Published on November 16th, 2009 by Alan L Sklover
“Worn out phrases, and longing gazes, won’t get you where you want to go . . .”
-“Mama Cass” Elliot (Pop Singer)
ACTUAL CASE HISTORY: Melinda, 52, was Director of Business Development for a Private Equity firm located in Connecticut that specialized in investments in the transportation industries, namely planes, trains and automobiles. Founded some 20 years ago by two automobile executives, it had grown to hold major stakes in over 25 transport-related companies. Almost all of the firm’s investors were public pension funds, institutional endowments and insurance companies.
From 2004 through 2007, business was great. Investors – both new and returning – seemed to “throw money” the firm’s way. At one point, the firm could not identify enough companies to purchase, and had no choice but to turn away potential new investors. Melinda’s job was quite easy during this time.
This all changed in late 2007. As the financial system nearly imploded, new investment money disappeared. Existing investors – including major colleges and universities – insisted on getting their investments out, even though that violated their investor agreements. Melinda’s job became a near impossible task: to find and secure new investors in a world that was not investing. Try as she did, Melinda couldn’t raise the $25 million dollars she was told she must raise. In all of 2008, Melinda didn’t raise $1 million, let alone $25 million, in new investment capital. Every private equity firm Melinda knew of was facing the same dilemma, and many were starting to lay off executive staff.
Melinda was not overly concerned because her employment contract seemed solid. Her employment contract guaranteed her at least two years of prior notice of the end of her employment, and at least one year of severance if for any reason her employment ended. The word “guaranteed” had been inserted in several places at Melinda’s request. It seemed so clear that Melinda hadn’t even bothered to hire an attorney to review it for her. Oops.
Unbeknownst to Melinda, what she called her employment “contract” had several large loopholes created by what attorneys call “words of intention.” The “words of intention” meant nothing to Melinda, but would have been obvious problems even to a first-year law student.
In early 2008, Melinda was notified that her employment was to end – effective immediately. She was confused. Then she was offered just two weeks of severance. She was dumbfounded. Then she was told by her employer’s attorneys that she had no employment contract, in the first place. She was incredulous. “How could that be?” she asked them, “Look at this agreement. It is signed and everything.”
In our initial consultation with Melinda, we reviewed her employment “contract” and explained to her the effect of the “words of intention.” Simply put, they made her “contract” very possibly not a contract at all. Unfortunately for Melinda, we had to go to court to try to get her what she thought her “contract” had already provided.
LESSON TO LEARN: Did you ever see an illusionist make an elephant disappear into “thin air?” Did you ever see a magician make a woman disappear from a locked box? On television I once saw an illusionist make the Statue of Liberty simply go “poof.” At least that is what it seemed to me. Other than children, we all know that such feats are not really “magic,” but rather clever sleight of hand that deceives the mind.
Well, that is very much like what some lawyers do when they draft what seems to be a solid, binding, enforceable contract of employment, but is nothing of the sort. To do this “legal magic” they sometimes use what lawyers know to be “words of intention.”
What are these “words of intention?” They are words, phrases that say, in effect, “This is not meant to be a binding agreement, but instead only a ‘tentative description of a proposed’ relation. There are many, many different “words of intention,” but they all convey a “tentative nature,” a “conditional nature,” or a “non-binding nature.”
This problem often arises because many business people, as our client Melinda did, tend to focus on business terms in agreements – such as price, product or service, and delivery date – but often “gloss over” what seems to them to be mere “legal words.” To be quite candid, many good lawyers also fail to read every single word in an agreement, though they risk committing malpractice in their failing to do so.
Is such legal trickery fraud? It just may be, and some courts have found it to be so. But an ounce of prevention can be worth a ton of cure.
The message is simple: In looking over hiring memos, offer letters and employment agreements, you need to be on “high alert” for this sort of deception; otherwise you may be fatally fooled and deeply disappointed.
WHAT YOU CAN DO: When reading a hiring memo, offer letter or employment agreement, bear in mind that these “magic tricks” are sometimes used by “legal magicians.” Here’s what to look out for:
1. First, Understand that “Agreements to Agree” are a Nullity: During the first few weeks of law school, law students are taught that “An agreement to agree is a nullity.” So, the following sentence has zero legal effect: “Within 30 days of Employee’s commencing employment, Employer and Employee will meet to negotiate the criteria upon which the employee may receive her target annual guaranteed bonus of $100,000.” Sounds enticing, no? There is not an ounce of enforceable “promise” in that sentence.
2. Take Note of Vague or Misleading Document Titles: The first “words of intention” in a document may be in its title. Be wary “from word one” if your document is entitled “Letter of Intent,” “Letter of Understanding,” “Memorandum of Intent,” or the like. Feel a bit better if your document is entitled “Contract of Employment” or other words which suggest a definitive agreement and a binding nature.
