Negotiating the C-Suite Executive Employment Agreement in Colorado

C-Suite executives routinely negotiate and sign employment agreements with their employers. These agreements are unique to the position and the business, but they also have a core set of provisions that both the executive and the employer should anticipate negotiating. This article highlights several of those key provisions or clauses. Employers and executives are encouraged to seek legal counsel when negotiating and drafting these provisions to ensure a smooth transition and to mitigate risks and future conflict.

Start Date + Term 

An employment agreement should identify the executive’s start date and length or term of employment. Some agreements provide for a fixed term of employment with a definite end date. Other agreements have an indefinite term of employment with no end date or provide for renewal and reevaluation of the employment terms at set times in the future.

Position + Duties 

It is important that an employment agreement identifies the executive’s job title, duties, and responsibilities. Such provisions frequently identify whom the executive reports to, where the work will be performed, and describe the executive’s primary tasks and functions. These types of provisions also typically require the executive to perform duties diligently, faithfully, and loyally, and to devote the executive’s full business time and attention to the employer.

Compensation + Bonuses

In exchange for the services or duties performed by the executive for the employer, the employer agrees to compensate the executive. An employment agreement should describe the executive’s compensation package in detail. Provisions of this type vary greatly depending on the nature of the employer’s business and its organizational structure. A compensation clause should state how and when the executive will be paid. Compensation clauses should address the executive’s annual base salary, discretionary bonuses, non-discretionary bonuses, and/or guaranteed bonuses. The agreement may also provide that the executive is entitled to stock or equity grants.

Vacation + Benefits 

A vacation and benefits clause should identify the amount of paid time off (PTO) and the fringe benefits an executive will receive. A vacation clause should describe how vacation accrues, carries over, and is paid out on termination. Employers may also wish to address how vacation is scheduled and approved. A benefits clause should address whether an executive is eligible for medical, dental, and vision insurance or other types of insurance such as short and long term disability and life insurance. A benefits clause should also identify any retirements plans that the executive may participate in and the terms and process for doing so. Employers also typically include language allowing for future adjustments and changes to the benefits package.

Equity + Stock Options 

Some employers may desire to provide the executive with the option of purchasing equity or stock in the company. An equity and stock option clause should address the type of stock options that are available, the price to buy each share, a vesting timeline or schedule, whether vesting can be accelerated, and describe the process for exercising the option.

Representations 

Many employment agreements require the executive to represent and warrant that execution of the agreement will not violate or constitute a breach of any agreement with a former employer, client, or other person or entity. The executive may be asked to indemnify the employer against any action related to a non-compete or non-solicitation agreement with a former employer.

Legal Compliance 

Most employment agreements require an executive to comply with all applicable laws, regulations, and codes. These types of provisions are often industry specific, calling out federal and state statutes or regulations with which the business must comply. Compliance clauses also frequently require the executive to read and follow company policies, handbooks, rules, or other internal guidelines. A compliance clause may also describe the process for internal reporting, monitoring, and enforcing the clause’s requirements.

Confidentiality 

Employers routinely include confidentiality clauses in an executive employment contract. A confidentiality clause defines those things that are “confidential information” of the business. This may include trade secrets, customer or client data, financial data, business and marketing strategies, prospective customer and client lists, supplier and vendor lists, and proprietary software, computer programs, or other information. A confidentiality clause should describe when and how an executive may use confidential information during the executive’s employment and whether there are any exclusions or exceptions to the requirement to keep business information confidential. For example, a confidentiality provision might include an exclusion for federally protected whistleblowing activity or might allow the executive to share certain confidential information with prospective clients or customers.

Intellectual Property 

Depending on the nature of the employer’s business, the parties to an employment agreement may desire to negotiate an intellectual property (IP) clause. IP may take the form of trademarks, patents, or copyrights. An IP clause typically includes language stating that any IP developed by the executive while working for the employer belongs to the employer. Some IP clauses require the executive to assign to the employer any future discoveries or patents tied to the employer’s business. An executive may, however, wish to protect and retain ownership of the executive’s pre-existing IP or IP developed in other contexts during the employment.

