News and Articles

December 2015 Newsletter

Yogi Patel - Wednesday, December 02, 2015

Dear valued clients and supporters: This month's newsletter will focus on: (1) The nation-wide increase in the usage of arbitration clauses in employment agreements; (2) Negotiating a more favorable employment offer/agreement; (3) The "Alter Ego" doctrine; and (4) New York City's Fair Chance Act.

 

Arbitration Agreements
In recent years, there has been a nation-wide spike in the usage of arbitration clauses by employers in their employment agreements. The motivation for employers to include such clauses is that they typically require employees to settle any grievances through arbitration, effectively preventing them from bringing an action in court. The clauses also usually require that all disputes be brought individually, which can have the effect of prohibiting employees from bringing class action suits. In the wake of United States Supreme Court decisions upholding the validity of arbitration clauses that prevent employees from bringing a collective suit, many employers are now requiring that all employees agree to arbitration as a term of employment. Employers and employees are advised to consider the implication of this trend, as employers may seek to include arbitration clauses while employees may seek to negotiate the removal of this term when possible.


Negotiating A More Favorable Employment Offer/Agreement
Many employees may not be aware that when they are offered a new position, they often have significant leverage at their disposal to negotiate for better terms of employment. Prospective employees who bring years of experience or unique skills and knowledge should not sell themselves short at the bargaining table, especially prior to accepting an offer of employment. From increases in salary, stock options and other benefits, to more favorable terms of severance, grounds for termination, and restrictive covenants, employees should consider what they can gain through such negotiations. An in-depth article addressing terms that an employee should consider negotiating as well as how to negotiate effectively so that an employer is not "put-off" by your ask is now available here on our website.


"Alter Ego" Liability
The number one reason why business owners form corporate entities is to insulate their personal assets from the liabilities of the company--if the business has an issue that causes it to owe money, the owner's house, bank account, and other personal property cannot be used to pay the company's debt. However, when a business owner abuses this protection and primarily uses the entity for her own personal gain rather than to transact the corporation's business, a court may find that the business is actually the "alter ego" of the owner. Upon such a finding, the owner and the business are treated as one and the owner's personal assets become at risk. To find out more about the factors New York courts look at under an "alter ego" analysis and the consequences of a determination stripping a business owner of the protections of her corporation, please read a more in-depth article posted here on our website.


New York City's Fair Chance Act
On October 27, 2015, the New York City Fair Chance Act went into effect. The law makes it illegal for employers to ask applicants about a criminal record before making a job offer. The Act bans reference to criminal histories or background checks in employment ads, job applications and during interviews. An in-depth article analyzing the Act and an employers obligations under the new law are now available here on our website.


Readers are encouraged to follow us on Twitter (@lloydpatelllp) and Facebook to receive updates on this and other issues throughout the month.

Negotiating a Better Employment Offer/Agreement

Yogi Patel - Tuesday, December 01, 2015

Introduction

Many employees, especially executive level employees, approach an offer of employment as a “take it or leave it” proposition. The reality, however, is that unless you negotiate, you will end up with terms that are generally skewed and favorable to the employer. As with executives negotiating more favorable severance packages, executives negotiating employment agreements should consult with an attorney prior to negotiating or signing any such document. Once you sign on the dotted line, the executive has effectively given up any leverage in negotiating terms that will directly impact his or her role, compensation, future obligations to the employer, including who and where else they can work next. This article will address some of the terms that we recommend an employee should consider negotiating as well as how to negotiate effectively so that an employer is not “put-off” by your ask.

Will My Future Employer Negotiate?

An executive with an employment agreement in hand is in a strong position to negotiate with the employer for better terms of employment. The employment agreement is the last step of an employer’s long recruitment process, which plays largely into the employer’s willingness to negotiate at this point. On the surface it seems the negotiating dynamic is skewed much in favor of the employer, who holds the desired position. However, the employer does not want to lose the person they want most and then have to repeat the arduous recruitment process if all it takes is revising the existing agreement to provide the executive with better terms. Executives who come to their employers with reasonable requests might be surprised by the employer’s willingness to negotiate. This is especially so when the employer has actively recruited the executive from her current employment at another company. This is the first moment where the executive and employer’s interests may clash; and the employer, having pursued the executive, will want to show that it is responsive to the executive’s needs and willing to give them serious thought.

How Does Negotiation Work?

The first step is to understand the terms that are being offered and the future implications of those terms. By reviewing the agreement with the help of employment counsel, the executive will get a full understanding of the agreement’s terms and the risks associated with signing off on those terms—especially restrictive covenants that might inhibit the executive’s growth in the profession should he or she leave the company for a position elsewhere. The goal is to isolate the terms that are important to the executive and that need to be refined with a plan for how the executive will negotiate those terms when he or she next meets with the employer or its representative. For example, an executive who wants to protect themselves from subjective termination would prioritize negotiating a pro-employee “cause” termination clause and a severance package that stipulates the executive will receive earned, unvested compensation if terminated. For an executive whose compensation is primarily based on bonus, equity pay or stock options, the priority will lie with negotiating better vesting options and non-dilution terms.

Once counsel and the executive have worked through the priority of the terms that need to be revised, it is often advisable to have the executive provide an annotated agreement with the revisions built-in to the employer for consideration. The executive must assert their position boldly while being careful not to alienate the future employer with coaching from counsel on presentation of issues. If the executive and the employer fail to compromise, the executive should then consider having his or her attorney engage in direct negotiations with the employer’s General Counsel on behalf of the executive.


So What Exactly Will I Be Negotiating?

Depending on the industry and the executive’s priorities, an employer may seek revisions on any of the following terms of employment.

  • Remunerative terms, such as:
  • • Salary
  • • Bonus
  • • Commission
  • • Stock options
  • • Medical benefits
  • • Retirement benefits
  • • Deferred compensation
  • • Vacation and leave

  • Restrictive covenants, such as:
  • • Non-compete
  • • Non-solicitation
  • • Confidentiality
  • • Preserving trade secrets
  • • Dispute resolution

  • Terms of severance, such as:
  • • Grounds for termination, i.e., for cause, not for cause, mutual agreement, notice requirement, opportunity to cure
  • • Severance pay
  • • Continued medical coverage
  • • Buy-back of equity
  • • Bonus payouts and vesting periods
  • • Dispute resolution (arbitration vs. litigation).

Conclusion

The bottom line is that an executive with an offer of employment and an unsigned employment agreement should always consider negotiating for better terms. If you do not ask, you will never get – but you have to do it with tact and strategy. This article is not intended to be nor should it be construed as providing legal advice. As with any matter, the particular details of each executive’s situation require careful consideration and should be reviewed individually with an attorney.


Yogi Patel, Esq. is an employment and business lawyer and partner at Lloyd Patel LLP, a general practice law firm. He can be reached directly at yp@lloydpatel.com.

Whitney McCann is a second year law student at City University of New York School of Law, interning at Lloyd Patel LLP, and expects to graduate in May 2017.

November 2015 NEWSLETTER

David Lloyd - Tuesday, November 03, 2015

Dear valued clients and supporters: This month's newsletter will focus on: (1) New York City legislation, effective January 2016, expanding the right to pre-tax transit benefits for certain employees; (2) Governor Cuomo’s recently introduced statewide regulations prohibiting harassment and discrimination against transgender people; and (3) The first article in a two-part series focusing on executive severance packages and negotiations.

Pre-Tax Benefits a Boost for Commuters
Beginning January 1, 2016, New York City companies with 20 or more full-time employees will be required to offer their employees pre-tax transit benefits. This legislation encourages employers to take advantage of an existing federal tax benefit that allows companies to offer workers $130 as pre-tax income for transportation costs. As a result of this law, the City anticipates employees will save $400 per year on MetroCard expenses and employers will annually save $100 per employee in tax liability. The Department of Consumer Affairs will enforce the law, which imposes fines on covered business who do not offer the required benefits. However, companies that fail to comply will be given a 90-day grace period to fix their violation before being subject to civil penalty. To allow businesses adequate time to adjust their practices, employers will not be subject to penalty before July 1, 2016.


Expanded Protections for Transgender New Yorkers
Governor Cuomo recently introduced regulations by Executive Order that provide broad protections for transgender New Yorkers from unlawful discrimination. The statewide regulations prohibit harassment and discrimination against transgender people by all public and private employers, housing providers, businesses, creditors, and others. Cuomo’s order, to be enforced by the New York State Division of Human Rights, will be subject to a 45-day notice and comment period before being fully implemented. The regulations will provide the full force and protections of the existing New York Human Rights Law, which includes extensive compensation and other legal remedies for victims of discrimination and harassment, as well as stiff penalties for those who violate the law.


Executive Severance Negotiation
Executives who have been recently terminated and more importantly those that are considering leaving their current positions, including those that believe they are about to be terminated are urged to think more pro-actively about their severance packages. Rather than settle for what an employer may initially offer, if anything at all, executives should consider the benefits of developing a negotiation strategy that results in a package that makes their transition to the next phase of their lives and careers more manageable and equitable. The legal issues that generally determine what leverage, if any, an employee may have depends in large part on the rights under their specific executive employment agreements, any legal claims they may have against their employer, and other non-legal factors. To find out more about how to negotiate a better severance package from your employer, please read a more in-depth article posted here on our website.

 

Next month's newsletter will focus on the flip-side of the issues - Executive Compensation strategy.


Readers are encouraged to follow us on Twitter (@lloydpatelllp) and Facebook to receive updates on this and other issues throughout the month.

Negotiating a Better Severance for Executives

Yogi Patel - Monday, November 02, 2015

If you are an executive looking to leave your current business, or if you have recently been terminated, consulting with an attorney is absolutely essential for negotiating the terms of your severance. All to often, executives are either uninformed about their rights, or they simply do not take the time to exercise the leverage they do have, and they ultimately agree to conditions that leave them in a far less favorable situation than necessary. When executives seek the advice of counsel and refuse to blindly sign away their rights, they can be assured that they are negotiating from as strong a position as possible and are maximizing their benefits under any settlement they reach with their former or soon-to-be former employer.

