Published on August 14th, 2018 by Alan L. Sklover
“A satisfied customer is the best business strategy of all.”
– Michael LeBoeuf
ACTUAL CASE HISTORIES: Rita was a highly regarded Senior Sales Account Manager for an industrial plumbing supplies company headquartered in Springfield, Illinois that catered to a handful of large construction firms in the Upper Midwest and Canada. Over 20 or so years, she had developed strong client relationships based in a deep trust for her good judgment and for her devotion to client interests. Her clients often said of her “If you need something, and need it ‘yesterday,’ you need to call Rita.” She had also built a small but effective support team around her.
Rita was recruited by a large competitor headquartered in Milwaukee, Wisconsin, to serve in a significant Business Development role, with the expectation that she would bring along her “Book of Business,” that is, her established network of clients and their business. While she was presented with a significant increase in compensation, she was not quite certain it was the right move for her clients, many of whom enjoyed “white glove,” personal treatment they had grown accustomed to over the years.
Wisely, Rita sought ways to protect her “Book of Business,” what some people refer to as her “B.O.B.” She sought one or more ways she could assure her clients and client referral sources that she would “be there for them” whenever and however they needed. She sought, too, a way she could always keep her support team with her.
Her primary concern was that she would join the new company and, in any agreements, somehow lose access to her critical business relations. What might happen if she left the new company, or was asked to leave, for any reason? Like most employers, her prospective employer required their employees sign to a non-compete agreement, prohibiting them from providing services to “the company clients,” which is precisely what “Rita’s clients” would become, if she let that happen.
Rita would also be required to sign a “non-solicit/non-hire” agreement, barring her from taking any members of her support team with her, in the event she left or was asked to leave.
We helped Rita solve these two problems with the use of “Key Man / Key Woman” clauses that her prospective employer reluctantly agreed to, in order to “acquire” Rita, her team, and most especially, her clients. So, if for any reason Rita left the new company, or if for any reason she was not in charge of her clients’ business, Rita’s clients could take their business – and take Rita and her team, too – to another company.
LESSON TO LEARN: As an employee, you are referred to as a “Human Resource.” I happen to deplore that term, as I find it to be a dehumanizing phrase. But, as a “Human Resource” you may be seen as a “source” of new, additional, and very valuable business from new, additional and very valuable clientele. This is precisely why we use “Key Man / Key Woman” clauses and agreements: to offer that to your employer, but to always maintain your access to your “B.O.B.,” and your “B.O.B.”‘s access to you.
Good relations with staff members, colleagues, vendors, customers and clients are of critical value in every business and profession. That is why employers try so hard in numerous ways to ensure that their employees do not “steal” them, even when it was the employee, himself or herself, who brought the client to the employer. It is beyond question that it is in your own best interests to try to keep those valuable business relations, to prevent their “theft” from you, no matter where you are, where you go, or what you do.
Having good, strong, close relations with clients and customers makes you the “rain-maker” that is one of the most important attributes of a successful business person. Having good, strong, close relations with colleagues makes you the “magnet” that can attract, maintain and take with you the best and brightest of talent. Having good, strong, close relations with support staff gives you the ability to move your business to its most fertile location and have intact, when you need it, reliable, trustworthy, confidence-enhancing support.
We see many Key Man / Key Woman clauses in contracts used by sport agents and agents for movie/TV talent. It is not common knowledge, but a good number of senior executives request in their own employment contracts that provide that, if the CEO should depart for any reason, be it voluntary, due to disability or death, or involuntary, due to misconduct reasons or otherwise, they have the option, but not the obligation, to depart free from further obligations and continuing restrictions to the employer.
“Key Man / Key Woman Clauses” are one of the best ways to protect your “key business relations.” And, if you may have the leverage to safeguard your own “key business relations,” why not at least try?
WHAT YOU CAN DO: If you have such key business relations – and so many people do – consider the use of Key Man / Key Woman clauses to protect them. Here are some very valuable pointers:
1. Bear in mind the Essence of a “Key Man / Key Woman Clause: It is simply that . . .
- “If the Key Man or Key Woman is EITHER (i) no longer employed by this company, or (ii) no longer in charge of taking care of my business, then (a) I am free to take my business elsewhere AND (b) he or she will remain free to serve my interests elsewhere, regardless of any non-compete agreement, garden leave, or the like.”
There are other details to include in a Key Man / Key Woman clause, but this is the essence.
It does not matter if the clause is inside another agreement, such as an employment agreement or a client agreement, or if it is its own separate and distinct “Key Man / Key Woman Agreement.”
Note that a Key Man / Key Woman clause does not require the client to depart with the Key Man or Key Woman if they leave or are reassigned, but gives the client the (a) option, and the (b) right, to have the Key Man or Key Woman continue to tend to their affairs after his/her departure, regardless of any non-compete agreement, non-solicit agreement, garden leave requirement, or the like.
