Tuesday, March 6, 2012

What You Should Know About Employment Contracts And Severence Agreements

As candidates are nearing the end of the interview cycle and are in a position to expect an offer, there is a question I get asked frequently.  The question is about severance agreements and contracts.  I thought it worth a post on the subject.


Ad agencies extend very few contracts.  

New business people who have complicated commission structures often will have their compensation spelled out in a document, but they are generally considered to be "at will" employees and their agreement is by no means a contract other than spelling out how they will be paid.   

Even many presidents and creative directors do not have a written agreement.  While a few of the most senior people at the big agencies do have a written agreement, it is not something that will happen, even for most very senior people.

All agencies and companies issue an offer letter, even for their most junior employees.  Standard offer letters may include the top-line information about the job: start date, title, reporting structure, account assignment(s), benefits, signing bonus information (see my previous post, "What is a Signing Bonus Really About"), if appropriate, etc. The offer letter most often contains a clause indicating that the employee is “at will”.  This is accepted business language meaning that an employee can be terminated at any time and for any reason.  If a candidate is senior enough, and is currently working and the new company is taking them out of a job, it may also contain an agreement on severance, if that agreement is beyond the scope of normal policy.  While the terms of an offer letter are enforceable, it is not a contract; it is merely terms of employment. This also rings true for sales and new business people, mentioned previously.

Offer letters are rarely more than a couple or three pages.  Very often, candidates find themselves in disagreements with their employers because of information not contained in an offer letter.  During their courtship, a candidate may make a handshake agreement with a hiring manager or even the senior management of an agency.  Those agreements tend to be about responsibilities, promotions, salary increases or other very relevant things.  However, if the hiring manager or other senior executive leaves, the chances are 100% that the agency knows nothing about any verbal agreements and there will be no one to help enforce what was told prior to accepting an offer.  Bottom line: if it isn’t in the offer letter, it doesn’t exist.

The big, holding company owned agencies have very precise policies about severance and notice periods.  Smaller, independent agencies may also have these kinds of policies, but are sometimes more flexible. 
It is unfortunate, but even most senior vice presidents don’t get any form of written agreement, unless the circumstances of the hire are very specific or unusual.  A more formal agreement may occasionally be created if the client requests that the agency hire a specific employee or if someone is essential to the securing of an account.

Formal contracts, of which I have negotiated many, may run up to ten or more pages. They cover many more things than just compensation and severance.  A contract details everything from non-compete clauses, non-disclosure agreements, to poaching agency employees should the executive leave.  Most contracts are negotiated between corporate lawyers and may take weeks to negotiate. But, again, few executives in the advertising business actually have a contract.
Most employees like to stoke their own ego when negotiating.  After all, it is a very nice thing to tell family or friends that you have been offered a contract.  But it just doesn’t happen all that often.  On those occasions when a candidate asks me to ask for an agreement and I call my client to ask, the most common response that I receive is that the candidate has a grandiose ego.  More often than not, the person that I ask, does not have a contract himself or herself.

So for most of you, don’t expect or ask for a contract.  It just won’t happen.

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