In this highly competitive world, there are times when an employment
contract is one of the few ways to entice an individual into coming
with a company. Though an employment contract completely negates
at-will employment, there are many advantages for both the company
and the management employee if the contract is done correctly.
Presented here is about three-quarters of an actual employment
contract written by Ethan Winning (and for which we have charged
as much as $1,000). The contract presented is for the position
of president of a smaller company, and assumes a corporation with
a knowledgeable Board of Directors...at least knowledgeable in
the duties of a president and the general operations of a company.
The contract can certainly be modified for other positions or
types of organization.
The Employment Contract
Especially at the highest levels in a company and in high tech
companies in general, the employment contract spells out the rights,
obligations, and expectations of the company and the individual.
While an employment contract does indeed negate employment at
will, in addition to most policies in an employee handbook, it
still presents the conditions under which the employee will be
rewarded and, if necessary, terminated.
What follows is an actual employment contract for the position
of president of a smaller firm. It is -- perhaps with some effort
-- a contract which can be modified for lower level management
positions. It is strongly advised that, before actually using
this contract, you contact corporate counsel or a good labor lawyer
(see also disclaimer at the end of the contract). Parenthetically,
it is true that there is a lot of legal mumbo jumbo included the
style of the contract, but when one is "running with the
bulls..."
Employment Agreement
This Agreement is entered into between XYZ Corp., a California
corporation, and John Q. Smith ("Smith" herein).
XYZ Corp. is an electronics firm chartered and authorized to do
business in the State of California. Smith shall be serving as
XYZ's President and Chief Executive Officer. These parties wish
to provide in this Agreement for terms of continued employment
of Smith as President and CEO of XYZ Corp.
The parties hereby agree as follows:
1. Duties of Smith: XYZ employs Smith as President and
Chief Executive Officer to perform the customary duties of those
positions set forth in the By-laws, and as XYZ, by action of its
Board of Directors, may provide from time to time. During the
term of this Agreement, Smith shall devote his full time, ability
and attention to the business of XYZ on a regular, "best
efforts," and professional basis and at all times such efforts
shall be under the direction of the Board of Directors.
2. Noncompetition: During the term of this Agreement, Smith
shall not, directly or indirectly, engage in any business, commercial
or professional activity which the Board of Directors of XYZ deems
to interfere with the business of XYZ, or with the performance
of duties by Smith hereunder. Smith agrees not to have or enter
into any other written or oral agreement of employment with any
entity or person other than XYZ during the term of this Agreement.
Smith further agrees not to provide any services for any other
entity on a formal or informal basis which may compete, directly
or indirectly, with any of the services XYZ currently provides
or may provide during the term of this Agreement or which may
result, directly or indirectly, in the diversion of customers
from XYZ.
3. Nondisclosure of Confidential Information: Smith agrees
that he will not, at any time during or after the termination
of his employment under this Agreement, use for his own benefits,
either directly or indirectly, or disclose or communicate in any
manner to any individual, corporation, or other entity, other
than XYZ, any confidential information acquired by him during
his employment, regarding any actual or intended business activity,
product, service, plan or strategy of XYZ. As used in this Agreement,
confidential information shall include all information disclosed
to or known by Smith as a consequence of or developed through
or during his employment by XYZ including all knowledge, information
and materials regarding XYZ's products, services, processes, know-how,
customers, suppliers, product and/or service development, business
plans, and research, as well as confidential information about
financial, marketing, pricing, cost, compensation or any other
proprietary matters relating to XYZ whether or not subject to
other protection (except that such knowledge known to Smith prior
to Smith's employment by XYZ that is publicly disclosed with XYZ's
permission). Any breach of this paragraph shall constitute a ground
for termination for cause and such other relief as may be afforded
by applicable law.
4. Period of Employment: XYZ employs Smith and Smith accepts
employment for the years 1997, 1998, and 1999. ("Years"
are to be construed as employment years from the date of acceptance
of this Agreement and formal employment of Smith.) Smith is hereby
given the option of renewing this Agreement for an additional
two years, viz., 2000 and 2001 but only if XYZ has an after-tax
profit in each of the years 1997, 1998, and 1999.
5. Compensation:
a. Salary: As compensation for the services rendered by
Smith under this Agreement during the employment year 1997 and
during the employment years 1998 and 1999 (and for 2000 and 2001
if the option is exercised for those years), XYZ shall pay Smith
a salary in equal semi-monthly installments as follows:
Employment year 1997 - Base Salary = $75,000
Employment year 1998 - Base Salary = $85,500
Employment year 1999 - Base Salary = $97,470
Employment year 2000 - Base Salary = $111,116
Employment year 2001 - Base Salary = $126,672
b. Incentive Bonus: In addition to the foregoing and prior
to any provision for any employee deferred compensation, profit
sharing or retirement plans, XYZ will pay Smith and amount equal
to 5% (five percent) of the pre-tax net profit for each fiscal
year during the term of this Agreement; provided, however, that
for the purpose of calculating this bonus, (1) said bonus shall
not be paid for any year unless said capital account is at least
two million dollars (or revised base as a result of the exercise
of the presently outstanding stock options) at the end of that
year, (2) the after-tax profit shall be computed by deducting
from the actual pre-tax net profit a sum equal to 10% (ten percent)
of XYZ's total capital as shown on the balance sheet at the end
of the fiscal year for which the bonus is being computed and paid,
and (3) in no event shall said bonus for any year exceed 100%
(one hundred percent) of the base salary for that year. Pre-tax
net profits will be calculated by XYZ''s independent outside auditors.
