Executive Employment Agreement
This Executive Employment Agreement is made as of [AGREEMENT DATE] between [EXECUTIVE NAME], whose principal place of residence is at [EXECUTIVE ADDRESS] (the "Executive") and [COMPANY NAME], with its principal place of business at [COMPANY ADDRESS] (the "Company").
1. Employment. The Company employs the Executive, and the Executive accepts this employment with the Company, upon the terms of this agreement.
2. Employment Terms
2.1. Position and Duties. The Executive shall serve as [TITLE OR POSITION] and perform the duties commonly performed by an executive in that position, as well as any other duties that the Company may direct.
2.2. Dedication. The Executive shall devote all of Executive's business time to performing these duties.
2.3. Performance. The Executive shall perform the duties faithfully, diligently, and competently.
2.4. Place of Performance. The Executive shall work at the head office, subject to reasonable travel requirements as may be necessary or desirable to fully perform the duties.
2.5. Outside Activities. The Executive may
(a) serve on industry, trade, civic, or charitable boards or committees,
(b) engage in charitable activities and community affairs, and
(c) manage personal investments and affairs,
if these activities do not materially interfere with the proper performance of the employment duties.
3. Employee Compensation
3.1. Base Salary
(a) Amount. The Company shall pay the Executive a base salary ("Base Salary") of $[BASE SALARY] per year in equal installments in accordance with its standard payroll practices.
(b) Adjustments. The Company may increase[ or decrease] the Base Salary on one or more occasions.
3.2. Signing Bonus. The Company shall pay the Executive the Signing Bonus upon the signature of this agreement.
(a) Eligibility. The Company may pay the Executive an annual Bonus.
(b) Bonus Amount. The Company shall determine the performance goals for, the amount, if any, of, and any other conditions relating to, the Bonus.
(c) Bonus Payment. The Company shall pay any Bonus in one lump sum, subject to deductions and withholdings, during the year immediately following the year to which it relates.
4. Employee Benefits
(i) Vacation Allowance. The Executive will be entitled to [VACATION ALLOWANCE] of vacation leave each calendar year.
(ii) Vacation Scheduling. The Executive shall schedule vacation days at times that are in keeping with the Company's reasonable business needs.
(iii) Unused Vacation. Any vacation days not used in a given year will be forfeited at the end of that year.
(b) Vacation Benefits upon Termination. Upon the termination or expiration of this agreement, the Executive will not be entitled to compensation for any accrued but unused vacation days.
4.2. Benefit Plans. The Executive will receive the benefits that the Company makes available to its executives generally.
4.3. Term Life Insurance
(a) Amount. The Company shall purchase a term life insurance policy in the amount of $[INSURANCE AMOUNT] on the Executive's life, starting on [INSURANCE START DATE], but only if the Executive successful completes any required medical examinations so that the policy can be bought at standard rates.
(b) Term. The Company shall ensure that the policy remains in effect for the duration of the employment.
(c) Beneficiaries. The Executive will name the beneficiaries.
4.4. Participation in Company Plans. The Executive may participate in the Company's pension, profit sharing, and 401(k) plans[, if and as the Company establishes them].
4.5. Company Car. The Company shall make available a [DETAILS OF COMPANY CAR] for the Executive's professional and private use.
4.6. Memberships. The Company shall reimburse the Executive for the expenses of membership in and the publications of work-related organizations as are reasonably necessary for a person in this position, as well as for any association or club that the Company authorizes.
5. Employment Expenses. The Company shall promptly reimburse the Executive for all reasonable business-related expenses that are properly incurred in performing the duties and requisitioned in accordance with the Company's policies and procedures.
6.1. Initial Term. The initial term of this agreement will begin on [TERM START DATE] and end on [TERM END DATE], unless terminated earlier.
6.2. Renewal Terms. Following the initial term, this agreement will automatically renew for successive [RENEWAL TERM PERIODS] terms, unless terminated earlier.
7. Executive's Representations. The Executive represents and warrants to the Company as follows, acknowledging that the Company is relying on these representations and warranties:
7.1. No Conflicts. The Executive is under no restriction or obligation that may affect the performance of the obligations under this agreement.
7.2. No Other Agreements. The Executive is not a party to or bound by any employment, non-competition, or confidentiality agreement with any other Person.
