Drafting & Negotiating Executive Employment Agreements

Tom Harrington, Principal, The
Employment Law Group
At-Will Doctrine; Principles and Considerations
for Employment Agreements
Key Hiring Considerations – Legal Requirements
and Pitfalls
Principles of the Fair Labor Standards Act
Family Medical Leave – Overview
Accommodating Disabilities – Overview
In the District of Columbia, if employers
do not offer their employees a definite
term of employment, the parties’
relationship is at will, i.e., terminable at
the will of either party, so long as the
employer does not terminate the
employee for an unlawful reason.
 Employers choose to offer their
employees employment agreements for
a variety of reasons.
An employee is “at-will” if there is no
definite term of employment.
› Bible Way Church of Our Lord Jesus Christ of
the Apostolic Faith of Washington, D.C. v.
Beards, 680 A.2d 419 (D.C. 1996)
DC recognizes limitations to the at-will
 Terminated employees can bring claims
based on:
› Wrongful discharge
› Breach of contract
› Breach of implied covenant of good
faith and fair dealing
› Promissory Estoppel
Oral promises limit employers’ rights to
terminate at-will employees only in very
limited circumstances. Oral promises must
be definitive and limited in duration.
 Oral promises can run afoul of the statute of
frauds which requires contracts that cannot
be performed within one year to be in
writing and signed by the party to be
charged in order to support a claim for
breach of contract.
› DC courts recognize that at-
will employment can be
unilaterally modified by
statements issued in
Employee handbooks
Personnel manuals
Company documents
To prove that an implied contract exists,
an employee must show that the
employee and the employer clearly
intended to form a contract.
 To make this showing, the employee
must establish that the communication
from the employer to the employee
contained unequivocal provisions that
the employer intended to be bound.
Employers can defeat implied contracts
› By showing that the employee failed to comply
with employment policy guidelines - Domen v.
Nat’l Rehab. Hosp., 925 F. Supp. 830 (D.D.C.
› By using disclaimers that specify, unambiguously,
that an employee’s employment remains at will
despite statements in applications, handbooks,
and other similar company communications that
might be construed to the contrary. - Smith v.
Union Labor Life Ins. Co., 620 A.2d 265 (D.C.
› Courts that find a handbook disclaimer to be
ambiguous or otherwise imprecisely drafted will
give it no effect
 DC
courts have recognized a claim
for breach of the IMPLIED covenant of
good faith and fair dealing in
employment claims. - Paul v. Howard
Univ., 754 A.2d 797 (D.C. 2000).
 MD and VA do not recognize the
implied covenant of fair dealing with
regard to termination by either side in
an at-will employment relationship
DC courts have recognized promissory
estoppel as a limitation to the
employment at-will doctrine.
 To prove promissory estoppel, an
employee must show:
› the existence of a promise
› that the promise reasonably induced
› that the promise was relied on to the
detriment of the employee.
 Scope of Employment
› Aligns expectations re responsibilities and
› Provides guidance “for cause” and “good
reason” early contract termination
› Balance employer’s need for flexibility with
employee’s desire for certainty
Activities Outside Work - Moonlighting
 Integration Clause
› Employer or employee may terminate the
agreement at any time for any legal reason
Terms of Years
› limits termination before an agreed date to
specific circumstances
› security to parties
› leverage to attract candidates
Length of term – usually 1-3 years.
Early Termination
“Cause” – What circumstances enable an
employer to terminate before expiration of
term with no further obligations?
“Good Reason” – What circumstances
enable an employee to terminate before
expiration of term without losing benefits?
Death or Disability
 “Cause”
› Employers want it broad with substantial
› Employees want:
 specific and egregious violations
 notice and opportunity to cure
› Financial Consequence:
 salary and benefits to termination date
In D.C., an employee is disqualified from
receiving unemployment compensation
benefits if he has engaged in gross
misconduct in connection with his
› D.C. defines “gross misconduct” as “an act
which deliberately or willfully violates the
employer's rules, deliberately or willfully threatens
or violates the employer's interests, shows a
repeated disregard for the employee's
obligation to the employer, or disregards
standards of behavior which an employer has a
right to expect of its employee.”
Post Employment Restrictions
 Competition
 Solicitation
› Customers
› Employees
 Duration
 Confidentiality
 “Claw
Back” provisions for violation
 Employee’s
› Laptops
› Phones
Return of Equipment
 If employer pays for usage, specifically state
that employee is responsible for personal
› Credit Cards
 Specifically state that employee is responsible
for personal charges that might be discovered
› Security Cards
Employers require employees to sign
non-competition agreements to prevent
employees from taking their talents and
employer’s trade secrets to competitors.
