More on Employment Agreements

When structuring an employment agreement, there are three key parts: (1) Term of employment, (2) Compensation, and (3) Restrictive Covenants.

1. Term of Employment

A term period provision with a drop dead date is unnecessary for most agreements - employment is often supposed to be perpetual.  However, termination for cause can shorten the employment term.  Cause can include breach of agreement which may be any misaction like failing to meet expectations, not using full time and energy for the business, committing a crime of moral turpitude, or surfing facebook on a work computer.

A Drop Dead Term ends on a particular date.

An Evergreen Term is an agreement provision that renews automatically for the term specified if no action is taken.

A Sneaky Evergreen Term is like the Evergreen Term but the notice period for taking action is at the beginning of the term instead of at the end.  This term is more favorable to the employee once the notice period has passed.

There may also be a temporary leading to long-term employment provision in the form of a probational period that protects both parties.

Finally, there can be a disability provision that kicks in depending on length and severity of disability.

2. Compensation

Compensation is more than salary, it includes benefits and possibly stock ownership.  The employment agreement may have a buy back clause to compel the sell of company stock upon termination of employment.  Agreements set forth all types of compensation and allow the precise definition of compensation and expectations.


3. Restrictive Covenants

There are three factors that restrictive covenants must conform to:
    1. Reasonable Duration
    2. Reasonable Territory
    3. Reasonable and Limited Scope

Restrictive covenants are equitable remedies that are enforced by judicial exercise (ie, injunction).  There is a risk that a judge might interpret reasonableness differently when exercising equitable powers.  There may be a legal remedy in the instance of buy out rights for liquidated damages.  A court cannot force payment of damages, but it can give the option to pay or not engage in activities.

Types of Restrictive Covenants:

Non-Solicitation of Employees Clause - Must be reasonable in Duration.  Held up by courts except when offer is a general solicitation.  There cannot be a solicitation of customers either.

Confidentiality Clause - Restricted by all three factors (Duration, Territory, and Scope).  This protects information and limits disclosure.

Proprietary information cannot be taken by an employee even if an employment agreement is silent on the matter.

Finally, there must be a separate separation/severance agreement upon termination.

Employment Agreement Form: