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.


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