Employment agreements are not uncommon with sales personnel, executives, or other key employees and can contain critical terms as to compensation and employee benefits and restrictions when you leave your former employer. Stock options as part of the overall employment compensation in a publicly traded company may be easier to liquidate without effecting the employee’s cash flow than in a closely held company yet there are insider trading rules and blackout periods to consider which provide some restrictions. For the closely held company there are restrictions within the agreements on who the employee can sell her stock to and practical restrictions of people not being interested in buying a minority stock interest in a company they will not control nor stock they be able to easily resell.
Employees should carefully review the details of an offer letter or a proposed employment agreement to prior to accepting a position. If the employer wishes to provide the new employee with a non-compete as a condition of employment, the employer is required to provide a copy of that agreement prior to the employee’s acceptance of the offer of employment in accordance with NH RSA 275:70. It is not enough to put in an offer letter that a non-compete agreement will be required. The actual non-compete agreement has to be provided to the employee prior to the acceptance of employment for it to be later enforceable. An agreement that prevents an employee from soliciting or accepting in a new job, customers she dealt with in the prior job is likely considered by a judge to be a non-solicitation agreement which can be enforced even if provided to the employee after she accepts the job offer.
Compensation should be clearly set forth in the agreement; whether it be an hourly wage, salary, bonus, draw and commission, or any combination thereof. The details of how a bonus or commission is earned needs to spelled out in the agreement as well. Traditionally under New Hampshire law, absent there being an agreement or clear policy, a sales commission is earned when the order is accepted by the employer even though the payment is contingent on an eventual shipment of the order and payment by the customer which could occur many months after the employee has left the employ of that employer. Therefore, if the employer wants to ensure that commissions are paid only to active employees, that should clearly be set forth in the written agreement.
There may be a negotiated severance agreement as to certain key personnel. Employers generally still want the control over terminating the employment of the all personnel with or without cause, yet may agree to a payout to sever the relationship under certain circumstances. The employee may also be able to negotiate a severance due to resigning for what is defined in the agreement as good reason, such as for example a material decrease in compensation or job responsibilities. There can be a provision that a release is to be signed by the employee as a condition for receiving the agreed-to severance. The severance amount could increase over the years within the terms of the agreement, or perhaps increase and/or decrease, based upon an event such as the change of control of the employer. An employment attorney may assist executive and other key personnel in explaining the potential alternatives for the employment terms based upon the circumstances and assist the employee reaching an agreement of which both the employee and her employer are satisfied with to start the relationship off on the right foot.
J. Daniel Marr is a Director and Shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Attorney Marr is licensed and practices in both New Hampshire and Massachusetts. Attorney Marr can be reached at [email protected].