COVENANT NOT TO SUE

BY G. A. FINCH

“A covenant not to sue” as the term suggests is a legal promise not to file a lawsuit.  It is usually a companion provision to releases and waivers in a release agreement. Releases and waivers are de rigueur in employment separation/severance agreements.  Lawyers drafting separation/severance agreements favor including a covenant not sue because it can be raised as an affirmative defense in litigation if the party giving the covenant not to sue then decides subsequently to file a lawsuit.

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As the employer’s attorney is the person that usually does the initial draft of a separation agreement, the covenant not to sue is a provision  that an employee reflexively gives to an employer without much thought and not vice versa.  When I represent the employee, I negotiate for the covenant not to sue be mutual, i.e., what is good for the goose is good for the gander.

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If the employer requires peace of mind that the separation agreement will prevent future controversies, so should the employee have the same.

In a separation/severance agreement, a covenant not to sue is subject to certain limitations and exceptions concerning 1) an employee’s ability to file administrative charges with the Equal Opportunity Commission and corresponding state or local agency, 2) an employee’s ability to file a lawsuit to challenge whether the employee signed the agreement knowingly and voluntarily for purposes of the Age Discrimination in Employment Act, 3) an employee’s ability to being a witness in a class action suit against the employer,  or 4)  an employee’s ability  to waive a right which waiver is prohibited by law.

 

Final points:  Although releases and covenants to not sue are usually set out together in a separation/ release agreement, there is a subtle difference between them.  A release gives up or relinquishes a right to enforce a right or a claim that could have been enforced while a covenant not to sue is an agreement not to assert a right to bring a cause of action in court.   Put another way, a release extinguishes a right and a covenant not to sue does not allow a right to proceed to litigation.  A permanent or perpetual covenant not to sue, as opposed to a set time limit not to sue, has the same effect as a release or discharge.

This may be too much information for the typical executive to know or care about.  The important thing to remember is to make reciprocal both releases and covenants not to sue.

NEVER START A JOB BEFORE EMPLOYMENT AGREEMENT IS SIGNED

BY G. A. FINCH

Too many times, a situation in which an executive starts a job with an unfinished employment agreement does not turn out well.  Not always the case, but often the case.  An executive does not want to be in the percentage of employees who get terminated without a back-on-the-marketcompleted, signed employment agreement.   The executive’s relying on the employer to do the right thing in terms of what the employee thinks the deal was, is not a good choice.

Obviously an executive has the most negotiating leverage when a company is seeking to hire the executive.  At the start of the relationship, there is good will between the employer and prospective employee and there are high, positive expectations on both sides.happy_lady

An executive is eager to demonstrate trust and enthusiasm by agreeing to start while an agreement is being finalized.  I know of executives who have quit their prior jobs, forsaken substantial benefits, and relocated to distant cities without a signed agreement.  Two scenarios usually are the case.  One scenario is that the executive and the employer are still hashing out contract terms after the executive has started employment.  Another scenario is the executive has started working and has never received a signed agreement – it falls through the cracks so to speak.

There is an old saying that “Familiarity breeds contempt.”  An employer’s shiny new executive now has blemishes and scratches upon closer inspection.  The sense of urgency has dissipated once the employer has gotten its prized employee.  It is human nature to value something less after it has been obtained.

Accordingly, an executive must never start a job without a completely finished, signed agreement in hand.  Moreover, whatever “final” employment agreement is tendered to him, the executive’s attorney must review it one last time to ensure that the final draft reflects the latest iteration of the negotiated contract terms.  Last minute language insertions or failure to include agreed-upon provisions can and do happen, sometimes carelessly and in good faith by the employer and sometimes by design.  An executive’s insistence upon having in hand an executed agreement prior to work commencement is prudent and makes common sense.  In order for the executive to be able to maintain a congenial relationship with his prospective colleagues or bosses, the executive’s attorney should take the responsibility for requiring a signed agreement.legal-document-2

An executive does not want to be in the more difficult position of proving up the terms of an unsigned, draft contract in a court of law than the easier position of proving up a final, signed contract.

