EMPLOYMENT AGREEMENTS FOR KEY CONSTRUCTION EMPLOYEES – A PRACTICAL APPROACH
By Attorney Jonathan Sauer
Many times per year, we hear from clients who have been damaged – if not ruined – by ex-employees. I always tell people that there are no loyal employees. (I also tell them that the definition of the word ‘partner’ is someone who is either going to sue you or whom you are going to sue within the next five years. And, that the definition of ‘real estate developer’ is someone who will be filing bankruptcy within the next five years. An old boss once told me that the key to success in construction is “two failures and a fire”. Cynical? Remember, that one definition of what a ‘liberal’ is is a ‘conservative’ with insufficient life experience!)
Now, some employees steal money. There is no specific way to prevent this in advance other than through doing thorough background checks – especially for controllers and bookkeepers and those handling monies and accounts – and having sufficient ‘checks and balances’ in your accounting system that make it harder to steal. Procuring some employee dishonesty insurance is another idea. From a contractual standpoint, however, we can’t do much about this in advance.
Here’s what we can do something about. Does the following sound familiar?
You hire John Doe to work for you in estimating or sales. He has little experience in these areas and the first six months or so are not particularly productive and he costs you more than he produces. For all intents and purposes, you ‘carry’ him. However, through the exercise of persistence and some hard work – and some natural talent – he begins making an impact. He is pretty good at estimating (or sales). In time, customers who used to call your company asking to speak with you now call and ask to speak with him. You have a new ‘right hand’ man!
At some point in time – usually, rather suddenly – this happens. He comes to you on a Friday afternoon and asks for a gargantuan raise and/or a ‘piece of the business’ (i.e. stock with no capital contribution). You either say “no” or “we’ll have to think about it”.You come in on Monday morning and, to paraphrase Hall and Oates, “he’s gone. Oh, why. I guess I’ll have to learn how to take it.” And, I mean really gone. He has taken all of ‘his’ files (which, really, are your property), including bids he is currently working on or sales leads that are in process. He has taken his rolodex. He has taken whatever you have for a sales kit, including any specific things your company does from an estimating or performance standpoint which is unique to your company. He has even taken the original and file copies of whatever employment agreement you had with him. In making calls to current prospects and customers, you learn that they have shifted their business to John Doe at his new company. Or, you learn that they are giving that job you were looking for to John Doe, as he has agreed to do it for 5% less than you have agreed to do it for. You are left, like Noah’s Ark after the rains receded, high and dry and with not a very good smell in the air.
So you call up your lawyer: “Do something!” Then, you are told how hard it is to get an injunction. How there is judicial and legal authority for opposing ‘involuntary servitude’. How injunctions are not given, generally, when there is an ‘adequate remedy at law’ (meaning a potential action for money damages). How, basically, things are stacked in favor of the employee in these situations, particularly in a liberal state such as Massachusetts, George McGovern’s favourite state!
A way to somewhat mitigate these unfortunate happenings is to have him sign an employment contract of some form at the very beginning. While employees may be somewhat leery of signing one, your best shot at getting someone to sign one is in the incipient stages of your relationship: during the courting stage when he/she really wants to get (or keep) this job. A proposed form – to give you some ideas of what this might look like – follows.
What this does is to set the stage for any ultimate show down with the employee.
This agreement makes getting an injunction somewhat easier than without one. And, it establishes some protection for those things which make your business unique by spelling them out: good will, a customer list and certain methodologies or approaches unique to your business.
Too hard to do? Take too much effort? I can only respond by saying that I have had several clients put out of business and/or significantly damaged/reduced by bad boy (bad girl) ex-employees.
You might ask: is something like this fully enforceable? Is it legal? The quick answer to this is that this is a very complicated area of the law with cases coming down all the time. The suggested form is meant to get your creative juices flowing. It will not necessarily apply in any or every situation. My thought would be that probably this form might not be completely enforceable in every state and/or in every situation. However, having something reasonable is a lot better than having nothing.