2. Understand that there are Generally Three Times Such Clauses Come into Play:
|(i)||When Negotiating New Employment, and Likely to Bring Clients with You: First, when you are discussing or negotiating prospective new employment, you can advise your prospective employer that certain of your clients may not come aboard unless they have in place “Key Man / Key Woman clauses, (a) permitting them to leave if you leave, and (b) permitting you to work with them in the event you are not with the firm any longer or not in charge of their work. The same can apply to certain of your colleagues and staff persons, if they are to come over to the new company, too.|
|(ii)||If, While on the Job, You Have an Opportunity to Bring in a Significant New Client or Colleague: Let’s imagine, for the moment, that you are a medical device salesperson, and your college friend Gloria becomes the Purchasing Manager of a large hospital network. You might suggest to your manager that you think you can bring Gloria’s hospital network in as a new — and significant — client, but that Gloria insists on a “Key Man / Key Woman Clause” in their and your agreements with the company, so that they can follow you if you leave for any reason.|
The same holds true if you have the opportunity to bring into your employer a colleague or seasoned support person, but who insist(s) that they can leave if you ever do, or if they do not report directly to you.
|(iii)||When You are Considering Leaving an Employer, or Have Been Asked to Leave: It is for this time that we draft our Key Man / Key Woman Clauses, that is, to enable a “business divorce” without causing distracting disputes.|
Think about it: If Client A has come into your company because they want your services, and Client A wants to depart the company if and when you are departing it, then a Key Man or Key Woman clause or agreement may be of great help. The “selling” message is essentially this: “I am leaving, and so Client A will be leaving, too. Not because I solicited them, but because they came here seeking my services. Either they are leaving entirely, or if you permit me to ignore my non-compete, and take my staff with me, then you can have a share of the revenues for one year. Otherwise you’ll have nothing, except an angry former client. Which would you prefer?”
While the clause usually does not require every detail of possible departure be negotiated at once, the sooner you address the basic points in your and your clients’ favor, the better.
If you are considering or sensing a departure might take place, time and care should be taken to review your Key Man / Key Woman Clause(s) to see what, if any, procedures or provisions need to be adhered to.
3. The Key Man / Key Woman Clause To Be Inserted into Your Own Employment Agreement: If you are being recruited to come to a new employer, with the new employer’s hope or expectation that you will bring with your existing clients, customers or colleagues, you might suggest, propose or require that a Key Man / Key Woman clause, or a variation of one, be part of your agreements, that is, offer letter, employment agreement or other contract.
Such a clause should provide that certain of your clients (either individually identified or generally described) will be entitled to have Key Man / Key Woman clauses inserted into any of their agreements with the company, which say that their agreements with the company will be terminable if you are no longer affiliated with the Company, or not overseeing their business, for any reason.
A Key Man / Key Woman Clause can also be used if, while you are employed, you attract a new and significant potential client, and the new potential client is attracted to the employer primarily because of you. In this context, it can serve as an amendment to any and all offer letters, employment agreements or contracts you may have signed with your employer.
If you wish to identify particular clients who are to be covered by such a clause, instead of using a general “all clients I bring to the company,” the identities of the clients to be covered by such a Key Man / Key Woman clause should not be used without your first discussing the issue with them, and obtaining their consent, and providing the anticipated language to their legal counsel for prior review.
Protect your Book Of Business (“B.O.B.”) by requesting a Key Man / Key Woman Clause. Use our MODEL LETTER TO REQUEST A KEY MAN / KEY WOMAN CLAUSE (WHEN BEING RECRUITED). Why Not? There’s no harm in making a respectful request. If you have the Key clients, you have the Key to protecting your Key assets: your business relations. “What to Say, and How to Say It.™ To obtain your copy, [click here.] Delivered by Email – Instantly!
4. The Key Man / Key Woman Clause to be Included in Your Clients’ Agreements: This is the “Key Man / Key Woman” Clause that is intended to be inserted into any agreements your clients may have with your employer. They permit your client or customer to terminate their business agreements with your employer if, for any reason, you are no longer affiliated with the employer, or no longer supervising their affairs at your employer.
Other “details” to include? Perhaps that if the client departs the firm for this reason, it will be provided its files promptly, without any penalty or surcharge, and all periodic fees being adjusted on a pro rata basis. Again, “the shoe must fit the foot.”
Key Man / Key Woman Clauses to be inserted into your clients’ agreements should be consistent in language with any Key Man / Key Woman Clause to be inserted into your own agreements. They should be reviewed by the particular client’s legal counsel, as well.
5. The Key Man / Key Woman Clause to be Included in the Certain, Identified Colleagues’ or Staff Members’ Agreements: Suppose that, when you are being recruited for a new job, you feel that it would be highly advantageous to have your Administrative Assistant and Research Associate come work for you in your new role.
