At TandonHildebrand we are convinced that it benefits both employer and executive that a deal is clear to both parties before a service agreement is signed. Therefore we have compiled a basic checklist before signing.
Offer letter/emails/discussions
Issue: an entitlement in the offer letter is missing or changed in the service agreement.
Once a service agreement is in force, all other documents and discussions often become irrelevant. Ensure service agreement contains agreed terms. Just because something is put in writing doesn’t mean that it is binding once the contract is signed.
Remuneration
Issue: bonuses and options are unintentionally discretionary and cease to be entitlements.
Determine what is contractual and what is not (discretionary) and ensure the contract reflects this. Have clarity on each aspect of the agreed financial package (options/equity, bonus, commission, salary).
Shares/Options
Issue: the documents and rules governing shares and options are often not linked correctly to the service agreement.
Determine whether and in what circumstances the executive is able to receive value for any shares and options (good leaver provisions) and in what circumstances the executive receives no/little value for shares and the options lapse (bad leaver). Note that there are subtleties often missed. For example, a “good leaver” situation may include unfair dismissal. A dismissal can be unfair because of an unfair process even if wrong has been committed. The Company may end up with a good leaver who has been dismissed for gross misconduct and fraud.
Bonus
Issue: Whether a bonus is payable on termination is not clear due to uncertain dates such as “when due”; “when payable”; “date contract is terminated”; “award date”. Clarify when and in what circumstances bonus is no longer payable on termination of employment.
Notice
Issue: Although a specific notice period has been agreed, many fail to realise that during the probation, the notice period is significantly shorter (often only 1 week). This can be particularly relevant where an executive has served notice to leave one position and is dismissed either before the new contract starts or during the probationary period.
Clarify whether probationary period can be extended by the employer, and what notice of termination needs to be given by the company and executive at any given stage.
Period of agreed notice of termination
Issue: The same notice period applies in all circumstances (whether the parting of ways is due to a difference of opinion or poor performance) other than serious wrongdoing
Consider agreeing a shorter notice period for situations where the termination is due to failing to perform and for a breakdown in relations – no one will benefit with a disgruntled employee working out a long notice.
Garden leave
Issue: Both parties should make sure that it is clear what can lawfully take place during garden leave, including contact with clients; messaging; entry to office; access to systems; company property.
