Restrictive Covenants

Arbitration Agreement

Notice

Basics of Negotiating or Proposing an Employment Agreement

Pros and Cons

 Pros: Executive /Shareholder Comfort/Protection,

Incentive, Market Practice, Restrictive Covenants, Avoids renegotiations, Clarity

 Cons: Locked in, unable to change, create others’

expectations, creates non-uniform pay and separation packages, may move away from at- will, more legal compliance issues with 409A, 280G and 162(m)

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Warning! Beware of verbal promises not

  • kept. Be specific and clear on expectations

Ravelo v. County of Hawaii (1983):

giving up other employment in reliance on a promise of certain hours

  • r pay can be sued upon as if it were a

written agreement Offer Letter

Background checks and references Is Employment at will Signing bonus?

TERM

At-will? Duration? Automatic Renewal Fixed Term? Evergreen?

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8/23/2017 3 Compensation: Base Salary

  • Base salary guaranteed

without adjustment?

  • Are there objective

goals to meet to obtain base comp?

  • Are there incentive

bonuses that are keyed to measureables? Comp and bonuses

Tax deductibility concerns under Code 162(m) for base salary in excess of $1 million paid to certain named executives of a public company

Short term deferral or compliant with 409A (cash method employer) ? IRS Notice 2010-80 provides release cannot affect payment and timing of deferred comp under 409A. (no later than 2.5 months after year of vesting and not more than 2x annual comp)

Code 457A applied to tax indifferent payors – LLCs and applies to both cash and accrual taxpayors.

Is Comp all cash?

Equity?

Annual grats?

Based on performance period/goals?

Options (ISO, NSO, SARS, restricted stock, RSUs, Deferred stock…

Valuation issues if LLC, other

When payable? Must be employed?

Benefits

  • Moving Allowance and Reimbursement

Plan?

  • Conditions on reimbursement or

repayment?

  • Typically separate written agreement
  • Leave:
  • Vacation, Sick, PTO, how accrued and how

paid out, use it or lose it or accumulates

  • Perks:
  • Parking, club membership, expense

allowance, phone, car, home internet…

  • Health Insurance
  • Mandated benefit in Hawaii for most

employees not subject to collective bargaining

  • Spousal/family coverage is negotiable
  • Retiree health benefits
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Scope of Duties

  • Detail scope of duties:
  • Title?
  • Who assigns duties? Board, CEO, Supervisor…
  • Duties “commensurate with the position”?
  • Time Commitments
  • Outside

businesses/investments/activities/conflict

Termination

  • “Without cause” termination provisions
  • Typically requires written notice 30 to 90 days

prior to termination

  • Termination for cause:
  • Specify what “cause” is
  • Provide written notice of cause
  • Opportunity to “fix” alleged deficiencies
  • Inability to work? – Death? Disability Law?
  • Severance Pay?

Cause

 Failure to perform duties  [“Gross”]Negligence or misconduct  Dishonesty, fraud  Violation of Company policy  Breach of Contract  Loss of Qualifications/Licensure  “in the sole determination of the Employer”?  Cure rights? 5-30 days  Due Process: decision maker, appeal, …

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 An adverse employment action is not ok when

based on*:

 Refusing to commit an unlawful act  Performing an important public obligation

(e.g., jury duty, whistle blowing, refusing to violate professional code of ethics)

 Exercising a statutory right or privilege  Separating from your employer  Separation agreement  Severance pay/Release Agreement  Clawbacks

Termination, cont.

*Parnar v. Americana Hotels, Inc., 652 P .2d 625, 631 (Haw. 1982)

Non-Compete/Restrictive Covenants

  • Why do Courts often hesitate to enforce restrictive

covenants?

  • Because it restrains trade
  • Hawaii law states, “[e]very contract, combination

in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce in the State, or in any section of this State is illegal.” Haw. Rev . Stat. §480-4(a)

  • What kind of non-compete agreement is allowed

between an employer and its employee or agent?

  • “A covenant or agreement by an employee or agent

not to use the trade secrets of the employer or principal in competition with the employee’s or agent’s employer or principal, during the term of the agency or thereafter, or after the termination of employment, within such time as may be reasonably necessary for the protection of the employer or principal, without imposing undue hardship on the employee or agent.” HRS §480-4(c)(4)

Non-Compete/Restrictive Covenants, cont.

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Non-Compete/Restrictive Covenants, cont.

  • When enforcing restricted covenants, the Courts strive to balance:
  • Employer’s need to protect its interests and rebuild customer relationships
  • Whether undue hardship is imposed on the former employee
  • Whether the benefit to the employer outweighs injury to the public

*Example of unreasonable restrictive covenant

ARITRATION AGREEMENTS

Pros:

Typically less expensive

  • No jury

  • Proceedings generally more efficient and use informal procedures

  • Limited discovery

  • May choose arbitrator

  • Protects confidentiality of parties and award amount

  • Class action waivers

Downsides of Arbitration

  • Summary judgment can be rare

  • No appeal, except in limited circumstances

  • Cost of compelling arbitration in court may be high

  • Cost of arbitrator

  • Complex issues may be difficult to resolve
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Thank you