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Pact mentality

November 20, 2000
Web posted at: 5:51 p.m. EST (2251 GMT)

In this story:

Not good for everybody

Let's make a deal

What to try for

What to avoid

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By Larry Keller
CNN.com/career Senior Writer

(CNN) -- "Like any other contract written by one side, it's going to have language in it that favors the side that wrote the contract."

And that's not you. It's the house. Nightmare time for the employee.

"The basic rule is these contracts are written by the employer or the employer's lawyer," says Ross Runkel, founder of LawMemo.com in Salem, Oregon, and editor of its e-newsletter "Employment Law Memo."

Negotiating an employment contract can be a romp through a career minefield.

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Dicker smartly and you may be lounging poolside at a Caribbean resort, financially secure even though you just lost your job.

Sign an employment contract carelessly and you may leave yourself as exposed as a centerfold, scrambling for cash with your options limited on where to seek work if your job ends before your contract does.

A company may include a non-compete clause that limits when and where you can work within the same industry once you quit your current job -- and how soon and with whom you can negotiate the next gig.

The company may have you agree not to divulge its corporate secrets or steal its customers. And the contract may include language that you can be fired at will, same as if you didn't have a contract.

Most workers pay little heed to what they're agreeing to in an employment contract, says Paul Tobias, a Cincinnati, Ohio, labor and employment attorney and chairman of the National Employee Rights Institute.

"Future employees at the moment of hire don't negotiate, don't hire a lawyer, don't tamper with those clauses, don't even read them. They're interested only in the money. They'll sign anything," Tobias says.

Not good for everybody

Typically, employment contracts are entered into by a company and a CEO or other top-level executive. But other employees, maybe in sales and marketing, may also be asked to sign a contract. This also is pro forma for professional athletes and many people in entertainment and broadcast media.

"They're becoming more common, especially in the dot-com industry," says James Johnston, a Riverside, California attorney specializing in employment law.

TERMS OF ALL TRADES

You're handed that long-awaited contract to look over. Wait! Don't be hasty. Do you know what it says? Here are a few terms you may encounter. Don't sign until you know what you're looking at.

For high-level executives a contract can be valuable, providing in writing for things including a generous severance package or "golden parachute" on termination from the company.

But for other employees, a contract is more apt to place severe restrictions on them once they leave, while providing few if any benefits in the job, say employment lawyers who represent employees in work disputes.

For them, "the benefit of entering into the contract is that's what you have to do to get the job," Runkel says.

Let's make a deal

Just how good a contract you can negotiate depends largely on how badly the employer wants you, Johnston says. "The more they need you, the more likely it is you're going to get clauses that you want in the agreement."

If you aren't indispensable -- or if there are five other qualified candidates for the same position -- you have little leverage and may be justifiably wary of negotiating yourself right out of the job, Tobias says.

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"I'm a pragmatist," he says. "I'm not going to tell someone to start arguing or fighting with his employer if he has no bargaining power. I tell him, 'hold your nose and sign it, and then when you get in trouble, we'll try to break it."'

The key, of course, is having a feel for how much, if any, leverage you have. Try to determine whether your skills are unique and how many candidates there are for the job. "If you sense you have bargaining power, you can write your own ticket," Tobias says.

"If they're very marketable and they know they can go to another job just as easily as this one, then I tell them to push for the max," Johnston says. "On the other hand, if the person isn't at that standpoint, I counsel them to feel out the situation and kind of bring up the subject if they feel comfortable."

Employment lawyers say they agree that with continuing low unemployment, more job applicants than usual may have the upper hand in negotiating an employment contract.

If you're feeling brave or confident, here are a few stipulations you might try for in your contract if they aren't already offered.

What to try for

• Termination only for "just cause" or "good cause." Most companies can sack employees at will. They needn't give a reason and it's perfectly legal so long as it doesn't violate state or federal laws, such as those governing discrimination.

But if a firm can only dump a worker for "just cause," it means it must show that the employee was incompetent or negligent, acted unethically or had his position phased out because of a restructuring of the company, Johnson says.

"That's a real problem area for us lawyers," Johnston says of the restructuring claim, "because depending on how important it is for a company to get rid of someone, they can go through a whole sham of pretending to restructure a company to justify a termination."

Even if your employment contract doesn't contain "just cause" language, it's implied in a pact that's meant to be in force for a specific number of years, says Tobias, chairman of the National Employee Rights Council.

"The non-compete clause, depending on how it's worded, could be the most potentially damaging from a practical standpoint. Especially today, when people move from job to job. Try to negotiate so it's taken out or limited so it's not a tremendous burden on you."

— James Johnston, employment-law attorney

• A deal for a specific length of time. Go for the longest term you can get, "one or two years, anyway," says Dale E. Williams, a New Orleans employment lawyer. "This gives you a chance to prove yourself. You tell them, 'if you think enough of me to hire me, give me a contract that's long enough to prove myself.'"

• A severance package. If you aren't applying to be the CEO or another top executive, forget about the golden parachute. But if you have skills that are hard to find, you still may wrangle a severance deal that kicks in if you lose your job.

"Even on a relatively low level, some provisions for a substantial severance package can be included," Johnston says. This might include a stipulation as to how much salary will be paid, stock options, vesting in the company pension plan, continuation of employer-paid health benefits for a time, continued use of a company car for a time and outplacement employment services to be provided by the employer.

What to avoid

• A non-compete clause. "The non-compete clause, depending on how it's worded, could be the most potentially damaging from a practical standpoint," Johnston says. "Especially today, when people move from job to job. Try to negotiate so it's taken out or limited so it's not a tremendous burden on you."

• A binding arbitration clause. If you have a dispute with your employer over your contract, this clause requires the matter be heard by an arbitrator, whose decision is final. You can't sue. You can't appeal if you don't like the arbitrator's ruling.


Ross Runkel, LawMemo.com

"It also limits their right to discovery, or information-gathering," Johnston says. "Probably the biggest problem is that most of them require the cost of the arbitrator be split by the parties. A lot of these arbitrators charge a lot of money. It could be thousands and thousands of dollars. That puts an employee sometimes in a position where they can't afford to arbitrate their claims."

Companies that repeatedly use arbitrators have an advantage over employees, Johnston says. "Put yourself in the arbitrator's position. Odds that the plaintiff employee is ever going to need your services again are almost zero. But if you're a large, multistate or multinational corporation, you figure, 'If I give a good ruling on this case, they're going to keep shooting me these cases and I can make a lot of money.' That's a built-in bias in the arbitration procedure."

Some companies contract with a reputable firm that has a number of arbitrators, says Runkel. Other employers do the selecting themselves.

"That's probably not going to be negotiable," Runkel says. "They're set in their ways on that one."

Binding arbitration isn't bad per se, Runkel says, especially since litigation can take years to resolve in some jurisdictions. But some binding arbitration clauses put a cap on how much money you can recover from a breach of contract, or for sexual harassment.