How to Negotiate an Employment Agreement

After networking, interviewing and receiving an offer, the thought of another employment hurdle seems incredulous. However, one more hurdle exists: the employment agreement.

Negotiating an employment agreement – on the surface – may seem straightforward – especially if you discussed terms (generally) prior to receiving the agreement. However, contract negotiations can be tricky – AND deal-breakers. Use the opportunity to understand all the terms and potential risks. (Before continuing, I will advise you to have any legally binding agreement reviewed by an attorney. Attorneys are in the business of risk management.) From a compensation perspective, seek the advice of a professional before proceeding as well. Attorneys understand legal issues, but not competitiveness and what you should – or could – be expecting.

Before reading your contract, absorbing the terms and reacting, mentally list your top three items in order of importance. For example:

• Base salary – what level of compensation do you feel is competitive?
• Equity grants – one time or annual or both?
• Option buy-out – Are you walking away from “in the money” options that aren’t vested?
• Annual incentive – should a portion be guaranteed for the first year?
• Vacation time – How much do you need?
• Supplemental retirement benefits – Is being able to defer compensation or contribute to a supplemental executive retirement plan important?
• Restrictive clauses – noncompetes or nonsolicitation? What is reasonable? What are you willing to accept?
• Severance – how much? how is it paid? When is it paid? Under what circumstances?
• Relocation – Do you need a fixed amount, grossed up for taxes? Are you taking a loss on your house that you want to be “made whole”?

The list can be endless. The reason I suggest listing the three things you NEED is to aid in the negotiation process. Understanding what you are willing to accept or use as leverage to gain what you really want promotes the process and increases your level of satisfaction.

When negotiating, remember these tips:

1. Communicate verbally
Verbal communication trumps all aspects of written communication, especially the use of third party intermediaries. All edits should be documented and received in writing, of course. But verbal communication allows the company to understand your excitement, strengthen the connection and minimizes miscommunication. Sometimes attorneys or recruiters spearhead contract negotiations. This runs the risk of playing telephone – things get lost in translation. Even if you have a representative handling the process, make sure you are always kept informed.

2. Provide Options
When discussing terms, provide options. Give yourself room for flexibility. Providing options underscores your negotiating skills, makes you appear reasonable and reinforces your ability to be a team player. For example, with severance, you might be willing to take a more restrictive clause in terms of a noncompete if you are paid for the entire noncompete period. If you aren’t being paid for the entire noncompete period, you may suggest a shorter restrictive period.

3. Revisit your priorities
Keep your three items in mind. Then you will know what you are willing to negotiate and what you “must have”. You can always acquiesce on other items in order to have your top three priorities.

4. Think before reacting
Always ask for time to consider the proposed changes, review the suggestions and discuss the terms with a trusted advisor.

5. Communicate professionally
Keep the lines of communication open. Stay positive, polite and friendly. Be willing to listen.

6. Remember your exit strategy
You can always walk away. If it turns out this isn’t the right job, don’t be afraid. You may be disappointed but don’t feel forced into accepting terms that cause a cultural misalignment or job unhappiness. You don’t want to regret your decision six months down the road.

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Employment Agreement Template – The Pluses and Minuses employment agreement

A basic employment agreement template can be extremely helpful when building a company or even reducing the size of a company during challenging economic periods. There are several pluses and minuses to consider in determining if such an agreement is right for your business and how to go about using one.

The first benefit to consider is the ability to clearly delineate the roles and responsibilities of both the company and employee in a single document. With a form template, this process can be quite easy and quick, even as simple as filling in some blanks and signing. A good form will have some empty lines to write
specifics about the job role in case the basic agreement doesn’t cover them.

Another benefit is the clear reduction in legal liability that a business can achieve by using a simple employment agreement template. When you have clear requirements for both parties written in a signed document this eliminates a lot of the ambiguity and costs associated with lawyers and courts if you are ever sued by a current or former employee (or worse yet, the employee’s union). As long as the agreement follows the law and the employee was competent at the time of signing, most courts will honor its terms. This can get you out of a very expensive situation!

On the other hand, a detriment of using a pre-written template is that it may not handle more complex jobs or specific types of contract projects where there are a lot of detailed deliverables. Obviously, a basic form contract is unlikely to cover all the bases for things like international joint ventures, multi-level sales agency relationships, or insurance services. These are agreements where the costs of an attorney are justified.

Another downside to using an employment agreement template is the potential for building inflexibility into your business. In particular, employment law changes may invalidate or make an existing agreement out of date. If you use the same job template for hundreds of employees and the law changes, you may need to go back and have them re-sign new contracts. This won’t always benefit the company, though it is a small risk to take to get the significant legal protections afforded by even the simplest of contracts.

If you are interested in hiring employees in a flexible, ethical, and legal manner, your best bet is to start by using an employment agreement template.

Employment Agreement Template – The Pluses and Minuses