Financial Planning Assistance
One of the more impressive perks I have seen recognizes that employees, like their bosses, have financial goals. One large company agreed to provide financial counseling through a partnership with a financial management company. The first year of counseling was 100% company paid. Each year thereafter, the company agreed to pay 50%. Alternatively, the company offered a reimbursement of $5,000 annually to be used by the employee with the financial planner of his or her choice.
Paid Time Off
As employment becomes more gender-neutral and society has embraced the fact that males as well as females might wish to spend some quality time with newborns, or even older children, some companies have established plans allowing for up to thirty days of paid time off on an annual basis in addition to the regular company-paid holidays. Some companies have tired of allowing “personal” days as these are simply taken willy-nilly as additional vacation days and do not necessarily serve the company well. How resentful an employee feels after he has taken off his allotment of personal days to run errands, or attend a parent’s funeral, and then suffers a debilitating illness in November or December and the employer says, “Too bad. You’ve taken your share—no pay for you this week.”
TERMINATION
Termination as used here means the ending of the contract other than by its natural expiration. There is a misconception held by most employees that if they sign a contract, they are assured of being employed throughout its term. Most, if not all, states in the United States are at-will states, which means that there is no guarantee that the employment will continue. Indeed, both parties to an employment agreement can terminate at will. Just as the employer can terminate the employee at any time, so also the employee is free to resign at any time. Both can act for any reason. (The only way at-will status does not apply is when the contract actually contains the words, “This is an express contract of employment” and is signed by an officer of the company. Companies are loath to do this.) The issue is not whether the employment can be terminated, but what are the consequences of the termination.
Two main categories of termination are termination without cause and termination with cause, and their consequences differ. If the termination is with cause, there may be no more payment of the contractual salary, or other compensation, such as perks, as of the date of termination, and the employer may even claim damages from the employee. (For example, the employer may require that the employee return money previously paid by the company.) Prospective employees should check the language of for-cause termination clauses carefully. Some companies, for example, are including inappropriate electronic communications (for example, offensive postings to message boards and chat rooms) as causes for termination.
Termination without cause is more difficult to define. It occurs when, for example, the employer decides that the employee’s job definition is not correct or not being filled as well by employee A as it might be by employee B, or simply because the budget for the division has been reduced, leaving the employer with no alternative but to cut staff. In this situation, the contractual provision usually requires payout for the entire term of the agreement, with mitigation. This means that the employee must seek, in good faith, another job equivalent to the one that he or she had with the employer. During the job search, the employee’s contractual salary will be paid out, for the term of the original agreement, until such time as the employee finds another job. (It is possible to negotiate provisions that state that in the case of termination without cause or termination for good reason [see below], the employer must make available out-placement services to assist the employee to find an equivalent job.)
It should be noted that in the event of termination without cause, even when the employer is paying out compensation as required by the agreement for the remainder of its term, the employer is not usually required to continue offering other benefits (for example, car allowance, health insurance, etc.). Under COBRA rules, an employee is entitled to retain medical insurance for eighteen months after leaving the job. In most cases, the employee has to pay for this continuation, although the employer will often agree to pay the COBRA amount for the duration of the unexpired term if the employee does not secure other employment. But the employer will surely not pay this absent a specific provision in the employment agreement requiring it to do so. (Note that this sum might soon constitute taxable income to the employee whether or not he or she is still employed while receiving medical benefits. The current administration and the Congress are looking for ways to increase revenues while appearing not to raise taxes.)
The negotiating strategy of an employee who might one day expect to be terminated without cause (for example, if the employer is a relatively new, or highly leveraged company, whose future existence is not assured) is to provide in the original contract the right to be paid out the entire balance of his or her salary regardless of mitigation. This is difficult to get. Yet, if the employer believes that insolvency of the business or such a severe scaling back of the business that the employee’s entire division must be terminated is unlikely to occur, the employer may agree to such terms. For example, new companies flush with capital may be so optimistic about their future prospects that they will consider payment-without-mitigation terms. It is worth a try in any event.
In cases where the employer wants to limit the payout term, it is possible to agree that “with cause” results in no payment and “without cause” results in a payment equal to the lesser of base compensation for three to six months or base compensation for the then remaining natural term of the agreement.
Change of Control
In some cases, the employee may wish to end the contractual relationship if a change of control in the company occurs. This can be negotiated in the contract to constitute a termination without cause, but the consequences may be different from the consequences of other kinds of termination without cause. The new company will be responsible for the consequences of such a provision, not the contracting employer, so it is sometimes fairly easy to obtain a provision that in the event of a change in control, the employee will have the right, for example, to terminate the agreement and be paid out the balance of the contract in a lump sum without mitigation. Those doing the due diligence of the company being acquired always take care to determine if clauses like this one exist in executives’ employment agreements, as the loss of high-level staff due to the exercise of such “out” clauses can be problematic for the acquiring company.
