The search for an executive-level employee can be challenging and much more complex than the search to fill lower-level positions — and with these higher stakes, breaches of contract or the attempted enforcement of illegal provisions can carry hefty penalties. If you are unfamiliar with the specifics regarding executive employee contract, you should contact a professional. An experienced employee contract attorney can draft executive employee contracts that are airtight because they understand factors affecting enforceability and liability. If you are an executive considering an employment contract, we can help you get the best deal by overseeing the negotiation process.  

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What types of provisions can or should be included in an executive employee contract?

Like all contracts, an executive employee contract must have consideration on both sides of the transaction to be enforceable. On the employer’s end, this consideration includes the employee’s salary, bonuses, and any fringe benefits. On the employee’s end, this may include non-compete or confidentiality agreements that limit the employee’s ability to discuss or disclose trade secrets, as well as other terms and conditions of employment.

An executive employee contract will usually go beyond the traditional employee contract in scope, as the higher compensation and increased responsibility for these high-level employees can mean the negotiation of additional benefits and contract terms. For example, a search for an executive employee can often be a nationwide one, necessitating the inclusion of relocation expenses or a moving stipend into a contract for employment — employers may legally require the employee to repay a portion or all of any relocation expenses if employment is terminated within a certain period after the move.

In order for the provisions in an executive employee contract to be enforceable, they’ll need to be entered into freely and without coercion or fraud. An employee who waives certain rights or takes action in reliance on a contract entered into under false pretenses may not be bound by the contract; and on the other side of the coin, an employer that offers a contract based in part on certain information the employee represents to be true (but that is false) may have legal grounds to have the contract voided.

List of Provisions to Include in Executive Employment Contracts

There are a handful of things that every executive employment contract should include. The SEC provides a good executive contract example template here that may help you understand the complex nature of these contracts. Examples of some of the provisions that should always be included in an executive employee contract include:

  • Explain the purpose of the contract toward the beginning
  • Define scope of employment duties, title, main and auxiliary responsibilities
  • Length of employment contract
  • Accrued vacation compensation
  • Terms of employment
  • Specify compensation and any benefits in detail and for how long
  • Non compete clause or provisions
  • Non disclosure provisions
  • Include provisions for situations where contract ends but executive remains employed
  • For cause clause: valid reasons for termination, and types of benefits and compensation for termination
  • Include specific compensation or benefits if terminated without reason
  • ERISA compliant terminology
  • Severance agreement/provision detailing the compensation the executive is to receive under any circumstances of employment termination and how the compensation will be paid (monthly payments, one time payment, annual payments, etc.)
  • Severance provision for executive’s stockholder rights after employment end

What provisions aren’t legally enforceable in an executive employee contract?

In most cases, contract provisions that are struck down are done so for one of the following reasons:

  • Vagueness (as contracts without clear and specific language aren’t likely to put the parties on actual notice of their responsibilities); 
  • Inapplicability (for example, requiring an employee without access to private information to sign a confidentiality agreement); 
  • Illegality (under some state laws, like California, non-compete agreements are facially unenforceable); and 
  • A lack of severability of any unenforceable contract provisions.
  • No considerations, or value offered in exchange for non compete or non disclosure contract

Contracts that don’t include language that provides that any illegal provisions for severable agreements may also be unenforceable. Without some mechanism to remove or ignore illegal contract provisions, the entire contract will be voided.

How regulates and enforces executive employment contract complaints/compliance?

Enforcement (or attempted enforcement) of illegal contract terms is usually handled by either the EEOC or the Department of Labor.

EEOC. If the terms at issue involve discrimination on the basis of age, sex, race, religion, disability, or another federally- or state-protected class, filing a complaint with the Equal Employment Opportunity Commission (EEOC) or state equivalent may be the best route to resolution. The EEOC will investigate this claim and may require both parties to meet and discuss potential outcomes through mediation or another alternative dispute resolution process. If these resolution methods are unsuccessful but the EEOC determines the employee has a legal claim, the employee can then file a civil lawsuit in federal court.

DOL. If the illegal contract terms instead deal with wage and hour issues and violate the Fair Labor Standards Act or related state wage and labor laws, an aggrieved employee may instead try to resolve this dispute through the Department of Labor’s Wage and Hour Division or state equivalent prior to filing a lawsuit. 

For other types of contract terms not directly governed by federal or state anti-discrimination or wage and hour laws, a civil lawsuit may not require exhaustion of administrative remedies. 

How are breach of executive contract claims resolved?

If an employer or employee breaches a valid employment agreement, this gives rise to a breach of contract claim that can be resolved in federal or state court. The proper venue for a breach of contract claim will generally be state court unless the parties are located in different states. Breach of contract claims can be resolved in a multitude of ways, from injunctive relief to reinstatement of employment or monetary damages for the employee or employer depending on the case. 

For an executive to be deemed in breach of contract, they must “show cause”, meaning they crossed one of the thresholds listed in their employment contract that gives the employer justification for termination.

Enforceable Executive Contract Breaches

Some of the most commonly enforced breaches of contract on the part of executives include:

  • Gross Negligence
  • Pleading Guilty (or no contest) to a Felony Charge
  • Guilty Plea or No Contest for Crime of Moral Turpitude like Embezzlement, Theft, Fraud, etc.
  • Misconduct that Harms the Company
  • Continuous Insubordination
  • Failure to Perform Job Duties or Lack of Effort (not a measure of success)
  • Intentional violation of No Compete, NDA, Trade Secret, or other Employment Agreement
  • Gross Negligence

Common Defenses for Executive Breach of Contract Complaints

Just as there are many common breaches of contract, there are many common defenses for breach of contract complaints as well. The most common defense occurs when contracts are not written specifically enough, and lack either a definite time line or date for the beginning and end of the contract or another important detail is left out (like a signature) making the entire contract unenforceable. Common defenses an executive can use in a breach of contract lawsuit include:

  • No Specific Time Limit is Set in Contract for Terms of Employment, Pay, Benefits, etc.
  • Executive Job Duties Have Changed Dramatically & Terms of Contract are Impractical
  • Conditional Precedent Never Occurred
  • One or Both Parties of the Contract Were Mistaken About the Agreement Terms
  • Employer Previously Approved of the Action they Now Call a Breach
  • Substantial Change in Control of Company
  • A Newer Contract Was Signed by Both Parties, Replacing the Old One
  • State of Frauds: the Contract is Not Signed, or is Not in Writing and Signed as Required by Law
  • The Statute of Limitations Has Passed to File a Breach of Contract Complaint in the State

Contact an Employment Agreement Attorney for Executive Contracts

Sources

http://smallbusiness.chron.com/voids-employment-contract-42660.html

http://law2.wlu.edu/deptimages/Law%20Review/Schwab-ThomasPublished.pdf

http://texaslawhelp.org/files/685E99A9-A3EB-6584-CA74-137E0474AE2C/attachments/812F8E48-03D2-4E76-981B-AD89607A34F9/employersguidetogeneralemploymentlaw.pdf

Schedule a Consultation – 866-262-1553

Request Your Free Case Review

Call Baron & Budd today or send us an email online to request a consultation. Whether you are an employer that needs help drafting an executive employment contract or a potential employee who wants help negotiating the terms of their contract, we can help.

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