Think, though: what happens to them if you don’t like your new job, or you are asked to leave it . . . can they leave with you? That’s why we suggest you consider having a Key Man / Key Woman Clause inserted into theirs AND your own agreements regarding key colleagues and support staff you bring with you. If your relation with them, and their importance to your clients and your clients’ business, seem to warrant the request for a Key Man / Key Woman clause, they should be included in any request you make for a Key Man / Key Woman clause for yourself.
How should a colleague or support staff member of the Key Employee who departs for Key Man or Key Woman–related reasons be treated? A common provision in a Key Man / Key Woman clause provides that, if an employee departs his or her employer because their “Key Man” or “Key Woman” is or has departed the company, he or she will be treated as if terminated by the employer without “cause,” as “cause” is commonly defined.
6. Will Your Prospective Employer or Present Employer Agree to a Key Man / Key Woman Clause or Agreement? The answer to that question is simple: Yes, provided you have taken sufficient steps to ensure that your services and/or the clients’ business are perceived to be sufficiently valuable or important to them, now or in the future.
It might be a large piece of business, it might be a famous “vanity” client, such as a famous athlete, actor or artist, or it might be a seeming direct path to meeting a whole new class of clientele. If any of these things, or similar things, are operative, the answer is probably “Yes.”
That said, it is possible that the answer may be “No.” It may just not be what an employer is willing to do, as most employers seek to make “your clients” into “theirs,” whenever it suits them best.
If willing to speak about a Key Man / Key Woman clause, is it possible that an employer might still want to negotiate its terms and provisions? Sure, it is in their interests to protect their interests. For example, if you “leave with the client,” they might want to share that client’s revenues for a certain period of time. Or, they might, in turn, seek an agreement that you will not “serve or solicit” any of their other clients. In business, just about everything is negotiable.
7. The Key to “Selling” a Key Man / Key Woman Clause to an Employer: “It is what the clients insist on.” Like selling anything, it is not the product, itself, that you sell to the buyer, but it is instead the reasons or reasons to buy it, that is, what advantages it will bring to the buyer. “If you buy this medicine, you will be so, so happy . . . just like the people in the TV commercial.” Or, “Buy this toothpaste, and attractive people will always want to be near you . . . just like the people in the TV commercial.”
In this context, that translates to “Oh, this is not something I want, but it is something that the client or customer wants as a condition to bringing their business to any company. The implied message: “Everyone wants their business; they are happy to bring it here, but only on this condition.” Perhaps this is at least one of the reasons why I have seen Key Man and Key Woman clauses used so often in the advertising and marketing industries, and by clients who function as business development officers: they really know the psychology of sales.
Protect your Book Of Business (“B.O.B.”) by requesting a Key Man / Key Woman Clause. Use our MODEL LETTER TO REQUEST A KEY MAN / KEY WOMAN CLAUSE (WHILE EMPLOYED, WITH POTENTIAL NEW SUBSTANTIAL CLIENT). Why Not? There’s no harm in making a respectful request. If you have the Key clients, you have the Key to protecting your Key assets: your business relations. “What to Say, and How to Say It.™ To obtain your copy, [click here.] Delivered by Email – Instantly!
8. Adaptation is Critical to the Effectiveness of a Key Man / Key Woman Clause: The basic idea behind a Key Man / Key Woman Clause is that your presence and oversight are key to the client’s desire to do business with the company, and without you there, they can depart, too, no matter what any agreement they have entered into may say. But, each Key Man / Key Woman Clause must be adapted to accurately reflect the unique facts and circumstances of your business relation with the client or colleague.
It is important to note that, in agreements and in clauses of any kind, “No one size fits all.” Key Man / Key Woman clauses and agreements should reflect the facts and circumstances of the parties’ perspectives, relations and needs. They can be, and should be, customized to your customers, your support staff and your employer, ideally to reach something of a “win-win-win-win” result.