3. In the Document Itself, These are “Red Flags”:
a. Regarding All Matters: “Subject to approval,” “subject to background or other checks,” and “subject to the parties signing (or executing) a definitive agreement.”
b. Regarding Salary and Salary Increases: “up to,” “to be agreed upon,” and “to be determined.”
c. Regarding Bonus: “based upon criteria to be established,” “conditioned upon being employed at time of payment,” and “discretionary.”
d. Commissions: “from territories to be determined,” “in accordance with the plan to be implemented,” and “subject to receipt during employment.”
e. Benefits: “if and when the plan is implemented,” “subject to modification by management,” and “may be eligible.”
f. “May” is a Word of Pure Intention: The word “may” in any document MUST be read as “may, or then again, may not.” It is a short, simple, yet deadly word in any document you believe is binding.
g. Limits on Liability: If a document says, in any language, that there are “limits or limitations on liability,” and those limits are zero or are small, then such language makes any ability to collect what is due you non-binding.
h. “Agreement Terminates”: I believe that this little piece of legal “magic” that we sometimes see is especially tricky, deceptive and unethical. Some agreements incorporate language that says, “When the employee is terminated, or resigns, this agreement terminates as well.” NO, NO, NO. While the employment relation may terminate, only after the employee receives his or her monies earned should the “agreement” terminate.
4. But What if the Word “Guaranteed” is Used?: Sorry, but even the word “guarantee” does not “guarantee” that an agreement is binding. That’s because a “guarantee of nothing” is just that: a guarantee of nothing. The word “guarantee” may provide a feeling of assurance, but that assurance may be a false assurance, and may be there just for that purpose.
5. Remedy Number One: Express your concern. If you notice what seems to you like “words of intention,” do not hesitate to make your concern known. In an email you might write “Though I am not an attorney, certain words in our agreement seem more like words of intention, and not words of binding commitment; can we improve the document in this regard?” The response you receive will be interesting, and potentially quite revealing. Additionally, if this is a lawyer’s attempt to deceive you, you will also be making a record of what happened.
6. Remedy Number Two: Be particularly concerned about the words “may,” “subject to,” and “discretion,” for they are the three most common “culprits.”
7. Remedy Number Three: There are words that can be added, and that can help you. You might request insertion of the following language that might be helpful, though not a surefire cure: “Notwithstanding anything to the contrary, this agreement constitutes a binding agreement between the parties in all respects and under all circumstances.” Nothing in law is “black or white,” but language of this sort can only dispel any claims that the document you are depending on is one that can be depended on safely.
8. Remedy Number Four: Consider a consultation with an experienced employment-law attorney. Though this may entail expense, it just may prove to be one of the best investments you’ll ever make.
No agreement is 100% “bulletproof,” foolproof, or immune from claims by clever lawyers to mean something very different than they were intended to mean. I have heard lawyers tell judges just the craziest things about the supposedly “obvious” intent and the “unquestionably clear” meaning of certain documents. In these matters, I take – and suggest – a very conservative approach: nothing can be too clear or too simple, and you must do all you can to help yourself, and that means protect yourself from some attorneys who do what I believe they simply, surely and morally should not do.
For more information on Job Offers, you may be interested in reviewing our previous newsletters entitled “How to Negotiate Your Welcome Aboard Letter” [click here to read] and “Job Offer Letters: What to Look For – What to Look Out For” [click here to read].
Help Yourself With These and Other
|New Job 3:||Confirming Basic Terms of New Job Offer|
|New Job 5:||Model Response to Receiving a New Job Offer|
|New Job 7:||Checklist of New Job Items to Consider Requesting/Negotiating|
|New Job 13:||Six Important Elements to Request Be In Your Expected Job Offer|
|New Job 15:||Model Request for Sign-On Bonus|
|New Job 16:||Two Model Memos to Protect Your Book Of Business ("B.O.B.")|
|Job Issues 5:||Model Response to Request That You Sign a Non-Compete|
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SkloverWorkingWisdom™ emphasizes smart negotiating – and navigating – for yourself at work. The more you understand how agreements work, and the way attorneys sometimes try to “work” them, the more you can protect yourself. You always need to act proactively, carefully, and effectively. That takes foresight and forethought. The purpose of our newsletters is to give those to you. The rest is up to you.
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A note about our Actual Case Histories: In order to preserve client confidences, and protect client identities, we alter certain facts, including the name, age, gender, position, date, geographical location, and industry of our clients. The essential facts, the point illustrated and the lesson to be learned, remain actual.
Please Note: This Newsletter is not legal advice, but only an effort to provide generalized information about important topics related to employment and the law. Legal advice can only be rendered after formal retention of counsel, and must take into account the facts and circumstances of a particular case. Those in need of legal advice, counsel or representation should retain competent legal counsel licensed to practice law in their locale.
© 2009 Alan L. Sklover. All rights reserved. Commercial use prohibited.