Also, you can’t underestimate what the deterrent effect of having signed such an agreement might be. Remember, that the design purpose of a four billion dollar nuclear submarine is to never file a shot in anger during its service life of thirty years. At first blush, that seems incredibly wasteful. However, the fact that it exists – that it is there – is a deterrent. Having an important employee sign such an agreement may very well tend to keep him or her more honest during your ‘end times’. After all, he or she knows that he or she has signed this agreement and he or she will not be sure, exactly, to what extent that agreement can be enforced against him/her. Having to pay your attorneys’ fees to protect your rights, as the form provides for, may cause him or her to think twice.
Having something in writing will likely have the practical effect of creating situations where the employee and employer will negotiate the actual terms of the termination when it actually happens, it being simply too risky (to the employee) to take off in the middle of the night.
Employee won’t sign? Might this not be some evidence of the fact that this employee is already planning his/her ‘exit strategy’? Do we really want him/her on board? Come on: you are in sales! Sell this! One way might be to pay a signing bonus upon execution of this Agreement. This might make a new employee more favourably inclined towards signing this. And, there is some case law which says that an employee’s agreeing to a non-compete clause has to be supported by ‘new consideration’, meaning something of value to induce the agreement, to be enforceable. Having a signing bonus helps with regard to that issue.
Having a written employment agreement can tend to minimize the possibilities for claims down the road of discrimination in employment, such as for wrongful termination. Also, a lot of terminations – and bad feelings – are caused between employee and employer by not having the basic terms of employment set down. Perhaps, the employer during the hiring process hinted or suggested that certain benefits or bonuses would inure, which don’t actually happen. Or, once the employee comes on board, he/she finds that other employees have better benefits than him/her, which seems to be happening more and more. Apart from these considerations, having defined hours of work – particularly for administrative and higher-level employees – along with a definition of expected performance/goals can tend to minimize misunderstandings later on.
Three final points. Do not keep these signed agreements on site. Keep them offsite in a safety deposit box or at your home. That way, the ex-employee can’t destroy the evidence of what the deal is when he/she leaves your company at night for the last time. (As he or she almost inevitably will do!) Also, try to have both of you sign at the same time and in front of the same notary, having the notary emboss his/her signature with the notarial seal. This will minimize, if not prevent, claims down the road that “this isn’t my signature”. It will also tend to minimize someone’s using a ‘pretend’ or make-believe notary who, after whatever hits the fan, will be in parts unknown. Lastly, I think that this form will work best with supervisory or administrative personnel. While there are some references to lower tier employees, the run of the mill employee will not have access ordinarily to customer lists, trade secrets and the like.
Here is a form that suggests some ideas for what your form might look like. (Gender references throughout this article and form to one sex are also meant to include the other.)
This employment agreement (hereinafter Agreement) is made and entered into this ____________ day of __________________, 2004 between Any General Contractor, Inc. (Employer or Company) and _________________, of ________________, _______________ (Employee). The intent of this agreement is to set out the terms and conditions of Employee’s employment with Employer including, without limitation, the provision of protection to and for Employer from unfair competition, disclosure and harm with regard to all legitimate secrets and confidential information of Employer which Employee will become privy to, including, but not limited to:
A. “Good Will” - meaning, without limitation, customer goodwill, consisting of the Company’s relationships with its customers (and identification of its customers) and its reputation and special expertise in the industry in which Company is engaged, described briefly as ____________________ which generates business with existing customers and new business with future customers, and;
B. “Trade Secrets” - referencing, without limitation, any formula, pattern, method of bidding or estimating, method of performing work, device or compilation of information which is used by the Company, and which Employee herein acknowledges was developed at considerable time and expense by the Company prior to his/her employment and which gives the Company an opportunity to obtain an advantage over competitors who do not know or use it/them, and;
C. “Confidential Information” - meaning, without limitation, all trade secrets as well as all customer or supplier lists and computer files held or maintained by Employer of any kind or description, including names and all relevant information gathered through the Company’s time, effort and expense both prior to and during Employee’s employment including, without limitation: quotations, which are in the process of being made or which have been previously made and not yet accepted, to existing or potential customers; histories of prior purchases, prices paid, discounts offered or given; the names of designated contact persons at vendors and clients; all marketing studies and strategies of any kind or nature; advertising campaigns, slogans and methods; rolodexes or other such devices, including any form of computer files; plans for expansion or new merchandising techniques or products; methods of estimating jobs and of figuring pricing; product mixes or information regarding the success or failure of past marketing and performance techniques; the identity of all prior customers and jobs worked at or on or estimated by Employer, continuing throughout the period of Employee’s employment with Employer.