 

 

POWER WORD PLAY (A Term, Word, or Concept an Executive Ought to Know): MORAL RIGHTS

BY G. A. FINCH

To the uninitiated, the term “moral rights”, would at first blush (pun intended), seem to suggest having something to do with bad character, improper behavior or religious and philosophical subjects.

Actually it has to do with intellectual property rights of an author, artist, or creator beyond mere copyright interests.

Moral Rights is beginning to appear more often in employment agreement provisions pertaining to intellectual property rights.  The employer usually seeks to obtain a waiver of the employee’s moral rights to works subject to copyright which works are made by the employee within the scope of employee’s employment or using employer’s resources or confidential information.

It is a European legal concept and not rooted in American jurisprudence, although similar and analogous concepts have been asserted or litigated in the United States from time to time.  I believe burgeoning multinational corporations and global trade have facilitated the infiltration of moral rights provisions into American legal documents. The American version of moral rights became codified as the Visual Artists Rights Act of 1990 (VARA) pursuant to the mandates of the Berne Convention.

VARA provides that the author of visual art has the right:

 

A) to claim authorship of his work,

B) to prevent the use of his name as author of any visual art that he did not create,

C) to prevent any intentional distortion, mutilation or other modification of his work that would prejudice his honor or reputation,

D) to prevent any destruction of a work of recognized stature, and any intentional or grossly negligent destruction of that work is a violation of the right.

 

Under VARA, only the author of the subject visual art has these rights whether or not the author owns the copyright. VARA does not provide moral rights for authors of literary or musical works.

Black’s Law Dictionary sets out the most succinct global definition of Moral Rights:

“Moral rights include rights of (1) attribution (also termed “paternity”): the right to be given credit and to claim credit for a work, and to deny credit if the work is changed; (2) integrity: the right to ensure that the work is not changed without the artist’s consent; (3) publication: the right not to reveal a work before its creator is satisfied with it; and (4) retraction: the right to renounce a work and withdraw it from sale or display…”  Black’s Law Dictionary, p. 1030 (Eighth Edition, 2004).

 

INTERNAL REVENUE CODE SECTION 409A

 

BY G. A. FINCH

If your employment agreement has deferral of compensation provisions, you may very well see a section or paragraph captioned “Internal Revenue Code Section 409A” or simply “409A.”  Its official citation is 26 U.S. Code Section 409A – Inclusion in gross income of deferred compensation under nonqualified deferred compensation plans.

This section is too complex and tedious for most lay person executives to understand and figure out.  Your reading Section 409A of the IRS Code is certainly an instant cure for insomnia.080914_jmanscratchhead_tnb

At the outset, before you execute an employment agreement, your retaining an attorney is necessary to interpret and apply Section 409A to the various scenarios of deferral of compensation to ascertain whether such compensation adheres to Section 409A’s deferrals and distributions timing rules.

Failure to comply with the rules concerning deferred compensation has onerous consequences of 1) inclusion of such deferred compensation as gross income for the subject taxable year, 2) payment of the amount of interest on the underpayments, and 3) a penalty amount equal to 20% of the deferred compensation which is required to be included in gross income.IRS_tnb

Accordingly, employers often have a Section 409A provision in the employment agreement that allows the employer to adjust payments under the agreement to comply with Section 409A and allows the employer to disclaim any liability to the employee.

A typical provision can be lengthy paragraphs and include some language like the following:

 

“Anything in this Agreement to the contrary notwithstanding, the parties intend that   all payments and benefits under this Agreement comply with Section 409A of the Code and the regulations promulgated thereunder and, accordingly, to the maximum extent permitted by law, this Agreement shall be interpreted in a manner in compliance therewith.  To the extent that any provision hereof is modified in order to comply with Section 409A, such modification shall be made in good faith and shall, to the maximum extend reasonably possible, maintain the original intent and economic benefit to you  and the Employer of the applicable provision without violating the provisions of Section 409A.  Notwithstanding the foregoing, the Employer shall not be required to assume any increased economic burden in connection therewith.  Although the Employer intends to administer this Agreement so that it would be exempt or comply with the requirements of Code Section 409A, the Employer does not represent or warrant that this Agreement will be exempt from, or otherwise comply with, Code Section 409A or any other provision of applicable law.  Neither the Employer, its affiliates, nor their respective directors, officers, employees or advisers shall be liable to you (or any other individual claiming a benefit through you) for any tax, interest, or penalties you may owe as a result of compensation paid out pursuant hereto, and the Employer shall have no obligation to indemnify or otherwise protect you from the obligation to pay taxes pursuant to Code Section 409A.”

