All that You Must Know about Employment Contracts

With the increase in competition, few top executives or professionals will be offered jobs without an employment contract. Many organizations have begun to insist on contracts for their protection since recent court cases have said that offering employment is an implied contract. Even at middle management levels, and certainly at the top levels, the employment contract is almost derigueur. But this is an area where your negotiating skills must come to the fore. You want to negotiate a contract that is equally advantageous to you. You want to begin by assessing if the job calls for a contract.

According to Catherine H. Rubenstone, head of CR Associates, a management consultancy firm in Malvern, Pennsylvania, you need to look at five key questions:

1. Is the industry particularly volatile?
   
   
   
   
2. Does the organization have a history of picking employees' brains, then getting rid of them?
   
   
3. Is the company ripe for merger or acquisition?
   
   
4. Will a non-compete clause severely restrict you as a job candidate in the future?
   
   
5. Are contracts the norm in the industry or firm?

You may request the contract yourself, after you have negotiated your compensation package and other perks. You may ask simply to have your verbal agreement placed on paper. Or the company may request the contract. Three- to five-year contracts are typical, although companies generally prefer the shorter term. The basic elements of the contract are:

1. The employment offered-the position/title and duties of the position, (these duties can be more generalized than a job description, or may be the actual job description) and reporting relationships.
   
2. The term or length of the contract, including termination date, renewal provisions, and any special provisions for early termination.
   
3. Compensation. This section generally includes a general statement about the company's right to deduct or withhold all taxes, specifics about the salary (for a specific time period, how payable-weekly, monthly, annually, if any adjustments are applicable-who determines and how often); bonus determination and when payable; stock options or other opportunities for capital accumulation; benefits offered; car or car allowance; expense reimbursement; vacations; and any other negotiated perquisites.
   

Catherine H. Rubenstone, "The Employment Contract: When and How to Negotiate It," Management Solutions.March 1988, pp. 17-21.

4.    Restrictive Covenants

Covenants not to compete with specific time frames and the specifics of what is covered. You may want to check with a lawyer on this part, since some non-compete clauses have been held to be in restraint of your legitimate right to earn a living.

Trade secrets. A commonly accepted definition of a trade secret: A trade secret may consist of any formula, pattern, device or compilation of information which is used in one's business, and which gives an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula or a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers.

5.    Termination (when, how and why)

• By mutual consent of the parties
  
  
• Upon the death of the employee (you)
  
  
• At the company's option (with or without cause). This clause now appears because the company wants to retain employment-at-will rights.
  
  
• Upon the dissolution, merger, termination of existence, insolvency or other reason for failure of the business
  
  
• Other miscellaneous reasons (relocation, change in scope of the employee's duties, etc.)
  
  
• If the contract is for a short-term project, this will be included in this section.
  
  
• Severance pay.

6.    Miscellaneous General Contract Provisions

• The contract supersedes any and all prior agreements
  
  
• The contract can be modified only in writing
  
  
• If any portion of the agreement is void, illegal or unenforceable, that portion may be excluded and the balance of the contract will be enforceable
  
  
• A notice clause-where, when and how any notice required by the contract will be given
  
  
• A government law clause which states what jurisdiction's laws will govern the contract (i.e., the laws of Texas, California, Illinois, etc.)

For additional information on job contracts and job offers, check The Employee Rights Handbook by Steven Mitchell Sack (Facts On File).

The contract is brought just as you would negotiate any element of the package. Realize that you won't get everything you want, so be prepared for trade-offs. What are the key elements of successfully negotiating your contract? According to Rubenstone, they are the same ones that work in any negotiation:

1. Be confident-you're selling yourself. Rehearse your phrasing with a friend who can play devil's advocate.
   
   
2. Be patient-time for consideration on both sides can be worthwhile.
   
   
3. Ask questions-they keep the process moving.
   
   
4. Make your opponent (in this instance the person with whom you're negotiating) look good-give in on minor issues.

But even if you've done a good job on assessment and negotiation, the company may still refuse what you consider your main demands. You have three choices: Accept the job and for ego the contract; refuse the job; or accept the job and in a few years renegotiate from an established position of power.