This article is the first in a two-part series on executive negotiation of severance packages and new employment agreements. The goal of this article is to demonstrate how, with the assistance of an attorney, an executive can maximize her leverage in negotiating the termination of her employment. The second article in this series will detail how an executive can utilize the expertise of a lawyer in negotiating the terms of a new offer of employment.

Why do Employers Negotiate with Executives?

Perhaps most fundamentally, an employer negotiates because either it or the executive is seeking to terminate a relationship governed by a contract that did not work out. Unlike a typical at-will employment arrangement, an executive employment agreement may contain a wide array of benefits, obligations, restrictions, and even limits on termination itself. The terms of an executive employment agreement can govern the actions of the employer and executive both during the performance of the contract and after they part ways, and a breach by either party can have serious consequences.

Additionally, an executive may be financially invested in the company, holding a significant number of shares or other assets in the company’s name, or she may know inside information about the business’s operations. Buying or otherwise taking back company assets from an executive and ensuring she does not reveal company secrets after she leaves are two vital interests of employers that give significant leverage to executives when negotiating a severance.

Finally, an executive may have been subjected to unlawful or abusive treatment, or she may know of other behavior or information that the company would not wish to be made public. While an executive must be careful not to short-change herself in waiving claims against an employer or to partake or implicate herself in anything illegal or unethical, her experience and interactions with others within the company can also strengthen her bargaining power.

How Does Negotiation Work?

Regardless of whether an executive has been terminated, is facing termination, or wishes to leave her current position, the first step is always to consult with an experienced attorney. An executive is ill advised to engage in negotiations unless she is clear about what her obligations and rights are under both her employment agreement and the law. Reviewing the contract with a lawyer ensures that an executive understands the full implications of its terms and enables her to develop a negotiation strategy with the assistance of an expert.

The next decision to make is whether to have the attorney directly advocate on the executive’s behalf, or for her to assist from the sidelines. Typically, this decision will depend upon the relationship between the executive and her employer, whether the situation is hostile or not, and to what degree the executive will be using potential legal claims as leverage.

The advantage of having the executive negotiate directly with her employer while the attorney advises in the background is that in an informal format, an employer may be willing to discuss terms more candidly. If an informed executive is able to work out a severance with her employer in such a manner, negotiations may proceed more quickly and additional confrontation may be avoided. Still, even in the most amicable of negotiations, an executive should not agree to or sign anything without having her attorney carefully reviewing any proposed terms of separation.

The reality is, however, more often than not an executive is seeking to leave her position or is terminated because of a dispute between her and her employer. The initial conditions for negotiating are therefore often unfriendly or hostile and attempts at informal resolution can prove to be counterproductive. Involving an attorney under such adversarial circumstances is not only necessary to ensure that an executives interests and rights are all being protected, but it also can mitigate some of the personal hostility the parties may feel towards one another and provide some leverage in reaching a resolution.

Once an attorney is involved, she will usually communicate with the employer’s attorney and make a severance demand based on the 1) terms of the executive employment agreement;
2) actions of the parties; 3) existence and viability of any legal claims against either party;
4) need for the employer to protect its interests and public image; and 5) the financial interests the executive has in the company. An experienced attorney will be able to take all these factors into consideration and weave them into leverage designed to maximize an executive’s compensation package with an eye towards avoiding litigation. While sometimes filing a claim may prove necessary, it is almost always the objective to reach a settlement without involving the courts.

So What Exactly are the Benefits of Negotiation?

Executives who have opted to negotiate rather than waive their rights and settle for less have received any number of the following:

  • • Additional Severance Pay
  • • Severance Pay as a Salary Continuation Rather than as a Lump Sum
  • • Continued Medical Coverage for their Families
  • • Additional Consideration for Agreeing to Restrictive Covenants;
  • • More Favorable Asset Buyout Terms
  • • Compensation for Waiving Legal Claims
  • • Compensation for Entering into a Confidentiality and Non-Disparagement Agreement
  • • Reimbursement of Unused Vacation Days
  • • Postponing the Executive’s Termination Date
  • • A Neutral or Positive Letter of Reference
  • • Reimbursement of Attorney’s Fees
  •  

Conclusion

Most employers want to be held in high esteem by their former executives, or at least have that be the public perception. Though employers might be stringent in negotiating better severance packages because they do not believe the former executive has power, an executive who pushes a negotiation can prove not only that she does have power, but also that it may actually be in the employer’s best interest to negotiate. By consulting with an attorney, executives can become fully informed of their rights and the leverage they have, and can design a negotiating plan that maximizes their bargaining power that increases the benefits they receive as severance.

Next month, we will publish the second article in this series, which details how executives can maximize their leverage in negotiating a new employment agreement with the assistance of a lawyer. If you are an executive looking to leave your current company, negotiate a new employment agreement, or if you have been recently terminated, you are encouraged to consult with one of our attorneys and may contact us here.

This article is not intended to be nor should it be construed as providing legal advice. As with any matter, the particular details of each executive’s situation require careful consideration and should be reviewed individually with an attorney.


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