1. Employment Agreement Myths
9-1
Employment Agreement Myths
Advantage Employee
An Up-Front Downer
It’s Easier After the Honeymoon
Always Long and Legal
Copyright 2005 Dwight Drake. All Rights Reserved.
Business Planning: Closely Held Enterprises
www. drake-business-planning.com

2. The Critical Employment Agreement Issues
9-2
The Critical Employment Agreement Issues
1. Term – At Will, Drop-Dead ( No Cut), Evergreen (Renewable)
2. Termination:
How impact term
Required showing for clean exit– “Cause” or “Good Reason”
Consequences if no showing- Full Pay, Time-frame pay
Liquidated damages, actual damages
Anti-bad faith penalty
3. The Job Description
Title
Responsibility, Reporting
What, Where, How
Downward possible?
Copyright 2005 Dwight Drake. All Rights Reserved.
Business Planning: Closely Held Enterprises
www. drake-business-planning.com

3. The Critical Employment Agreement Issues
9-3
The Critical Employment Agreement Issues
4. Compensation
Minimum concept for executive protection
Base pay revisions
Performance incentives
Timeframe adjustments
Objective factors: Potential amounts, counterparts, factors
Much discretion with employer?
Perks and benefits
5. Non-competition provision following termination
Triggering event – any termination, employee election only,
employer “for cause”, employee without “good reason.”
Scope – only customers, any competitive activity, industry
Time & Geographic area - reasonableness
Document employer bona fide interests
Specific enforcement
Copyright 2005 Dwight Drake. All Rights Reserved.
Business Planning: Closely Held Enterprises
www. drake-business-planning.com

4. The Critical Employment Agreement Issues
9-4
The Critical Employment Agreement Issues
6. Proprietary and IP interests
Work product exclusive property of employer
Non-disclosure covenants
Anti-moonlighting covenant (limits and scope)
Specific IP covenants
7. Arbitration – Pros and cons
8. Protective provisions
Prior commitments (no prior hang-ups)
Integration clause (this is it)
Choice of law (Substance and procedure)
Legal representation
Copyright 2005 Dwight Drake. All Rights Reserved.
Business Planning: Closely Held Enterprises
www. drake-business-planning.com

5. Problem 9-A: Larry Smyth’s Bonus Plan
9-5
Problem 9-A: Larry Smyth’s Bonus Plan
Understandable – 25% of what?
Measurable - Can net income be manipulated?
True Incentive - Not tied to any specific actions or goals
Calculation factors
- Controllable Factors: Very indirect, remote
- Direct impact factors: None identified
Visible time Motivators: Weak
Increase drives perpetual win-win: Who knows?
Bottom Line: Weak, Lazy Plan
Copyright 2005 Dwight Drake. All Rights Reserved.
Business Planning: Closely Held Enterprises
www. drake-business-planning.com

6. Problem 9-B: Waldon Technologies
9-6
Problem 9-B: Waldon Technologies
Contract Length Middle Ground
Long termination notice – 1 yr.
Long “no notice” start-up period – 2 yrs
Three legged restrictive covenants
- Broad non-compete: Actual or Minimum term
- Post-contract term extension: Customers and Employees
- Forever: Trade Secrets and Proprietary Information
Rights to Creative Efforts
Default: All owned by Waldon
Exclusion Procedure: Advance, completely unrelated, no adverse work effort impact
Copyright 2005 Dwight Drake. All Rights Reserved.
Business Planning: Closely Held Enterprises
www. drake-business-planning.com