In exchange of valuable consideration received by the Employee from the Employer, herein acknowledged as received by Employee, including, without limitation, present or continued employment with Employer, and the compensation and benefits listed below, the Employee and Employer herein agree that:
1. The Employee shall not directly or indirectly as owner, partner, shareholder, supervisor or sales manager or in any other capacity engage in a business similar to the operations carried on by the Company for a period of two years subsequent to Employee’s termination (however that occurs) and within a distance of one hundred miles from the principal place of business of Employer, which is located in _____________, ______________. This Agreement includes Employee’s promise, herein made, that he or she will not communicate to any future employer or business partner the information listed in paragraphs A through C above for at least the minimum period of two years from termination, however caused, and longer, if so allowed by law. Employee further agrees that the information identified in paragraphs A through C above is sensitive and of extreme importance to Employer and that any disclosure of that information could leave Employer with no adequate remedy of law, thus entitling Employer, if necessary and in the sole exercise of Company’s judgment, to protect these rights by seeking injunctive relief in a court of competent jurisdiction, which Employee agrees is the district or superior court having jurisdiction over the town or city where Employer maintains its principal office. Employee agrees that Employer shall be entitled to an award of the reasonable attorneys’ fees and costs it incurs in protecting its rights under this Agreement if Employer is successful in obtaining any form of judicial relief but not otherwise. Employee further agrees to return to Employer within one day of his/her termination, however caused, any Employer property he/she has in his/her possession or control without keeping any copies of the same and that a failure to do so will constitute a material breach of this Agreement. Both parties hereto acknowledge that nothing in this Agreement shall prohibit Employee’s working as a mechanic or tradesman (i.e. ‘working with the tools’) subsequent to termination with Employer, however caused, which labor is not subject to the two year limitation and the one hundred mile limitation listed above.
2. This Agreement is for employment of Employee as an “Employee-at-will” as understood under Massachusetts law, meaning, without limitation, that the employment is not for any particular period of time and is not, in any fashion, guaranteed for any particular length of time and that no compensation or benefits are due to Employee under this Agreement except as specifically set forth in the next paragraph.
3. This Agreement between Employer and Employee as to the terms and conditions of employment of the Employee are as follows:
∙ Hours expected from the Employee on a weekly basis ___________________
∙ Weekly compensation (before taxes) _________________
∙ Other benefits shall be as follows:
. Bonus upon executing this Agreement: five hundred dollars (or less or more)
No other terms and conditions with regard to hours of work expected, compensation or benefits exist for the purposes of this Agreement.
4. Employer and Employee herein agree that if any provision(s) of this Agreement is/are unenforceable, the remaining provisions in the Agreement shall remain in full force and effect.
5. This agreement is controlled by and subject to Massachusetts law, both procedurally and substantively.
6. The above constitutes the entire Agreement between Employee and Employer, both parties acknowledging that any modification of this Agreement shall only be binding upon both parties hereto if in writing and only if signed by both parties hereto.
7. This Agreement is three pages in length.
WITNESS our hands and seals to this Agreement, executed as a sealed contract, this
_______________ day of _______________, 2004.
Any General Contractor, Inc.
By a corporate officer
Then personally appeared before me the above-named ___________________ (Employee) and _______________________ (Employer’s representative) to me personally known who after being duly sworn acknowledged that their execution of this Agreement was their free and voluntary act and deed before me.
My commission expires:
(This paper and presentation is intended for educational purposes and should not be considered as specific legal advice for specific situations facing you. This subject matter is complicated and cannot be presented with any ultimate degree of accuracy and finality in a short paper. Circumstances vary from employee to employee and each state has its own laws on this subject. For teaching purposes, some cases and trends have been generalized. The purpose of this article has been to identify what the issues are in these types of situations and to suggest some possible answers.)
Copyright, Jonathan Sauer, 2004
This article is intended to be general information and does not constitute specific legal advice. If you need legal advice, your interests would be best served by consulting with an attorney knowledgeable in the area of your concern.
Jonathan P. Sauer