 

The point of this blog post is that your deferred compensation provisions could trigger 409A tax consequences and your employer, through its employment contract with you, is shifting the risk to you as employee.

POWER WORD PLAY (A Term, Word, or Concept an Executive Ought to Know): VESTING

BY G. A. FINCH

 

As the saying goes, the only dumb question is the unasked question. Sometimes employees and sophisticated executives are unsure about the concept of “vesting.” The terms “vest” and “vested” are part and parcel of any employee benefits system. It pertains to when an employee’s right to a benefit becomes ripe and irrevocable.

 
For example, “vest” is a term that is used in describing and accessing employee benefits like retirement payments or grants of stock to employees.

 
Vesting is the time when specified benefits provided to an employee become certain and complete and are no longer contingent on the employee continuing to work for the employer.  When vested, the entitlement to the benefit becomes an absolute right.  Obviously, this right to a benefit may not mean much if the employer  becomes insolvent.

 
When an executive leaves his employment for any reason, he must scrutinize his benefits materials, employment contract, if any, and his separation agreement, if any, to ascertain what benefits to which he is entitle and which benefits have vested. If the benefits materials are dense and confusing, then he should consult his benefits or human resources department to ensure his understanding. If the employee has engaged an attorney to represent him in his separation, the attorney may also help the employee to evaluate what benefits have or have not vested.

FIVE SUCCESS LESSONS FROM MOM

BY G. A. FINCH

My mother, Louise Antoinette Finch, passed away last month just two and half months shy of her 100th birthday. She is survived by all six of her sons and one daughter. As an older brother gave a eulogy and the priest gave a homily about my mother and what she represented spiritually, I ruminated about her legacy and the impact of her teachings. Although we are far from perfect as individuals and have had our own share of ups and downs, and some of the siblings may be viewed as more materially successful than other siblings, she obtained the same result from each of her children: all finished college and graduate or University_hatprofessional school. How did she do that? She had a few maxims to live by that she drilled into us. These aphorisms would benefit anyone (executive, professional, and others) seeking to get a leg up in life. I share five of the most salient ones below:

1. When you start something, whether it is a project, a task, a job, an extracurricular activity, or a degree program, you must complete it. My mother abhorred quitters and lack of follow through. She correctly knew that the lack of follow through was a serious impediment to success. So despite unfair teachers, mean camp counselors, arbitrary coaches or a tedious activity, we had to finish whatever program we started. To this day, my siblings and I talk about the little voice in our heads, when times got tough in medical, graduate or law school or in a demanding job, that repeated the mantra: “When you start something, you must finish it.”

2. When we complained of being sick, whether severely or lightly, real or imagined, my mother would say, “Get up, wash your face, brush your teeth, put on your clothes, eat some breakfast, go to school, and, if you are still feeling lousy, then call me.” By the time we did all those things, our ailments seem to Smile Face with Colddisappear or become sufficiently mitigated that we forgot that we were physically or psychologically under the weather. This was her ways of saying a) have a strong work ethic, b) “show up” to where you are supposed to be, and c) adjust your attitude. This anti-slacker and anti-lazy approach again carried me and my siblings through many a school and work day.

3. Surround yourself with quality people and people of integrity. Your friends and peers will make or break you and you will be judged by the company you keep. I think of the hyper academic high school that I was fortunate enough to be able to attend; the super intellectual students forced me to up my game and pull myself up from the mud of mediocrity. Counterintuitively, I did not find the competitive atmosphere intimidating because it actually inspired and stimulated me. My siblings and I have never gotten into serious trouble or arrested because our friends are sensible and have a lot of impulse control.HandcuffsMany a prison inmate laments associating with the “wrong crowd” or corrupting friend that landed him in jail.  In short, choose your friends, associates and peers very carefully.

4. Don’t lie or cheat. Being an honest person meant a lot to my mother. A person of character was the benchmark by which my mother evaluated people. She had an expression, “Pretty is, is as pretty does.” A variant was “Pretty on the inside is more important than being pretty on the outside.”