One complex issue connected with changes in control is the following. According to Section 280G of the Internal Revenue Code of 1986, an employee who receives more than 2.99 times his or her base compensation as a parachute payment in the event of termination without cause triggered by a change of control is susceptible of having to pay an additional excise tax, imposed by Section 4999 of the code, of 20% on the entire payout in addition to all other compensation-related taxes. (The base compensation is averaged, based on whichever is shorter, over the preceding five years or the duration of employment with that particular employer.) Big-gun employees will ask for (and occasionally obtain) a provision that authorizes the company to “gross up” a payout to compensate the employees for the cost of the excise tax in the event the payout is likely to constitute an excess parachute payment. One way or another, they will get what they want.
Termination by the Employee for Good Reason
There is a developing concept that employees have the right to terminate their own employment when there is good reason to do so. As noted in the “duties” section, above, both specificity and ambiguity regarding duties may be double-edged swords. If these provisions are ambiguous, it will be difficult for the employer to point to a specific requirement and allege failure giving rise (barring cure) to the right to terminate with cause. At the same time, it will be harder for the employee to claim termination for good reason. A decent middle ground for the employee is to have the general duties described in ambiguous terms an
d, then, in the good-reason section, enumerate very specific good reasons, such as
• any reduction in the executive’s minimum annual compensation, target percentage of executive’s annual bonus, or any other material employee benefit or perquisite enjoyed by the executive other than as part of an overall reduction in such benefits or perquisites applying to the company’s senior executives generally;
• any failure to continue the executive as [insert title];
• any material diminution in executive’s duties or the assignment to executive of duties that are materially inconsistent with executive’s then current duties;
• any other material breach by the company of any of the provisions described in the agreement;
• the occurrence of a change in control (provided that the executive remains employed with the company for six months thereafter);
• the failure to obtain the assumption of the executive’s employment agreement by any successor to all or substantially all of the business or assets of the company.
Morals Clauses
Most talent contracts include provisions that protect the employer from having to keep an employee whose moral character is embarrassing to the employer. Ordinarily, these provisions speak in terms of being convicted of a felony or some similar criminal act. Some companies, however, have experienced considerable embarrassment by virtue of employees’ behavior that, although not rising to the level of criminal activity, is nevertheless abhorrent to whatever the company stands for or whatever it claims to stand for.
Thus arises the general “morals clause,” which one should be particularly cautious to negotiate carefully. Most people will sign an agreement that permits termination with cause if the employee commits a felony. However, the language of many contracts is so general as to give the employer a right to terminate with cause a contract that otherwise would be solid and free from attack. For example, one of the television networks provides that behavior inimical to the employer may permit the termination of the contract for cause. During negotiation, the network in question offered, and the employee finally accepted, the following definition of “inimical” when pressed:
Those actions that are harmful to their reputation and/or business interests as determined by the employer.
So much for the negotiation “victory” of establishing a definition.
A cause for termination that frequently finds its way into boilerplate morals clauses is the word insubordination. What on earth does that mean?
When faced with such provisions, the only thing that one can request is an additional provision establishing a right on the part of the employee to have an opportunity to correct any deficiencies based on the severity of the claimed offense. Never was an “opportunity to cure” more desired, or more warranted.
Clearly, from the employee’s perspective, to have to accept a morals clause is a horrendous burden. But provision or no provision, someone who publicly embarrasses his or her employer and, by his or her conduct, jeopardizes the business relationships and business reputation of the employer, will be fired. Should the employer pay lots of money to make the miscreant leave if the contract does not provide for a breach of morals to entitle the company to fire the employee with cause?
One way to deal with this eventuality may be to provide a substantial reduction of the without-cause payout amount in the event of the violation of the morals clause. A hybrid termination—for example, “with cause when the cause is a breach of the morals clause short of a criminal act”—could trigger a situation in which some money can be paid, although less than that paid out without cause.
Us Weekly magazine provided us with a useful list of behavior that constitutes sufficient moral turpitude to condemn the contract (and the fee) to the trash heap. In order of disgust, it begins not with murder, but child molestation. Close behind, though, come murder, rape, blasphemy, affairs (especially with someone of the same sex), public airings of marital strife, excessive drug or alcohol use, and AIDS. “Homosexuality is not a good idea, but homophobia is not a big deal,” predicted Marc Perman, a well-respected talent agent, almost twenty years ago. Lawyers have to come up with language to cover these idiosyncratic distinctions. Good luck. Companies nowadays don’t seem too stressed about living, flamboyant personalities—in fact, with some products, the edgier the better. Our heroic Jack Bauer, Keifer Sutherland, spends a few nights in jail for behavioral excesses resulting from too much alcohol, but this hasn’t impeded him from obtaining greater and more lucrative roles in television and film.