Courts critically examine and narrowly
construe non-compete agreements.
Is the noncompetition agreement/the restrictive
covenant enforceable?
An employer seeking to enforce a non-compete
must show that the restrictive covenant is
supported by consideration
 Courts will likely enforce a non-competition
agreement that is
› narrowly drawn to protect the employer’s legitimate
business interest
› not unduly burdensome on the employee’s ability to
earn a living
› not against public policy
 Courts
› The temporal scope of the non-compete
› The geographic scope of the noncompete
› The clarity and unambiguous nature of
the non-compete
 Courts
are less likely to enforce
restrictive covenants that hinder an
employee’s ability to earn a living
Business Needs
 Legal Requirements
› Anti-discrimination laws
 Disparate Treatment
 Disparate Impact
› Americans With Disabilities Act
 Accommodation Requirements
 Unlawful Questions
Functional Job Descriptions
› Key Duties
› Key Skills
› Reverse engineer: what would disqualify a
Job Qualifications
Minimum Qualifications
Preferred Qualifications
Avoid Disparate Impact Liability
Key Principles: Job-Related & Avoiding
Inconsistent Standards
 One-year retention requirement for “any
personnel or employment record made or
kept by an employer”
 Two-year retention period for government
contractors with 150+ employees
 Includes interview notes
 Ledbetter Fair Pay Act:
records relating to pay decisions
should be kept indefinitely
 Do not write it down if you
would not want a jury to see it
Employment Selection Tests
› Uniform Guidelines on Employee Selection
Procedures (1978)
Renewed EEOC attention to Employment
› Does the test disproportionately impact a
protected group?
› Validation studies required to show that test is
“job-related and consistent with business
› Need evidence, not opinions
› Bottom line: No tests without
HR approval
Setting Compensation Equitably
› Ledbetter Fair Pay Act
› Disparate impact
 starting salaries
 negotiating differences
› Consistent criteria
Fair Labor Standards Act
› Exempt vs. non-exempt
› Individual liability
Other Compensation Issues
› Commissions
› Bonuses
› Advances or Relocation Stipends
› No pre-offer questions
 Pregnancy
 Personal Life
› Children & Marriage
› National Origin
› Religion
› Age
 Instead…
› Focus on Job Purpose
› Don’t Make Assumptions
› Don’t Overpromise
Understanding of the nature of this job?
Ever been asked to leave a job?
Ever had an internal complaint made about you?
Any reason cannot meet hours/travel/physical
Resume gaps?
Circumstances that need explanation?
Full disclosure
Choose Best Qualified Candidate
› Document basis for choice
› Customer preference issues
› Job-related factors only
Offer Letter
› At-will employment
› Conditional offers
› Contract and promissory estoppel
› Signs on to company policies
› Ancillary agreements
 non-compete
 intellectual property
Under FLSA, employers must:
 Pay minimum wage to employees
 Pay overtime to employees who
work more than 40 hours in a work
 Ensure accurate record-keeping
Regulations identify and exclude
certain employees (exempt) from
Non-Exempt Employees
 covered under the FLSA for
time-and-one-half overtime
 “Common Enterprise” Employees
 must be paid time and half for
all work at ANY of the
Exempt Employees are not covered by
 Executive Exemption
 Exempt: CEO and General Manager
 Non-Exempt: Electrician and Car Wash
 Administrative Exemption
 Exempt: CFO and HR Director
 Non-Exempt: Clerical Employee and Messenger
 Professional Exemption
 Exempt: Physician and Attorney
 Non-Exempt – Paramedic and Field Technician
Misclassifying all IT employees as exempt because of
the common misperception that all jobs involving
computers are necessarily highly complex and
require exceptional expertise.
Misclassifying pharmaceutical sales representatives
as “exempt” under the “Outside Sales” exemption
merely because the term “sales” is included in the
title of the employees’ position.
Misclassifying an employee as “exempt” merely
because the employee’s job title includes the term
Requiring employees to work “off the clock” without
Refusing to pay overtime to an employee where
overtime was not approved in advance.
 Generally,
an employer cannot
reduce an employee’s pay for a
partial day because doing so
would convert an FLSA exempt
employee into a non-exempt
employee and make them
eligible for overtime pay.
Exemptions are narrowly construed
against employers, and should be limited
to those situations that plainly and
unmistakably come within the terms of
the exemptions. McCloskey & Co. v.
Dickinson, 56 A.2d 442 (D.C. Ap. 1947).
To qualify as an exempt employee, an
employee must meet both the “duties
test” and a “salary basis test” for
specified exemption.
