Checklist for negotiating an executive employment contract
Before signing an Executive Employment Contract, you should refer to this checklist of terms and conditions regarding the proposed contract
The employing legal entity
- Is it an Australian Company?
- If it is a foreign company, does it have a local Australian operating entity?
Where is the registered office?
- Does the entity that will employ you have a number of other entities that are “related” to it? [relevant to restraint covenants]
- If you are being employed by a subsidiary company, will the holding company guarantee its obligations?
- Have you asked for a diagrammatic representation of the relationship between all the companies within the Group?
- Does the proposed title actually reflect what you will be doing?
- Does the proposed title accurately reflect your seniority?
- Does the company unilaterally reserve to itself the right to change your title or otherwise redesign your role?
- What are the reporting lines? Can these be unilaterally changed? [This should be resisted]
The position description
- Have you been provided with a position description?
- Does the position description comprehensively define your duties and responsibilities?
- Does the position description accurately set out key performance indicators?
- Are these key performance indicators achievable?
- In the targets that the company is discussing, what assumptions are being made in terms of staff resources and marketing dollars?
- Have you seen the company’s business and marketing plan?
- What are to be your powers, responsibilities and duties and under what circumstances can these be varied?
Key Performance Indicators
These should confirm to “SMART” principles i.e. they should be Specific, Measured, Agreed, Realistic and Timely.
What is the composition of the remuneration package?
- Motor vehicle/ Allowance
- Health-Care Plan
- Share options
- With respect to bonus, commission and share options, how are these to operate? Discretionary/non-discretionary?
- Reimbursement of expenses/company credit card?
- Sign-on bonus?
- Is there a probationary clause? [If the employer does not mention it, do not raise this issue]
- How long is the probationary period for?
- Can the probationary period be extended?
- If you are to be terminated during the probationary period, do you first have the opportunity to resign?
- Does the post-employment restraint apply during the probationary period?
- Do the post-employment restraint obligations apply during the probationary period? (It is preferable to amend the contract to ensure such obligations are inoperative during that period).
- Does the probationary period count for bonus and commission purposes?
- How is it to be defined?
- Is there any information that you are bringing into this relationship that needs to be excluded from the definition?
- Is there any information which the employer seeks to protect that is already in the public domain?
(If the employer does not mention these, do not raise this issue)
- What is the definition of prohibited conduct i.e. non-compete, non-solicit, non-poach?
- What is the geographical area that the prohibition is to cover?
- What is the timeline that the restraint is to last for?
How does the termination provision operate?
- How much notice will you receive on termination?
- What circumstances will trigger termination of the agreement?
- How much notice must you give the employer to terminate the agreement?
- Under what circumstances will summary dismissal operate?
Payment in the event of redundancy
The contract may refer to the National Employment Standards (NES) under the Fair Work Act 2009. That sets out a standard severance formula depending on years of service. Alternatively, the contract may set out its own formula, which must at least equal the formula set out under the Act – however, it may be more generous.
There is also a further possibility that the contract makes no mention of this issue. Even if nothing is said, the Act still applies.
Depending on your seniority and how keen the company is to secure your services, you may be able to negotiate a more favourable severance payout than what is available under the Act. If you are seeking a more generous severance payout than what is available under the Act, then you would need to obtain legal advice on that specific issue.
It is also possible that the contract may refer to a company Redundancy Policy, but that also must be at least equal to what you would have received under the Act.
What is to be the governing law of the contract?
This should be in the state where you reside. For expatriate executives, there are additional complications that are not dealt with in this checklist. (See Checklist for negotiation of an expatriate employment contract)
[Leave entitlements should be calculated and paid in accordance with the Fair Work Act 2009 and long service leave in accordance with local state legislation].
- Annual leave?
- Personal leave (i.e. sick leave)?
- Long service leave?
- Compassionate leave?
Note – If you become sick/injured before having accumulated significant personal leave then you will need income replacement insurance. Attempt to negotiate for the inclusion of that benefit.
- Do any written policies exist? If so, ask to be provided with copies.
- Are the policies to be incorporated into and form part of the contract of employment? (If a conflict exists between the policy and the contract, the contract should prevail).
- How frequently are the policies updated?
- Are there any company policies that purport to confer rights (e.g. a redundancy policy)?
- What representations have been made during the course of negotiations that must be included in the contract?
- Note that there may be a “sole repository clause” in the draft contract that says that the contract is the only document contains the agreement between the parties and that any prior representations are excluded.
Is the employer prepared to include a mediation clause that either party could resort to prior to the issuing of legal proceedings?
The mechanism of how such a clause should operate can be complex. However, you should attempt to obtain at least an in-principle agreement to the inclusion of such a clause and the details can be negotiated. Such a clause is very much in the interests of both parties.
With respect to each party, what address will be used for the serving of notices?
Please note that this checklist is not meant to be exhaustive but rather a starting point for you to develop your own list which reflects your personal situation.
It is also important to carefully weigh up your position in the negotiation process. Only you will know how far you can take it without talking yourself out of a prospective position.
It is strongly recommended that you seek legal advice to assist you in compiling a checklist which covers the necessary issues relevant to your situation.
From our clients
The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult a lawyer for individual advice regarding your own situation.