7.3. No Breach. The Executive's signature of, and the performance of Executive's obligations under, this agreement do not and will not breach or result in a default under any agreement to which he or she is a party or by which he or she is bound.
8. Ownership of Intellectual Property
8.1. Ownership of IP Rights. The Executive acknowledges the Company's exclusive rights in and to all intellectual property and other proprietary information rights to any content arising out of or created in connection with the Executive's employment with the Company ("Company Intellectual Property"). The Executive shall not assert any such rights against the Company or any third party.
8.2. Assignment of IP Rights. The Executive agrees to assign to the Company, and hereby assigns, all rights in or to any Company Intellectual Property that may accrue during the term of this agreement.
9.1. Confidentiality Obligation. During the Restricted Period, the Executive shall hold all Confidential Information in confidence in accordance with the terms of this agreement.
9.2. Use Solely for Purpose. The Executive shall use the Confidential Information in accordance with the terms of, and solely for the purpose of carrying out the duties under, this agreement.
9.3. Definition of "Confidential Information." In this agreement, "Confidential Information" means all material, non-public, business-related information, written or oral, relating to the Company and its business that is disclosed or made available to the Executive during the course of employment.
9.4. Definition of "Restricted Period." In this agreement, "Restricted Period" means the period starting on the start date of the Executive's employment and ending [RESTRICTED PERIOD TERM] after the date of termination or expiration of this agreement.
10.1. Restrictions. During the Restricted Period and within the Restricted Territory, the Executive shall not, directly or indirectly, engage in any Restricted Activity.
10.2. Permitted Investments. The Executive may, however, participate as a passive investor holding up to [PASSIVE INVESTMENT PERCENT]% of the equity securities of a publicly-traded entity that is engaged in the Restricted Business.
10.3. Definition of "Restricted Activity." In this agreement, "Restricted Activity" means
(a) owning, managing, operating, controlling, or financing,
(b) participating in the ownership, management, operation, control, or financing of, or
(c) being connected as an officer, director, executive, partner, principal, agent, or consultant of any entity engaged in any Restricted Business.
10.4. Definition of "Restricted Business." In this agreement, "Restricted Business" means any [DESCRIPTION OF RESTRICTED BUSINESS].
11. Non-Solicitation. During the Restricted Period, the Executive, on the Executive's own behalf or in the service or on behalf of others shall not
(a) induce or attempt to induce any officer, director, or employee to leave the Company, or
(b) solicit the business of any customer[ or consultant] of the Company.
12. Termination. The Executive's employment may be terminated only as follows:
12.1. Termination upon Death. The employment will automatically terminate upon the Executive's death.
12.2. Termination for Disability. The Company may terminate the Executive's employment upon the occurrence of a Disability.
12.3. Termination by Company for Cause. The Company may terminate the Executive's employment for Cause.
12.4. Termination by Company without Cause. The Company may terminate the Executive's employment without Cause by giving the Executive [NOTICE PERIOD FOR TERMINATION WITHOUT CAUSE] prior Notice.
12.5. Termination by Company following Change in Control. The Company may terminate the Executive's employment within [CHANGE IN CONTROL TERMINATION PERIOD] of a Change in Control.
12.6. Termination by Executive for Good Reason. The Executive may terminate Executive's employment for Good Reason by giving the Company [NOTICE PERIOD FOR TERMINATION FOR GOOD REASON] prior Notice.
12.7. Voluntary Termination by Executive. The Executive may voluntarily terminate Executive's employment by giving the Company [NOTICE PERIOD FOR TERMINATION WITHOUT GOOD REASON] prior Notice.
12.8. Definition of "Cause." In this agreement, "Cause" means
(a) any material breach of the Executive's obligations under this agreement that has not been cured after [CURE PERIOD FOR CAUSE] days' Notice from the Company,
(b) gross negligence in the performance of the Executive's duties,
(c) any intentional nonperformance or misperformance of the Executive's duties, or any refusal to comply with the Company's reasonable directives or its policies and procedures, or
(d) any of (i) a felony criminal conviction, (ii) any other criminal conviction involving lack of honesty or moral turpitude, (iii) drug or alcohol abuse, or (iv) any act of dishonesty, gross carelessness, or gross misconduct.
