This article continues with another tip for drafting executive employment agreements and the importance of consulting counsel.
For every well drafted executive employment agreement in the business world, there seem to be multiple, poorly drafted agreements. Too often, employers simply copy and paste from older agreements without knowing anything about the identity or qualifications of the author of the original agreement, the jurisdiction, or circumstances in which the agreement was intended to be used. Moreover, employers sometimes borrow terms from an agreement that was heavily negotiated by an executive with considerable leverage. Under such circumstances, the agreement likely will contain terms that are less favorable to the employer than those that can be negotiated with another executive. Most employers do not realize their mistakes until they are consulting an employment attorney regarding their rights and obligations with respect to an executive who has engaged in misconduct or is simply performing poorly. The purpose of this series is to provide tips for drafting executive employment agreements and to highlight the importance of consulting counsel before tendering an agreement to an executive for consideration.
Tip No. 2: Condition Severance on the Execution of a General Release and Compliance With Other Contractual Provisions
If the Company is going to include the payment of severance in an executive’s employment agreement, it should always require the executive to execute a general release of all claims against the Company as a condition of receiving severance. By failing to include this condition, an executive could be terminated, collect severance, and turn around and sue the Company for breach of the agreement, discrimination, etc.
The Company also should condition payment of the severance on compliance with other contractual provisions of the agreement, such as provisions relating to the return of Company documents and property, non-disparagement, noncompetition, nondisclosure of confidential information, and nonsolicitation of customers and employees. Not only does this approach incentivize the executive to honor his/her post-employment contractual obligations, but it permits the Company to engage in “self help” by simply discontinuing the severance payments in the event of a breach by the executive, rather than having to file suit against the executive and incur substantial attorneys’ fees and costs in the process.