Published on June 22nd, 2011 by Alan L Sklover
“You are the creature of circumstances,
or you are their creator.”
- Cavett Robert
ACTUAL CASE HISTORY*: David, 56, was a Marketing Director for a financial advisory firm located in St. Louis, Missouri. For 12 years he helped build the marketing department, and just two years earlier was named its Director. The company’s owners had high hopes of one day selling the company to one of its large competitors and, as they say, “cashing out” and “sailing off into the sunset.”
The company’s owners knew that, when selling a service-oriented company, rumors of a sale might make key employees feel job-insecure, and spur them to seek jobs elsewhere. To retain their six key employees – including David – each was offered the security of a written employment agreement that guaranteed very attractive benefits, significant bonuses, grants of ownership interests in any new company, and a “success payment” if a sale of the company took place.
At the same time, the owners knew that potential purchasers of the business would insist on key employees signing lengthy non-compete provisions, so they would not be likely to leave, and if they did leave, they couldn’t work for competitors, or solicit company customers. Such an arrangement – giving key employees and potential purchasers what each would likely want – is quite common when a company prepares itself to be sold.
The written employment agreements were for a one-year period. Each contained this clause:
“16. Survival: Upon the expiration or termination of this Agreement, the obligations of the parties to each other shall come to an end, except that the provisions of Section 14 (regarding non-competition and non-solicitation), Section 19 (regarding return of company property) and Section 21 (regarding confidentiality) shall survive.”
David was quite pleased, because he had never had the security of an employment agreement, such good benefits, a guaranteed bonus, or the chance to own part of the company. As to the “Survival” clause, it made sense to David: he figured “When it’s over, it’s over, but of course certain promises would need to continue.”
Sure enough, about ten months later, a sale of the company did take place. David and others were introduced to the new owners, and then went about their work with renewed vigor. Unfortunately, two months later, when the employment agreements expired, five of the six key employees – including David – were abruptly told “We no longer need you.” That was a real disappointment. It was also a real disappointment to learn that he could be seriously hindered in obtaining new employment in this field due to the “surviving” non-compete and non-solicit provisions. This field was the only one he knew; he was not in a position to start a new career.
The “shock” was learning that there would be no payment of the earned bonuses, no “success payment,” and no award of ownership interests. The reason given: “The Contract is over, and the promises of that Contract are over, too.”
David had lost “rewards” his employer had promised, but he was stuck with the “restrictions” he had promised to his employer. As a marketer he now saw himself as almost impossible to market.
What happened? By not thinking carefully about the “survival” provision, and asking that it be made “balanced,” David permitted himself to be placed into the worst circumstances possible: continuation of restrictions, and loss of promised – and earned – rewards.
LESSON TO LEARN: You never want to be saddled with “risk without reward,” especially right after you lose a job. That’s precisely what “survival clauses” often deliver. Consider “what will stay and what will go away” whenever you see one of these, or words in your employment agreement that mean the same thing. Then request a “better balance” of the two.
WHAT YOU CAN DO: Here are the six things you need to know, keep in mind, and do for yourself in order to “survive the survival clause”:
1. Look Out for Survival Clauses (Identified or Disguised): In my 30 years in employment law, I think I have seen “survival” clauses in 98% of employment agreements. In 97% of those the clauses have been completely one-sided. Usually they are labeled “Survival,” but not always; the title “survival” is neither necessary nor determinative. Often they are “buried” or “disguised” in contract sections entitled “Miscellaneous Provisions” or “Other Items,” and in other paragraphs with seemingly innocuous titles, as well. Understand that the title of a paragraph in a contract is essentially meaningless; it’s what is inside that counts. Of course, you or your attorney should always read every word – and even every punctuation mark – and say regarding each one: “How could this affect me?
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2. Ask Yourself, “What Stays?”: This first question is pretty easy: What does the “survival” clause say continues in effect after a contract termination or expiration? These are usually continuing restrictions and obligations on the employee, only. The six most common are: (a) non-competition; (b) non-solicitation; (c) confidentiality; (d) repayment of monies borrowed or advanced; (e) cooperation in the future; and (f) representations made in your contract or elsewhere. Ask yourself, as to each one, “How might this affect me?” If you see a phrase such as “for a period of two years after termination” or words to that effect, that is “survival language,” even though the actual word “survival” does not appear.
3. Ask Yourself, “What Goes Away?”: This second question requires a little more thought. You must presume that, if a one-sided survival clause exists in your agreement, every single obligation of your employer will instantly go away upon your departure (other than the obligations set by law, such as reporting your wages to the IRS.) So, you must presume that, unless you ask otherwise, your employer will no longer be obligated to you for, among others, (a) payment of monies you earned, (b) vesting of stock or other equity, (c) assurances of confidentiality or non-disparagement, (d) indemnification against being involved in lawsuits.
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4. Watch Out for this Related “Lawyer’s Trick”: The Agreement Ends when the Relation Ends: Let’s say “Moe” dies on Thursday evening, (a) after working four days of the week; (b) after earning last year’s bonus; and (c) after incurring $100 in expenses on a company business trip, but before receiving any of those monies. Let’s also assume his employment agreement says, “The employment relation, and all obligations of the employer to the employee end on the employee’s death,” or “No obligations survive termination or expiration.” Should Moe’s family receive (a) his earned four days pay, (b) his earned bonus, and (c) his due expense reimbursement? “Yes” if you consider what is right, fair and expected. But “No” if a one-sided “survival clause” is in his employment agreement, or by this “lawyer’s trick”: confusing the end of the “relation” with the end of the “agreement.”
They are two different things, as different as (1) the end of a meal in a restaurant (the restaurant-customer relation), and (2) the end of any obligation to pay for it (the obligations from that relation.)
Your agreement include a non-compete clause? How should you respond? Our “Model Letter: Response to Request You Sign a Non-Compete” shows you “What to Say, and How to Say It.™ To obtain your copy, just [click here.] Delivered by Email – Instantly!
5. The Simple Remedy: This Simple Sentence: All you need to do to remedy this potential pitfall is to insist on the inclusion of this common-sense sentence:
“Regardless of anything expressed anywhere in this agreement, all obligations of the employee and the employer to each other survive until fulfilled.”
Now, who could argue with that little piece of common sense, mutual fairness and simple justice? Only people who may be trying to take advantage of you, and their lawyers who may not know you are a member of our SkloverWorkingWisdom family.
6. A Second Remedy: This Second Simple Sentence: If for some reason your employer (or its lawyers) resists the Simple Remedy noted above, consider asking for this remedy:
“In the event the employee does not honor its post-employment obligations to the employer, the employer’s post-employment obligations to the employee will be void, and vice versa.
At work, you must be prepared to watch out for yourself, stand up for yourself, and be your own best advocate. No one can do that for you. We are here to help you do just that.
For individual attention and assistance, I am available for telephone consultations lasting 30 minutes, 60 minutes, or 2 hours. If you would like to set up a consultation, just [click here.]
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 our 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 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.
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