Tim McDermott “Should You Have An Employment Agreement”
Should you have an employment agreement?
You know the person. They are a superstar. You know how rare it is to have a person with their talents on your team, so you want to keep them. Someone on your board tells you – “We need to lock them down with an employment contract so way we know they will stay.”
I am not an employment attorney and I recommend hiring one before you do anything in this area. You want an attorney who has experience. There are federal laws and state laws that impact this area and a good, seasoned attorney is a must. I want to share with you some of my thoughts as a former CEO and also an employee on some issues to consider.
One of my golden rules for anyone taking on a new job is the best time to discuss leaving the company is the time you start with them. It’s like a good radio break or a good speech – you want to plan how you start and how you end. I believe this is healthy for both sides and can make the departure go a lot smoother. The last thing you want is the pain of walking into work and discovering it’s your last day. They give you two weeks salary – maybe – and off you go. I have had that happen to me and it’s painful. I encourage bosses and leaders – unless there is some gross misconduct or financial disaster – to never do that to anyone. On the personal side (putting on my CPA hat now), I also highly recommend you personally build an expense reserve of three to six months for living expenses. Having money in reserve will help you live – while you heal, regroup and then move forward.
For an employee, having an employment agreement in place helps remove the financial sting of immediate dismissal and provides stability for you and your family. In the agreement, you can define the terms of what it looks like if you leave and if they decide to let you go. How much severance? What about benefits? Do you get accrued vacation time? These can all be spelled out in the agreement. Here’s another point I have learned. If you have a three-year employment agreement with a 60 day out on both sides, then you really have a 60-day employment agreement. In other words, it’s not three years since either side can opt out with 60 days notice. All the three-year term does is let you both know when it’s time to renegotiate the agreement. An important point here – legal agreements can at times appear harsh. I remember years ago a Christian music group was promoting their own songs. In my opinion, they were okay, but the production on the project wasn’t great and we could barely hear their vocals. Well, they called me directly and wanted to know why we weren’t playing their song. I let them know why and they got very offended and started saying mean things about the radio station. Ugh. It’s much easier to tell a seasoned radio promoter than the artist themselves. The same lesson applies here. Although you may think you can handle an employment agreement, some of the things mentioned in those may be things you would never do and the mere mention of them means the station doesn’t trust you, so you get offended. That’s not the case at all. It’s just lawyers doing what they need to do to protect the organization. This is where you hiring a lawyer may be a good idea.
So, what about the organization? What do they get? I already mentioned they want the security of knowing you won’t be going anywhere. But there are often more considerations. They might want to make sure that you don’t compete against them for a certain time period using the knowledge you gained on the job or say anything negative about the organization. An NDA – or non-disclosure agreement has become very common in the news recently and it’s not been very positive. The severance they offer you may be conditioned on you signing off on these. Do you want to do this? Both issues can become roadblocks to having a formal agreement.
As a Christian ministry there is also another factor – do we want to limit where someone wants to go if God wants them to move on? I know of several Christian ministries where they have let people out of “hard and solid” agreements if that person feels called to leave. I also know of some who were forced to stay and were very unhappy they missed an opportunity.
These are just a few items to consider when you look at having employment agreements. At the end of the day, you may decide they aren’t worth it or are worth it for key employees or something necessary for everyone. Maybe something in the Employee Policy Manual is just good enough. If you are a CEO, I recommend you have a good exit policy in place that is fair for everyone. Run it by your board to get their input. I remember in my time working at a mainstream corporation how purposefully they made sure people were “blessed as they leave” because they knew it was important for the employee and for their reputation. Personally, I have tried to do that. It’s a small industry and you never know – the people you let go today maybe the people you are working for tomorrow.
With 40 years of broadcasting and leadership experience, Tim is now consulting leaders at radio stations and nonprofit organizations. His website his TimMcDermottConsulting.com and he can be reached at Tim@TimMcDermottConsulting.com
Very wise thoughts and recommendations, Tim. A written employment agreement signed by both parties is a must these days. Especially, in Right-to-Work states where employees have few rights. The most important part of an agreement is to have an exit clause that allows you to resign without penalty and makes it easy for the employer to agree. If dismissed, base your severance on the amount of service time remaining in the agreement. I suggest 1/2 a month of pay for each month remaining in the agreement if you are dismissed for reasons other than immoral or criminal behavior. Include in the severance payment all benefits earned (PTO) plus commissions and bonuses earned to date. Make sure the agreement specifies that the severance and all earned benefits be paid in full on the date of dismissal. Otherwise, the employer may pay you over a long period of time. If resigning, then ask only for the amount of pay, PTO, commissions and bonuses you have earned to date. Be fair and reasonable. If you relocated to accept the position and are dismissed within the first two-years of a three or five-year agreement, then specify in the agreement that the employer will reimburse you 50 percent or more of your moving cost in accepting the job. If your employer does not pay into the state’s unemployment insurance program keep this in mind in negotiating a severance package as well. In most states you will not be eligible to collect unemployment benefits if your employer does not participate. If you except a position without a written agreement or written employer’s offer specifying such promises and payments, then keep good notes of conversations you may have with the employers as to promises being made. Some states accept verbal agreements in such matters, but they need to be well documented including written notes, emails, text messages and persons who may have knowledge of the conversation(s). Make sure your written employment agreement is simple but clear, to the point, and strongly written to protect your rights in case you are dismissed, or your position eliminated. Include in the agreement a provision should the employer sell, lease or go to a studio waiver that would result in your dismissal or elimination. If you are not skilled in writing such an agreement, then consult with someone like Tim to offer you guidance. Most Chrisian stations/companies (except for major markets) will not be open to employment agreements, so it may be necessary to make such an agreement in the form of a letter of understanding or as an addendum to the employer’s written offer.