Published on July 12th, 2016 by Alan L. Sklover
“When you come to a fork in the road, take it.”
– Yogi Berra
ACTUAL CASE HISTORY: Ailyn, 58, was the Chief Technology Officer of a mid-sized telecommunications company in the Southwestern U.S. She had been hired four years earlier, and given something that many people seek: an employment contract with a term of four years.
For her three and a half years with the company she enjoyed the calm and confidence that only job security brings: no job loss unless she committed some kind of “cause” for termination, such as theft, conflict of interest, or harassment, which of course she knew she would not do. She also had the confidence of someone whose annual performance appraisals each year were “exceeds expectation.”
With her contract coming up for renewal, she spoke with her manager, the company’s Chief Operating Officer, who assured her that he would be her advocate, and that she had nothing to be concerned about. Being pleased with her job, compensation and role, and not having any “dark clouds on the horizon,” Ailyn waited for news of her contract extension. And waited. And waited.
With her contract set to expire in just three weeks, Ailyn pressed the COO for an explanation for the delay. His explanation was simple: it was “held up” somewhere in General Counsel’s office, due to some kind of new regulation that had to be ironed out.
Two weeks later, she got the true story: a new Chief Technology Officer had been recruited for his internet marketing experience, and had been hired to replace her. Apparently her employer was negotiating the new CTO’s contract, and things had taken longer than they had expected. She was then given notice of just one week that her employment contract was not going to be renewed.
This was not the way she had expected things to go. She wondered to herself, “Where did I go wrong?”
LESSON TO LEARN: (A brief note: While “contract renewal” (which means “a new contract, beginning the relation again, on all the same terms”) and “contract extension” (which means “adding a number of months or years to the duration of the existing contract”) are technically different, for the purposes of this newsletter, we are using them interchangeably. We also refer to “agreements” and “contracts” interchangeably in this article.)
Employment agreements or contracts usually set down a certain period of time for which both parties agree to remain in the relation, commonly called the “Term.” For this reason, having an employment agreement or contract in place is seen as a source of valuable job security, for the employee, and valuable employee retention, for the employer, at least for that specified period of time.
However, toward the end of the contract term, for both employer and employee, “navigating” the issue of contract extension or renewal can be fraught with risk and anxiety. On the one hand, if you are interested in remaining with your present employer, you don’t want to seem “pushy” or mistrustful, and so may be inclined to be patient by waiting for your employer to make up its mind as to continuing the relation, or providing you with a written extension document. On the other hand, being patient might leave you with little time to find a new position elsewhere if your contract extension or renewal does not come to be. The employer who wants to keep the employee may be in an equivalent position of risk and anxiety.
It is for this reason that we encourage all clients who have an employment agreement, or who seek an employment agreement, to request that a “Renewal Notice” provision be inserted in it.
A “Renewal Notice” is just what it sounds like: (i) a written notice, (ii) to be provided by both employer and employee, (iii) at least six or so months before a contract expiration, requiring that each give notice of his, her or its intension regarding contract renewal or extension. Secondarily, a Renewal Notice should also provide for the commencement of discussions of the terms of renewal or extension to commence promptly, if both sides want to renew or extend.
Having a Renewal Notice provision in a contract (a) substantially lowers the chance that either employer or employee will be left “in the lurch,” that is, at risk for an unexpected end of the relation, and (b) provides both sides with a pre-arranged framework in which to openly and amicably examine – and navigate – contract extension.
The “Renewal Notice” provision in an employment agreement sets up a “win-win” dynamic in the employment relation. Why not ask for one, whether you are seeking an employment agreement, negotiating an employment agreement, or have one already, and considering improving it.
If you are going to have an employment agreement, it might as well be a good one.
WHAT YOU CAN DO: Consider the wisdom or requesting a “Renewal Notice” provision in any employment agreement or contract you have, or want to have, with your employer, with these things in mind:
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