Employment Contracts: Key Considerations for Maryland Executives
The Law Firm of J.W. Stafford | October 15, 2019
Maryland business executives, especially those in the health care industry, are in an ever-changing landscape. Businesses would like to acquire the best management talent, but at the same time, have flexibility to make quick changes in leadership. On the flipside, executives want job security, plenty of authority to accomplish their mandate and adequate compensation.To help dictate how this balancing act will take place, we have executive employment contracts.
If you ever find yourself about to take on an executive position, your employer will probably ask you to sign one. But before signing something this important, you should consult with an experienced Maryland employment lawyer, such as one from the Law Firm of J.W. Stafford. It doesn’t take much time to go over a contract and understand all of its terms and identify any potential problem areas. Here is a list of key considerations when reviewing your employment contract.
Key Consideration #1: Compensation
The compensation structure will probably be the single most important consideration for executives, and for good reason. Annual salary, benefits, perks, stock options, bonuses, etc. are all things that an executive will want to maximize. But the executive should pay attention to the details.
For example, with stock options, what happens if the executive leaves before they vest? Will the executive lose out on them? Or will they automatically vest upon termination, allowing the executive to profit from them before departure? What might sound like a generous equity grant might be illusory when the company has the power to fire you before you’re able to exercise your stock options.
Key Consideration #2: Restrictive Covenants
Compared to employment agreements for non-executive employees, restrictive covenants often play a very important role in executive employment contracts. Commonly found restrictive covenants include noncompete, nondisclosure and nonsolicitation agreements.
These are found in many employment agreements, even for non-executives. Often, these are included in non-executive employment contracts for “just in case” reasons. But with executives, these restrictive covenants serve specific purposes, given the amount of power and access to information executives will typically have.
While removing restrictive covenants isn’t likely in most executive employment agreements, the terms may be negotiable. For instance, the length and geographic reach of a noncompete agreement can sometimes be reduced, as well as the penalties for a breach of the nondisclosure provision.
Another consideration with a nondisclosure agreement is what constitutes confidential information. Executives will need to confirm that the definition is not overly broad, especially if they hope to eventually work for another company within the same industry.
Maryland executives need to make sure they negotiate these changes before starting their job. Even though Maryland is a jurisdiction where courts will sometimes modify a restrictive covenant in the employee’s favor after the employee has already signed the employment contract, this is never guaranteed. The greater the employee’s bargaining position was at the time of the signing of the employment contract, the less likely the chances will be of an employee-friendly modification. And compared to non-executives, executives almost always have more negotiating power during pre-employment negotiations.
Key Consideration #3: Grounds for Termination
This might be one of the easier parts of an employment contract to gloss over, but it’s often the most important. That’s because it can make or break some of the other important provisions, especially those dealing with compensation and restrictive covenants.
For example, if the executive is fired for stealing company money, they will probably give up the right to a nice severance package. But if the employer decides the executive isn’t delivering quarterly results that meet expectations, not only might the executive receive certain benefits such as a generous severance package, but some of the restrictive covenant may not apply to them or may be reduced in duration and scope.
Given the level of responsibility and visibility of executives, most employment contracts will have special provisions outlining when an executive can quit or be terminated, and what happens should that occur. There are typically four types of termination provisions: for cause, without cause, for good reason, and for disability/death.
It’s the “for cause” provision that’s most important. It refers to misconduct by an executive which not only allows the employer to fire the executive, but do so in a manner which often requires the executive to forfeit a significant amount of benefits and compensation.
Firing an executive for cause refers to firing them for bad conduct, such as behavior that is unethical, immoral, illegal or “against the interests of the employer.” Lately, one type of conduct that will often constitute for cause termination is sexual harassment.
Some employment contracts will try to further define what constitutes firing the executive for cause. Before signing the agreement, an executive needs to make sure they agree with the definitions or examples provided and that they are fair.
Contact Our Employment Law Firm Today
To get more information about how a Maryland employment lawyer can help you understand and negotiate your executive employment contract, feel free to reach out to the Law Firm of J.W. Stafford or call our office at 410-514-6099.