5. Lastly, my mother was a big one in standing up for yourself when another is perpetrating a wrong upon you or a family member or trying to diminish you or a family member. Mom taught us not to look for fights but not to allow ourselves to be victims. She led by example and did not wait around for my father to get home to go address an injustice at any level or push us out the door to face a bully.Boxing_glovesShe made it clear that this attitude and posture must be based on our position being legitimate and righteous as well as our being without fault.

 

Often times you do not have to travel far to learn self-evident truths; they can be found within the four Home-clipartwalls of your own upbringing without ever stepping outside your own front door. I hear my mother’s voice as I counsel my young daughter and young son about how to stand up to bullies and admonish them to finish their activities.

EXECUTIVE WRITING

BY G. A. FINCH

We know that it is important that an executive have good speaking skills whether it is one-on-one conversation, small group discussions or large meetings.  An executive must know how to make small talk as well as know how to give presentations.

What about writing?  Is your writing up to snuff?  Whether it is a note, memo, letter or lengthy report, and, especially a resume, your writing cannot be filled with misspellings, poor punctuation, bad grammar, or inappropriate use of vocabulary.  It leaves a poor impression and people will judge you, even if they themselves do not know the difference between “its” and “it’s.”Business Woman with laptop

An executive need not be a Pulitzer Prize winner, but she must write effectively and in an educated manner notwithstanding the declining writing standards in texts, tweets, emails, and posts.  Her using the vernacular and improper grammar simply will not do.

Unfortunately, thorough training in writing can be missing in one’s high school, college, and graduate school training.  The level of writing skills is very uneven.  For many educated people, they must teach themselves punctuation and grammar.  As there are plenty of good books and articles available on grammar, punctuation and vocabulary, this article will focus only on providing some practical guides to have in mind when writing for business.

There are many elements of effective business and professional writing.  Here are a few to start:

  1. Generally, shorter sentences are better than longer sentences; sometimes a complex thought requires a complex sentence.
  2. Shorter paragraphs are better than longer ones.
  3. The fewer pages you can make a document without omitting critical information, the better.
  4. An active voice is more powerful than a passive voice; sometimes a passive voice just sounds better.
  5. Simpler words are better than complicated words, e.g. “walk” is better than “ambulate.”
  6. The fewer adjectives in your writing, the better, as the facts should be compelling enough for both writer and reader to form conclusions and recommendations.
  7. You should make sure you know how to use a word, e.g., when something is funny, it is “hilarious” and not “hysterical.”
  8. For long documents, your using headings and sub-headings will help guide the reader and break up dense writing.
  9. It is best to state your proposition or request at the beginning and then follow with arguments and evidence to support your proposition or request.
  10. If you have compelling data, use charts and graphs to illustrate your points as many people are visual learners.
  11. Triple check your numerical calculations and data; faulty numbers and simple numerical mistakes will destroy the credibility of your piece; a lack of attention to detail could be seen as a red flag of your possible sloppy habits and thinking.
  12. You should double-check to spell correctly a person’s or organization’s name  or place-name as people are sensitive about their names, affiliations, hometowns, or countries; and, again,  inattention to detail lowers the reader’s confidence in the writer.
  13. Never totally rely on word processing spell check as it cannot tell the difference between correctly spelled but wrong words like “to” and “too” or “be” and “bee” or “of” and “or.”
  14. Whether it is a four-sentence letter or a 30-page document, read it with a ruler at least three times and have someone else proof read it too; if you have the time, set the document aside a few days before doing a final proof read.
  15. Unless you are a novelist, poet, screenwriter, or playwright writing in those respective genres, do not use profanity, crude words, or off-color references in your business or professional writing.typing
  16. In formal writing, it is better to write out words fully and not use contractions like “can’t” and “don’t,”   because it adds a certain solemnity to the communication and shows respect for your audience.

As an executive or professional you are presumed to be educated, and your bosses, colleagues, clients, customers, and patients expect that you know how to write well.  You do not want to disappoint them.

Oh, and by the way – the only way to improve your writing is by writing.  Like anything else, practice makes perfect.