Do not equate the exercise of skill with the
exercise of discretion and independent
Do not designate an employee as exempt
under the professional exemption merely
because the employee has an advanced
Do not designate an employee as exempt
under “computer employee” exemption
merely because the employee’s a job title
references computers
Do not automatically equate “salaried” with
Conduct a thorough job-analysis
DCFMLA: 20 or more employees in the
District. D.C. Code § 32-516(1).
Employee has 1 year of tenure and
worked at least 1,000 hours within
previous 12 months.
 FMLA: 50 or more employees within 75
miles for each working day during 20 or
more calendar weeks in the current or
preceding year. 29 U.S.C. §
2611(2)(B)(ii). Employee has 1,250 hours
of service within past 12 months.
16 workweeks of leave
per 24 month period. D.C. Code
§§ 32-502 to 503.
 FMLA: 12 workweeks per 12
month period. 29 U.S.C § 2612.
 Employees shall not lose benefits
or seniority while on leave.
FMLA – An employer may elect from 4
different ways to calculate the 12 month
period provided by 29 C.F.R § 825.200(b).
› Calendar year;
› Any fixed 12-month “leave year.” E.g., fiscal year,
year required by state law, or starting employee’s
anniversary date;
› 12-month period measured forward from the start
of the any employee’s FMLA leave; or
› Rolling 12-month period measured backward from
the start of the employee’s FMLA leave.
Leave may be taken intermittently when
medically necessary.
 Employees are expected to consult with
their employers prior to scheduling
medical treatments and make a
reasonable effort to avoid undue
disruptions to employer operations.
 Employees may request a reduced work
schedule if medically necessary.
 Entitlement/interference
› Employer denied an employee’s
› Employer badgered an employee
to the point of interfering with the
employee’s right.
 Retaliation
› Employer discriminates against an
employee who took leave or
otherwise retaliates.
It shall be an unlawful discriminatory practice to
do any of the following acts, wholly or partially for
a discriminatory reason based upon the actual or
perceived: race, color, religion, national origin,
sex, age, marital status, personal appearance,
sexual orientation, gender identity or expression,
family responsibilities, genetic information,
disability, matriculation, or political affiliation of
any individual.
› D.C. Code § 2-1402.11
The “Wholly or partially” language allows for a
broad causation standard that is easier to meet
than under federal anti-discrimination statutes.
 Claims
under 42 U.S.C. § 1981 and the
DCHRA are analyzed using the Supreme
Court's approach in McDonnell Douglas
Corp. v. Green, 411 U.S. 792 (1973), the
seminal case establishing the burden of
proof in employment discrimination cases
under Title VII.
 Under
this familiar framework, the plaintiff
first has the burden of proving by a
preponderance of the evidence a prima
facie case of discrimination. McDonnell
Douglas, 411 U.S. at 802.
If the plaintiff succeeds in establishing a
prima facie case, the burden shifts to the
defendant to articulate some legitimate,
nondiscriminatory reason for the adverse
Then, assuming the employer articulates
a legitimate reason for its actions, the
burden shifts back to the plaintiff to
demonstrate by a preponderance of the
evidence that the employer's stated
reason was a pretext for discrimination.
The Americans with Disabilities Act (ADA)
prohibits excluding or otherwise denying equal
jobs or benefits to a qualified individual because
of the known disability of an individual with whom
the qualified individual is known to have a
relationship or association. 42 U.S.C.A. §
This provision is intended to protect any qualified
individual, whether or not that individual has a
disability, from discrimination because that
person is known to have an association or
relationship with an individual who has a known
disability. 29 C.F.R. Part 1630, Appendix § 1630.8.
In a failure to accommodate case, a plaintiff
establishes a prima facie case by showing
› (1) that he was an individual who had a
disability within the meaning of the statute;
› (2) that the[employer] had notice of his
› (3) that with reasonable accommodation he
could perform the essential functions of the
position ...; and
› (4) that the [employer] refused to make such
qualified person can perform
the essential functions of his job
with or without reasonable
 An individual who cannot perform
the essential duties of his job,
even with an accommodation, is
not “qualified” under the statute.
 According
to the ADA, an individual is disabled if
that individual (1) has a physical or mental
impairment that substantially limits one or more of
the individual's major life activities; (2) has a record
of such an impairment; or (3) is regarded as having
such an impairment.
 An
impairment is sufficiently severe to substantially
limit a major life activity if it prevents an individual
from performing a major life activity or significantly
restricts the condition, manner, or duration under
which an individual can perform a major life
activity, as compared to the average person in the
general population. See 29 C.F.R. § 1630.2(j) (1996).
 Under
the ADAAA and its implementing regulations,
an impairment is not categorically excluded from
being a disability simply because it is temporary.

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