Retention agreements have several provisions that favor the employee (see our previous blog titled Retention Agreement Provisions that Favor the Employee), but this type of contract is typically drafted by the employer for the employer’s benefit. Thus, if you are a key employee considering signing a retention agreement, it is critical for you to have independent legal counsel review the contract to protect your rights.
The following are examples of the provisions which favor the employer in a retention agreement:
● Employer’s Discretion to Pay Bonus. If the key employee is offered a lump sum payment or other benefit as an inducement to sign the retention agreement, the payment is subject to the employee meeting certain criteria. For example, the employee must work for a specified period, accomplish an identified goal, or reach some other benchmark in order to qualify for the bonus payment. An employer who is given discretion in determining whether the employee has qualified is given the opportunity to refuse to pay the bonus, especially if the criteria for getting the payment is subjective.
● Locked-in Employment. If the employee is key to the success of the merger, acquisition, or some other important deal for your company, having the employee locked-in to work for the company is a significant benefit. Although the employee may begin looking for employment elsewhere, you have the comfort of knowing he/she is obligated to work for you for the contracted amount of time, or if he/she resigns early, you will not be obligated to pay the lump sum bonus payment.
● “For Cause” Termination.” Retention agreements often permit the employer to terminate the employee “for cause.” The contract often outlines certain behaviors that fall within the “for cause” standard but may also include a catchall provision that provides the employer with significant power. An example of a catchall provision is “failure of the employee to satisfy the performance expectations of the employer.” This type of language allows the employer to have more control over the employee.
If you need representation during negotiations of a retention agreement in a merger or acquisition of your company, we can help. Our experienced attorneys understand the importance of having your best interests as our sole focus. Schedule a consultation today!