12.9. Definition of "Change in Control." In this agreement, "Change in Control" means
(a) any sale, transfer, exchange, or other disposition of ownership interests in, or any merger, acquisition, or other reorganization of, the Company that results in a change in the Control of the Company that is currently exercised by one or more Persons, or
(b) any sale, transfer, or other disposition of all or substantially all of the Company's assets.
12.10. Definition of "Control." In this agreement, "Control" means, for a Person, the ownership interest in an entity that has the practical effect of giving that Person, either alone or with others, the majority voting interest in that entity, and the terms "Controlled" and "Controlling" have comparable meanings.
12.11. Definition of "Disability." In this agreement, "Disability" means any mental or physical condition that renders the Executive unable to perform the essential functions of the position, with or without reasonable accommodation, for a period in excess of [DISABILITY ABSENCE DAYS] days in the aggregate in any [DISABILITY PERIOD] period.
12.12. Definition of "Good Reason." In this agreement, "Good Reason" means
(a) the Company's failure, persisting for [COMPANY FAILURE TO PAY PERIOD] days after the Company has received Notice of that failure, to pay any amount due to the Executive
(b) any material reduction in the Executive's title or duties (unless done for Cause),
(c) any material reduction in the Executive's Base Salary (unless done for Cause) or benefits (other than changes that affect other Company executives to a comparable extent),
(d) any relocation of the Executive's office to a location more than [OFFICE LOCATION RADIUS] miles away, or
(e) the Company's material breach of this agreement that has not been remedied within [COMPANY BREACH PERIOD] days after receipt of Notice from the Executive specifying, in reasonable detail, the nature of the breach.
13. Effects of Termination
13.1. Termination without Cause, for Good Reason, Due to Disability, or Upon a Change in Control. If the Executive's employment terminates Without Cause, For Good Reason, due to Disability, or upon a Change in Control, the following terms will apply:
(a) Salary. The Company shall [continue to pay the Executive's then-current Base Salary through the remaining term of employment |OR| pay to the Executive an amount equal to $[SEVERANCE PAYMENT AMOUNT]].
(b) Bonus. The Company may pay the Executive a Bonus calculated on the remaining term of employment. The Bonus, if declared by the Company, will be equal to the greater of (i) the Bonus for the year before the termination, and (ii) the Bonus that the Executive would have earned under the Company's bonus plan in the year that the Executive was terminated had the Executive remained in its employment. This post-termination Bonus will be paid when it would normally be paid in accordance with the Company's usual practices.
(c) Stock Options. Any unvested stock options will immediately become vested. The Executive will have no right to any future options.
13.2. Termination for Cause, due to Death, or by Voluntary Termination. If the Executive's employment terminates for Cause, due to Death, or by Voluntary Termination, the following terms will apply:
(a) Salary. The Company shall pay the Base Salary up to, but not after, the termination date.
(b) Bonus. The Executive will not be entitled to any Bonus that was not fully earned and payable before the termination date.
(c) Stock Options. Any stock options will continue to vest only up the termination date.
13.3. Return of Property. Upon termination or expiration of this agreement, the Executive shall return to the Company all Company property, both
14.1. Company Indemnity. The Company shall indemnify the Executive to the maximum extent permitted by law against all claims, liability, costs, and expenses (including attorneys' fees) arising from any third party claim or proceeding against the Executive to which he or she may be made a party by reason of being an officer, director, or employee of the Company, any subsidiary or affiliate, or any other corporation for which the Executive serves as an officer, director, or employee at the Company's request.
14.2. Directors and Officers Coverage. If the Company obtains coverage under a directors' and officers' liability insurance policy, the Executive will be entitled to coverage on a basis that is no less favorable than the coverage provided to any comparable executive.
15. General Provisions
15.1. Entire Agreement. This agreement contains all the terms agreed to by the parties relating to its subject matter. It replaces all previous discussions, understandings, and agreements.
15.2. Amendment. This agreement may only be amended by a written document signed by both parties.
15.3. Assignment. The Executive may not assign any rights or delegate any obligations under this agreement. The Company may assign its rights and obligations under this agreement
(a) to any subsidiary or affiliate, or
(b) in connection with any sale, transfer, or other disposition of all or substantially all of its business or assets but only if the assignee assumes all of the Company's obligations.
(a) has read the agreement,
(b) understands its terms,
(c) has had the opportunity to consult[ and has consulted] with independent legal counsel, and
(d) has signed this agreement voluntarily.
