“Side Letter” – Use to Amend “Standard” or “Existing” Agreements

“Side Letter” – Use to Amend “Standard” or “Existing” Agreements

“If you can’t change your mind, then you’re not using it.”

– Bashar Kushandwizdom

ACTUAL CASE HISTORIES: It happens a lot in discussions of business contracts and employment offer letters and agreements: Either (A) one side presents their “standard” agreement for signature, and says “It can’t be changed,” or (B) there already exists a fully negotiated employment agreement, but the employee and the employer now agree on one, two or three new points, and want to make them part of that already-signed agreement.

By using a “Side Letter,” we simply confirm the terms of the “main” agreement, but also insert into it one, two or three new terms in an efficient and effective manner.

Reasons given for “we must use our standard agreement” often include (1) “our lawyers won’t let us modify what they previously wrote,” (2) “everything we do must be uniform,” and (3) “if we make a change for you, others employees might claim we treated you better.” Reasons for not wanting to rewrite the fully-negotiated agreement are usually a variant of “We don’t want to open up a ‘can of worms’ or incur large legal costs.” In either situation, what is the best thing to do?

One of the most successful paths forward in either the (A) “Must Use our Standard” or (B) “We don’t want to Reinvent the Wheel” situations, is to (1) accept and confirm the original agreement, but also (2) propose a second, new, brief and limited one to insert new or additional points that amend the existing main agreement in one, two or three limited ways: We call it a “Side Letter,” and it is a very helpful negotiating means to a better relation.

Illustration 1: For the stock grant promised to you in negotiations, you were promised stock that vests in one year. However, the employer’s lawyers insist on using their “standard agreement” that vests stock grants over two years.

Illustration 2: Your 8-page Employment Agreement clearly sets down all material points of your relation. But, today (a) your salary was raised, (b) your title was elevated, and (c) your target annual target bonus was raised from 65% of salary to 75%.

To make matters easier and simpler, and less “lawyer-centric,” we use just a brief “Side Letter” that reaffirms the existing agreement, but also adds in these new points. For example:

    “Both sides agree that (a) the original contract remains in full force, but (b) two items in it are now changed, namely that employee’s salary effective today is $150,000, her title is Managing Director, and her target bonus effective today is 75% of her new salary. All other terms remain in full force and effect.”

LESSON TO LEARN: The “lesson” here is simple: Before you accept a “standard” agreement, or when one or two points in an existing agreement has not yet been updated to include new points, suggest or submit a simple “Side Letter” that keeps the original terms intact, but changes only those few provisions that need to be memorialized.

Lawyers often are more comfortable with Side Letters than with renegotiation of an entire existing, or “standard” agreement’s terms or text, because Side Letters do not seem to challenge their “pride of authorship” and don’t require them to read, analyze, consider or accept much in the way of new words, punctuation, or context. And, too, lawyers seem less concerned about making “precedent,” but will agree to limited adjustment to address a specific, narrow need. We use Side Letters a lot, and find them a handy negotiating method.

The really “important” thing is that all material terms of an employment relation be confirmed in writing, in some simple manner and of simple language, to avoid differences in memory or changed circumstances, both of which can lead to entirely unnecessary “drama” and risk to all. That’s what Side Letters encourage and accomplish.

WHAT YOU CAN DO: Simply put, if you are faced with any employment-related agreement, perhaps an allegedly “unchangeable, standard” offer letter, employment agreement, bonus agreement, stock/equity agreement, even a non-compete agreement, or perhaps an existing employment agreement or offer letter, and would like to see incorporated into it a few changes, consider the advantages of preparing and submitting a proposed “Side Letter” agreement on those points. Here are pointers:

a. If Possible, Use One Page, Two Pages at the Most: Keep your Side Letter short, to the point and simple. If you make it a lengthy “novel,” it won’t be read, let alone used. People get nervous when they see a lot of words, especially legalistic ones. Do all you can to keep your proposed Side Letter limited to one side of a piece of paper, two at the most.