WORKING IN A FOREIGN LAND
When a person relocates to a foreign country, air fares, estate agents, temporary facilities for himself and his family, homes, hotels, etc. can add up. The value of these costs—upward of $30,000—will be taxable. In England, the rate approaches 40%. Accordingly, in addition to making sure that you have sufficient medical insurance and car allowance, you must take into account the taxability of these perquisites, and others. Even “end of service” gratuities—what we call severance pay—have to be accounted for as they may be taxed in the country in which they are received.
More important than at a United States–based entity where customs and traditions are fairly well understood by an American employee, it is essential that before you accept a job overseas you know precisely (a) to whom you report and are accountable, and (b) what your responsibilities are (and are not). Less specifically, but all too importantly, you had better know what your employer’s expectations are. Too often these are unstated, but nevertheless very real.
RELOCATION AND RE-RELOCATION
Remarkably, relocation provisions are often ignored by employees leaving one venue and traveling to another. In initial negotiations, the company’s thoughts as well as those of the employee, the employee’s family, and regrettably, often the employee’s attorney’s as well, are, quite naturally, focused only on the future placement of the employee. No one thinks of the end; they are all focused on the beginning.
A favorable provision will provide that, whether the contract is terminated for cause or without cause, the employer must return the employee and the employee’s family and belongings to the place of origin. Sometimes the provision returns the employee only to the place of origin if the contract ends in the first year; thereafter, the employee must pay. Sometimes the provision stipulates that, provided the contract runs out its entire term, the employer must return the employee to wherever he or she wants to go in the world.
Relocation and re-relocation expenses should specifically cover a trip or trips to the new location for the employee and perhaps his or her spouse so that they can establish schooling arrangements for their children and select a home prior to the official commencement of employment.
In addition to moving and relocation expenses, there are many costs involved that the relocating employee may have to assume if the employer is not asked to assume them. For example, if the employee has committed to rent a summer house or has paid a deposit on private school fees prior to the time he or she is asked to relocate, the company should be expected to reimburse the employee for such costs. These costs may be incurred at either end of an employment, and therefore reimbursement provisions should apply both to relocations and re-relocations. Similarly, there will likely be storage fees that must be assumed, costs of selling one’s home (realtor’s commission, attorneys’ fees, document preparation, recording fees, inspection fees), whether for relocation or re-relocation. There are additional expenses, such as property taxes, interest on one’s mortgage, improvements to make one’s home (at the new or old site) ready for sale, and concessions that are made to sell the home (at the new or old site) to a new buyer.
VISAS
Special issues arise if an employee whom a company wishes to hire is resident in the United States via a special visa (rather than, say, a green card). Sometimes these visas are obtained by employees’ own service corporations and they need to maintain the status they have acquired while they pursue t
heir application for a green card. If a new employer requires that the employee terminate his or her application and reapply with the new employer as the sponsor for the visa, even if the employer is prepared to pay for the costs of the switch, do not forget that once the employment ends (on the contract’s own terms, or with or without cause), the employee will be in serious jeopardy of having to return to his or her own country unless the company assumes the responsibility of reinstating the employee’s original visa status once the employment is ended.
DISABILITY AND DEATH
The problem with the term disability is that it requires an objective standard, and a contract that ignores establishing such an objective standard is susceptible of interpretation that can be devastating to an employee who suffers an injury that the employee believes to be a disabling injury but that the company does not. Most companies will agree that if a competent medical authority certifies disability, they will respect the diagnosis. The contract should provide for this.
Disabilities can be either short-term or long-term, and it is a good idea to have these terms defined contractually so their different consequences can be evaluated by the employee and negotiated if they are not to his or her advantage.
Death, of course, requires no objective standard, but some consideration should be given to the need for life insurance, and the cost of such insurance. The prospective employee should discuss with his or her financial planner how much life insurance he or she would require at different points during the term (especially during extension terms, where the needs might be less (as, for example, when children have grown up), but the costs considerably more. Some planners suggest that the life insurance payout be approximately two to three times the employee’s base salary, with additional insurance added during the term by one times salary for each new child born during the term. This can be a lifesaver for the surviving spouse and children.
What They'll Never Tell You About the Music Business Page 24