9. Here are Five Important Points to Consider in Using Key Man / Key Woman Clauses and Agreements, which May or May Not All Be Relevant to Your Own, Your Clients’ or Your Colleagues’ Circumstances:
|a.||“In Charge of My Account”: It would be wise to include in a client’s Key Man / Key Woman Clause that they may terminate any and all agreements with your employer, and leave, if you are no longer with the firm for any reason, or if you are no longer in charge of their account. That second, italicized clause is the one many people miss.|
|b.||“Not Directly Reporting To”: It would be wise to include in your colleagues’ or support persons’ Key Man / Key Woman Clause that they may depart the company if either you depart the company, or they are not directly reporting to you. That second, italicized clause is the one many people miss.|
|c.||“Extrication Terms”: If the facts, circumstances and relations warrant it, and if there is sufficient leverage available to you to negotiate for them, you may want to supplement the basic terms of a Key Man / Key Woman clause with “extrication terms” providing that:|
|i.||If you depart, that you will receive treatment no less favorable than that afforded an employee terminated without cause, and, as well, (i) prorated annual incentives, (ii) equity awarded but not vested will continue to vest over time, (iii) cooperation in transition by all parties, and (iv) lifting of non-compete, non-solicit, non-serve and garden leave restrictions.|
|ii.||If your client departs, (i) the client’s files will be promptly turned over to them or you, as they may direct, (ii) any annual fees are to be prorated for the partial year of departure, (iii) they will not pay any “penalty” or charge, and (iv) you will not be limited in any way for any time in overseeing the prompt and problem-free transition.|
|iii.||If your colleagues and/or support staff depart, they will be treated as you are, as noted above, in subsection “i.”|
|d.||A “Future Revenue Share Inducement” May Be Offered as Part of the ?Bargain: If it may help induce your employer or prospective employer to accept your Key Man / Key Woman clause, you might offer your employer that it will have a share of the revenues derived from the client in question for a specified and limited period of time. It must be borne in mind that anything you give up in this regard is that much less you can offer a subsequent employer. That said, I have found such “post-departure revenue sharing” to be an effective “carrot” to offer in these navigations and negotiations.|
|e.||Anything to be Signed by Clients, Colleagues or You Should First Have Independent Legal Review: Key Man and Key Woman clauses and agreements are not very complicated, and of course should be kept as simple, “plain English” as possible. (That said, I know brain surgeons and rocket scientists who claim that their work, too, is not complicated.) While I am not advocating for using legal assistance unnecessarily, I do always suggest that anything to be signed be first reviewed by experienced and independent legal counsel.|
|f.||Govern and Control: A Key Man / Key Woman Clause or Agreement should have language in it that provides that, in the event any other agreement, signed by any party, without exception, if there are any conflicts, contradicts or inconsistencies with this Key Man or Key Woman clause or agreement, then this clause or agreement shall predominate, govern and control.|
One of our most popular “Ultimate Packages” of forms, letters and checklists is entitled “ULTIMATE NEW JOB PACKAGE” consisting of 10 great items, including Resume Cover Letter, Thank You After Interview, Memo Confirming Terms Offered, Response to Offer Letter, our Master Checklist of Items to Negotiate, and 50 Good Reasons to Explain Your Departure from Your Last Job. To obtain a complete set, just [click here.] Delivered by Email – Instantly!
In Summary . . .
Other than your reputation, as an employee your strong business relations may be your most valuable asset. They are to be strategically targeted, carefully nurtured, and – most importantly – passionately protected. Allowing a present or future employer to take them from you is not in your interests. Protect your Book Of Business (“B.O.B.”). Consider seeking the great advantages of a Key Man / Key Woman Clause or Agreement for this purpose. If you think about it, they make you less of a mere employee, and more of a business person of your own, and thus, a master of your own fate to a far greater degree.
P.S.: We have drafted and negotiated many Key Man / Key Woman clauses and agreements, and consulted on many others. If you would like to speak directly about this or other subjects, Mr. Sklover is available for 30-MINUTE, 60-MINUTE, OR 120-MINUTE TELEPHONE CONSULTATIONS, just [click here.] Evenings and weekends can often be accommodated.
SkloverWorkingWisdom™ emphasizes smart negotiating – and navigating – for yourself at work. Negotiation and navigation of work and career issues requires that you think “outside the box,” and build value and avoid risks at every point in your career. We strive to help you understand what is commonly before you – traps and pitfalls, included – and to avoid the likely bumps in the road. For those who seek the advantages and security of having a “protected B.O.B.,” Key Man and Key Woman clauses may be your best path to that goal.
Always be proactive. Always be creative. Always be persistent. Always be vigilant. And always do what you can to achieve for yourself, your family, and your career. Take all available steps to increase and secure employment “rewards” and eliminate or reduce employment “risks.” That’s what SkloverWorkingWisdom™ is all about.
*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 Email 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.
Sklover Working Wisdom™ is a trademarked newsletter publication of Alan L. Sklover, of Sklover & Company, LLC, a law firm dedicated to the counsel and representation of employees in matters of their employment, compensation and severance. Nothing expressed in this material constitutes legal advice. Please note that Mr. Sklover is admitted to practice in the state of New York, only. When assisting clients in other jurisdictions, he retains the assistance of local counsel and/or obtains permission of local Courts to appear. Copying, use and/or reproduction of this material in any form or media without prior written permission is strictly prohibited. All rights reserved. For further information, contact Sklover & Company, LLC, 45 Rockefeller Plaza, Suite 2000, New York, New York 10111 (212) 757-5000.
Repairing the World,
One Empowered – and Productive – Employee at a Time™
© 2018, Alan L. Sklover All Rights Reserved. Commercial Use Prohibited.