An Executive Employment Agreement is signed between a prospective employee and an organization. The agreement is primarily for executives who join the company at senior management level, and with a little bit of tweaking, it can be used as a conventional employment contract for junior-level employees. The contract provides details of the terms of employment, and the executive in question signs it after reading to show their acceptance of the terms and conditions highlighted in the contract.
Once the prospective employee signs the agreement, they can join the company as per the date mentioned in the employment contract.
Purpose of the Executive Employment Agreement
The purpose of an executive employment agreement is to clearly state all details related to employment, like the designation, responsibilities, salary and incentives, perks, employee benefits, conflict of interest, permitted activities, and even terms for termination of employment. The agreement ensures that the executive and the company are on the same page.
When Do You Need Executive Employment Agreement
The executive employment agreement is drawn by the HR Department of an organization and presented to the employee for perusal and signature. So, an organization would need an agreement when they hire a new employee. The employee has to sign the contract to show they accept the terms and conditions of employment. It is only after this can the employee join the organization as its full-fledged employee.
Inclusions in Executive Employment Agreement
Some of the essential inclusions in an executive employment agreement are as follows:
- Names and addresses of the organization and employee
- Terms of the contract
- Provisions for renewal of employment agreement
- Title of the employee
- Responsibilities and scope of employment (detailed job description)
- Starting salary, incentives, and bonus
- Terms for salary adjustments
- Evaluation of the employee’s performance
- Retirement benefits
- Benefits and perquisites
- Paid and unpaid leave details
- Non-compete clause
- Reimbursement of expenses
- Confidentiality clause
- Terms for termination of the agreement
- Provisions for conflict of interest
- Provision for severance
- Arbitration when conflicts arise
- Governing law to interpret the employment agreement
How to Draft Executive Employment Agreement?
While drafting an executive employment agreement, the organization should make a note of the following:
- Include the names and addresses of the employer and employee
- Position for which the company is hiring the person
- Job duties that the employee should perform. Cover the terms stated in the job description used for recruitment purpose
- Compensation in writing along with fringe benefits, bonus, benefits, raises, and reimbursement of expenses. Mention paid time off, retirement benefits and employer-sponsored healthcare
- Employment relationship, such as at-will full-time or part-time employment
- Terms of the employment, such as probationary period, performance reviews, termination terms and what happens after termination
- Terms to protect the business interests of the organization, like confidentiality, non-competition agreement, non-solicitation, and exclusivity agreement
- Provisions to address legal issues, like arbitration and jurisdiction where the litigation can take place in case of a dispute
Benefits of Executive Employment Agreement
Some advantages of executive employment agreement include:
- Even though employment is at-will, the agreement can be tweaked to retain talented employees
- The agreement is a great way to incentivize talented and skilled employees as appealing terms will prevent them from leaving
- The agreement ensures the organization has great control over the work performed by the employees
Disadvantages of an executive employment contract are:
- The agreement can prevent an employer from terminating services of employees in case of under-performance or downturn in business
- Employers have to act in good faith and deal fairly with employees if they want to enforce the terms and conditions stipulated in the contract
Types of Executive Employment Agreement
Some of the different types of an executive employment agreement are as follows:
- A full-time employment agreement is for employees who join the organization as full-time employees with no conclusion date to stop working
- A part-time employment agreement is for part-time workers who work on a permanent basis in the organization, but not for as many hours as a full-time employee. This agreement does not have a fixed conclusion date for work
- A fixed-term employment agreement is for employees who have a previously decided date to conclude their association with the organization. Such employees can be terminated without notice
Key Terms / Clauses in Executive Employment Agreement
Some of the key terms of executive employment agreement include:
- Terms of Employment: Refers to the terms and conditions of employment
- Performance of Duties: The responsibilities and tasks that the employee has to undertake
- Compensation: Base salary and any other payments that the employee gets during the employment period
- Annual Bonus and Fringe Benefits: Payments over and above the salary and other compensations that the employee is entitled to subject to the terms of the contract
- Vacation Benefits: The number of paid holidays that the employee can take each calendar year
- Medical Benefits: The health coverage that the employer offers the employee
- Tax Withholding: The tax that the employer will be withholding as per applicable law
- Terms for Termination: How the employee or employer can terminate the employment contract and any severance pay that the employee will get upon separation
- Dispute Resolution: How any dispute between the employer and employee will be handled and resolved
What Happens in Case of Violation?
Both parties would first have to take measures to resolve the issue through the measures stated in the employment contract. If that does not succeed, either party can file a lawsuit to claim compensation and damages.
Sample for Executive Employment Agreement
An executive employment agreement helps to keep the employee and employer on the same page so that they understand what to expect during the association. To understand the legal nuances of an executive employment agreement, download a sample here.
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