Pre-tax net profits shall be determined in accordance with generally
accepted accounting principles and shall not include any amounts
resulting from any regulatory change affecting the manner in which
the books, records, and accounts of XYZ are or may be kept or
the manner in which assets, liabilities, revenues or expenses
may be stated. Payment of the bonus shall be made after the close
of each fiscal year and within 30 days of such calculation.
c. Director's Fees: Subject to the approval of the stockholders,
Smith shall be a member of the Board of Directors of XYZ Corp.
throughout the term hereof and shall be entitled to any approved
"directors' fees" in addition to the compensation provided
herein.
d. Compensation During Illness: XYZ will continue to pay
Smith in accordance with the provisions of Paragraph 5 ("Compensation")
for a period of six months from the date of the commencement of
any illness which renders Smith unable to fulfill the duties specified
in this Agreement to the satisfaction of the Board of Directors.
Compensation during illness may be reduced by any amount paid
by State Disability or other income insurance plans. Any such
illness exceeding six months shall constitute a ground for termination
for cause. In the event of the death of Smith during an illness,
the remainder of six months' compensation shall be payable to
his stipulated beneficiary, dependents or heirs.
6. Benefits:
a. Insurance: During the term of his employment, XYZ shall
provide Smith, his wife, and two dependent children, life insurance,
hospital insurance, medical insurance, vision care insurance,
long-term disability insurance, and dental coverage under the
current insurance plan provided to XYZ by XIX insurance carrier.
Should XIX cease to be the carrier, XYZ will provide equivalent
insurances if available or, if not available, up to $700 per month
which Smith must use to contract for such coverage.
b. Retirement Plan: It is anticipated that XYZ will establish
a retirement plan based upon reasonable criteria appropriate to
other such companies, and shall provide for the participation
of Smith in that plan. If no plan is established, there shall
be no claim on the part of Smith to any other retirement plan.
c. Vacation: Smith shall receive three weeks paid vacation
in the employment year 1997 and, beginning in 1998, four weeks
-- unless otherwise prescribed in formal personnel policies and
procedures.
d. Continuation of Benefits During Illness: XYZ will continue
to provide Smith with the benefits specified in this paragraph
during the period of any illness which renders Smith unable to
fulfill the duties specified in this Agreement to the satisfaction
of the Board of Directors. However, in the event that any such
illness shall exceed a period of six months (whether or not consecutive
days), and Smith's employment shall be terminated as a result,
all benefits shall thereupon cease except those which have accrued
through the date of such termination.
7. Stock Option: XYZ proposes to grant options to purchase
its stock in accordance with the terms and conditions of Smith's
Stock Option Plan. Options to purchase stock are limited to 10,000
shares and must be exercised within the first seven years of Smith's
association with XYZ.
8. Expenses:
9. Termination of Employment: The Board of Directors may
terminate Smith's employment at any time, with or without cause.
a. Termination Without Cause by XYZ: If Smith's employment
is terminated without cause by XYZ prior to the expiration of
this Agreement, Smith shall be paid a lump sum severance payment
in lieu of any other compensation or benefits otherwise payable
thereafter under this Agreement. Such payment shall include any
accrued, but unpaid incentive bonus and...
1997 - 1998 lump sum payment of $
1998 - 1999 lump sum payment of $
1999 - 2000 lump sum payment of $
2000 - 2001 lump sum payment of $
2001 - 2002 lump sum payment of $
b. Termination Without Cause by Smith: If Smith terminates
his employment under this Agreement without cause, Smith shall
be entitled only to the...
c. Termination With Cause by XYZ: If Smith willfully breaches
or habitually neglects the duties which he is required to perform
under the terms of this Agreement, XYZ may at its option...
10. Rights Subsequent to Acquisition of Control: Except
in the event of a termination arising under paragraphs 8 or 9,
if a third party acquires control of XYZ, whether by merger, purchase
or otherwise during the term of this Agreement...
11. Place of Employment:
12. Notices:
13. Assignability:
a. By XYZ:
b. By Smith:
14. Entire Agreement: This Agreement supersedes any and
all other agreements between the parties with respect to...
15. Actions By XYZ: Any notice, consent, authorization,
waiver, or other action which is permitted or required under this
Agreement shall be...
16. Law Governing Agreement:
17. Waiver: Either party may waive a breach of...
Smith XYZ
Dear reader:
I did not wish to mislead you -- and hope I didn''t -- but to
"give away" a contract, a contract which has been held
to be binding and enforceable, a contract which took many hours
to write (and type), a contract which I paid attorneys
to give their blessings to, would be somewhat foolish ("stupid,"
according to my wife). Therefore, if you would like a full copy
of this contract with the completed paragraphs above, then please
send a check for $75 to E. A. Winning Associates, Inc., 1618 Candelero
Drive, Walnut Creek, CA 94598. You may also order a copy by completing
our online book purchase form with credit card information by
noting that this is for the employment contract. You may contact
me via email at ewinning@ix.netcom.com or by phone at 1-800-823-6366.
Note that Winning Associates, Inc. is not a law firm, and
we do not represent this contract as being legal or binding in
all states, a determination of which should be made by corporate
or other legal counsel.