b. Use “Plain English” Language: The biggest mistake you can use is to use long, complicated, “legalese”-type words. Even when I negotiate very sophisticated contracts, I use simple, plain English. I say to myself, “Can an eighth grader read this?” That’s the education of many of those who are on juries, and they need to understand what I write. “Simplicity is the ultimate sophistication,” said Leonardo DaVinci.

c. A Side Letter’s “Seven Essential Ingredients”: Looking over a batch of the Side Letters I have used in the past, I have found seven essential “ingredients” that, together, make a Side Letter effective, efficient and of lasting value:

    1. Reference to the Main Agreement: It is helpful to make early mention of the fact that this is a Side Letter amendment to a specific agreement that was signed on a certain date, or that will be signed simultaneously with this Side Letter. For legal reasons, it cannot be signed before a main agreement; in that case, the main agreement will probably make the Side Letter entirely null and void.

    2. Clear Identification of the Change(s) Being Made: Using simple language, state the one or two or three things that this Side Letter changes in the main agreement. Keep it simple, using something like “The Parties agree that, rather than the 2-month notice of cancellation provided by Section 14, the required notice of cancellation will be 4 months.”

    3. Other than As Noted, the Main Agreement Remains In Effect: It’s wise to note clearly that this Side Letter does not replace the entire main agreement, but serves only to modify one, two or three of its terms, and the rest is unchanged. That is, that the Main Agreement continues in effect, unchanged, other than as modified by this Side Letter.

    4. Which Document Governs In Event of Inconsistencies Between Main Agreement and Side Letter?: What happens if it seems that the Side Letter does not just modify the Note that, if anything in the Main Agreement and this Side Letter appears inconsistent, the text of the Side Letter “governs and controls.”

    5. Employer’s Successors Bound, Too: It is wise to mention in the Side Letter that it is binding on both parties’ successors and those to whom they may assign the benefit of the Main Agreement.

    6. Authority of the Employer’s Signor: The Side Letter is to be signed by both the Employee and a person who is authorized to sign it for the Employer. To satisfy this requirement of authority, we either place “Authorized Signatory” under the line for the Employer signature, or we include a last provision that states so.

    7. Note that a Side Letter Must Signed either Simultaneously or After a Main Agreement, NOT BEFORE. It can only be signed either simultaneously with the Main Agreement, or after the Main Agreement is signed. Otherwise, the Main Agreement will likely have a provision that states that the Main Agreement “overrides” all other prior agreements, and that would render a Side Letter signed before entirely ineffective.

Employer insist it can’t make changes to its “Standard” Agreement? Have an existing Offer Letter or Employment Agreement that is now out of date due to salary raise, title improvement of other point? We suggest a ‘Side Letter” to make sure the change is memorialized, and in effect. The shorter and simpler, the better. Here is a Model Side Letter for you to draft your own. It shows “What to Say, How to Say It.™” To get your copy, just [click here.] Delivered by Email – Instantly!

d. Be Open to Discussion of Requested Text Changes to the Side Letter, but Insist on Clarity of Expression: There is absolutely no good reason for the language of any Side Letter to be “unchangeable,” or otherwise sacrosanct, so long as it is clear even to an eighth grade reader. Clear, direct, simple, to the point. No legalese and no complicated “but’s, if’s and provided’s.”

In Summary . . .

When the “other side” of any negotiation says “This Agreement cannot be modified,” or words to that effect, or “We don’t want to rewrite the already-signed agreement, the best method of getting your modification not into the main agreement, but nonetheless into effect, is by use of a “Side Letter.” It is, in effect, a second agreement that modifies only certain point(s) of the main agreement, and does not require serious negotiation or the participation of legal minds. It is intended to be limited, focused, simply and, yet, effective. And, if done right, it is just those things. Consider its use to keep your good employment relations just that: good.

P.S.: If you would like to speak directly about this or other subjects, I am 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 “out of 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. Mindfully taking steps to memorize in writing the terms of your employment relation is one of the wisest steps to enhance your future, as well.

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.

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