Non-Compete & Non-Solicitation

Employers often want to include restrictive covenants in their employment agreements such as non-compete and non-solicitation clauses. A non-compete agreement or clause (also known as a “covenant not to compete”) is a promise not to engage in the same type of business for a stated time in the same market as the buyer, partner, or employer. A non-solicitation clause is a type of non-compete that prohibits an employee from soliciting other employees and customers of the employer during the employment term and for a specified time after the employment relationship ends.

State law governs whether a non-compete or non-solicitation agreement is enforceable. Under Colorado law, restrictive covenants are void and unenforceable unless the executive earns annualized cash compensation[1] of at least $130,014[2] and the covenant not to compete is for the protection of trade secrets and is no broader than reasonably necessary to protect the employer’s legitimate interest in protecting trade secrets. Similarly, a non-solicitation agreement is void and unenforceable unless the executive earns an amount of annualized cash compensation equivalent to or greater than sixty percent of the threshold amount for highly compensated workers (currently $78,008.40), if the non-solicitation covenant is no broader than reasonably necessary to protect the employer’s legitimate interest in protecting trade secrets.

These laws are nuanced, and there are several exceptions to the general rule. For example, different rules apply to health-care providers such as, doctors, certified midwives, nurse practitioners, and dentists. Another exception concerns non-compete agreements in M&A deals.[3] There are also detailed notice requirements that must be met by an employer for a non-compete or non-solicitation agreement to be enforceable. Therefore, it is advisable to seek legal counsel when negotiating a non-compete or non-solicitation clause.

Change in Control

Many executive employment agreements include a change in control clause. These types of clauses describe what happens in the event the employer experiences a change in ownership or leadership and may provide alternate termination options, severance payments, and bonus payments which are intended to protect the executive in the event the executive is terminated or chooses to leave because of the change in ownership or leadership.

Indemnification & Directors and Officers Insurance

Some executives seek to have the employer indemnify the executive from personal liability and/or provide the employer with insurance coverage under a directors and officers insurance policy related to professional decisions and performance of the executive’s duties under the employment agreement.

Tax Matters

An executive employment agreement typically provides that the employer will withhold all applicable federal, state, and local taxes, social security, and workers’ compensation contributions, or other amounts required by law to be withheld from the executive’s compensation prior to payment. The parties also frequently establish that the employment agreement is intended to provide for payments that satisfy or are exempt under Section 409A of the Internal Revenue Code and related regulations, notices, and other guidance published by the federal government, and to address non-qualified deferred compensation under that law.

Termination & Severance

Executives are typically “at-will” employees, meaning that either the executive or the employer may terminate the employment relationship at any time. A termination and severance clause is typically included in an employment agreement and governs the end of the employment relationship based on a variety of scenarios. For example, a termination clause may distinguish between termination “for cause” and “without cause.” If an executive is terminated for cause or voluntarily leaves to work elsewhere, the agreement might provide that the executive is not entitled to severance and is only entitled to accrued salary and vacation through the date of termination. In contrast, if an executive is terminated by the employer without cause, the executive may be entitled to accrued salary, accrued vacation, bonuses, and/or a severance payment. A severance clause typically sets forth the amount or formula for calculating the severance payment.

Dispute Resolution 

An executive employment agreement commonly includes a dispute resolution provision. Such provisions often identify the governing law and may include an agreement to arbitrate and/or mediate the parties’ dispute. Some dispute resolution provisions also limit the types of damages or relief that one or more of the parties may seek.

Miscellaneous 

Most employment agreements include a miscellaneous section which includes standard contractual clauses related to, but not limited to, amendments to the agreement, assignment of the agreement, how notice is to be given, and whether the agreement may be signed electronically or in counterparts.

Our Team 

BHGR’s Employment Group represents employers and C-Suite executives in employment contract negotiations, contract drafting, and breach of employment agreement actions.

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