(c) Receipt of Notice. A notice given in accordance with this agreement will be effective upon receipt by the party to which it is given or, if mailed, upon the earlier of receipt and the fifth day following mailing.
15.6. Remedies Cumulative. The rights and remedies available to a party under this agreement are cumulative and in addition to, not exclusive of or in substitution for, any rights or remedies otherwise available to that party.
15.7. Survival. Sections 6.2 (Assignment of IP Rights), 9 (Confidentiality), 10 (Non-Competition), and 11 (Non-Solicitation) survive the termination or expiration of this agreement.
15.8. Severability. If any part of this agreement is declared unenforceable or invalid, the remainder will continue to be valid and enforceable.
15.9. Waiver. A party's failure or neglect to enforce any of rights under this agreement will not be deemed to be a waiver of that party's rights.
15.10. Equitable Relief. The Executive acknowledges that any breach or threatened breach of the confidentiality, non-competition, or non-solicitation terms of this agreement would not be susceptible to adequate relief by way of monetary damages only. Accordingly, the Company may, in that case, apply to
15.11. Governing Law. This agreement will be governed by and construed in accordance with the laws of the State of [STATE OF GOVERNING LAW], without regard to its conflict of laws rules.
This agreement has been executed by the parties.
The parties to an executive employment agreement are the company and the executive that the company is hiring.
Executives fill the highest managerial positions in a company—CEO, COO, CFO, etc.—and are ultimately responsible for overseeing the day-to-day operations. In order to fulfill their responsibilities, executives have a high degree of discretion, but with that comes a corresponding degree of responsibility, and potential liability.
Because of the importance of good executives, there is a competitive market for the top executives. As a result, executives tend to have more bargaining power than a typical employee in negotiating their employment agreement. Thus, executive employment agreements tend to be more complex and varied than typical employment agreements. That said, there are some common factors and
1. Termination: With Cause, Without Cause, and Defining Cause
An executive employment agreement can be terminated prematurely either with cause or without cause.
Whether termination is with or without cause affects certain obligations the parties have in ending the agreement. For example, the company usually owes a severance package to the executive after termination without cause, and it may be harder to enforce a non-compete clause after termination without cause.
Therefore, defining “cause” is one of the most important parts of the executive employment agreement.
2. Limiting Liability: Indemnification and Exculpation
There are two important contractual ways of limiting an executive’s potential exposure to liability: indemnification, and exculpation.
Indemnification is a risk-shifting clause; a guarantee that the indemnifying party—here, the company—will pay for certain losses incurred by the indemnified party—here, the executive.
Exculpation excuses an executive from liability from the breach of the fiduciary duty of care—the duty to exercise good business
Indemnification can cover all sorts of claims against an executive. Exculpation is more limited, and can protect the executive against liability for breaching his duty of care, but not the duty of loyalty.
For more on Indemnification and exculpation, see Stafford Matthews, Indemnification Clauses (accessed July 1, 2016), and Richard B. Kapnick & Courtney A. Rosen, The Exculpatory Clause Defense to Shareholder Derivative Claims (accessed July 1, 2016).
3. Non-Compete and Non-Disclosure
Executives will be hands-on with virtually all of the most important business decisions and day-to-day operations of the company. Executives will also have access to the most valuable company information, strategy, and trade secrets.
That said, even in states that are skeptical of non-compete agreements, because of the company’s legitimate interest in preventing a current or ex-executive from using the company’s own proprietary information against the company, courts tend to be more likely to enforce non-compete and non-disclosure agreements against executives than more typical employees.
4. Choice of Law
Like the rest of employment law, executive employment agreements are governed by state law. Because of differences between various states’ law on some important topics, non-compete
Courts tend to respect
The duties clause tends to be highly negotiated. Rather than
For more on executive employment agreements, the following is a good library of resources:
Mark J. Oberti, 5 Things All Execs Should Have In Their Employment Agreements (accessed June 24, 2016.
Mike Drobka & Jeff Belfiglio, Understanding Executive Employment Agreements (accessed June 26, 2016).
Leitman Siegal & Payne PC, Drafting Executive Employment Agreements That Work for Employers (accessed June 26, 2016).
Peter M Panken & Jeffery D. Williams, Drafting Executive Employment Agreements That Work for Employers: An Annotated Model Agreement (accessed June 27, 2016).