Is Your Pension Going to Be What You Think It’s Going to Be?

Posted on February 10, 2012 by joe

American Airlines’ request to have the Pension Benefit Guarantee Corp. bail out its $9 billion in unfunded pension obligations should have executives everywhere taking a hard look at their employer-funded retirement plans.

Particularly for executives who work in troubled industries, if their employer hits the shoals, it’s extremely likely that the company will be looking at its pension plan as a natural cost-cutting target. Even if the company isn’t in trouble—if it’s up for sale (which, as we know from the last blog entry, isn’t limited to troubled assets) and the new owner is looking to reduce costs—the pension plan may be trimmed or cut altogether.

That, of course, doesn’t mean all the money that was in the pension plan is lost. If the plan is taken over by the Pension Benefit Guarantee Corp., the government-sponsored agency that insures most private sector defined benefit pensions, the PBGC will pay those benefits to retirees.

But, and these are big buts, those benefits will stop accruing on the date of the plan termination and the payout is capped. That cap should cover most middle-income earners, but it probably won’t pay high-income earners 100 percent of their expected payout.

What can smart executives do to protect their pensions?

The first step is knowing what they have now. Executives need to read their benefit plans carefully and see how much is funded, how much is unfunded, and to what extent they can access it before their retirement.

They should also keep good employment history records, maintain a file of notices and documents relating to retirement plans and benefits, and—here’s the tough part—actually read the statements. It’s also smart to maximize other kinds of retirement savings, which most executives are hopefully already doing.

Reuters recently published a good Q&A on the matter that I recommend checking out.

The traditional, company-funded pension may not be with us much longer, so it’s in every executive’s best interests to make sure their years of hard work result in a comfortable retirement—regardless of what happens to that pension plan.

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Employee Anti-Poaching Agreements Thwart the Free Market

Posted on January 27, 2012 by joe

An interesting case is playing out as we speak in Silicon Valley, where a group of high-tech employees has sued Google, Apple, Pixar, Lucasfilm, Adobe, Intel, and Intuit over an alleged “gentlemen’s agreement” not to recruit each other’s employees. In In Re: High-Tech Employee Antitrust Litigation, filed last May in federal court in San Jose, Calif., the plaintiffs are relying heavily on evidence provided by the U.S. Department of Justice, which has already done its own investigation into the alleged practices.

The DOJ evidence includes several emails among the various companies alluding to their “gentlemen’s agreement” not to recruit or even offer jobs to employees of each other’s companies. One particularly damning excerpt:

On May 28, 2005, Mr. Chizen, Adobe’s CEO, emailed Mr. Jobs, then CEO of Apple, forwarding an internal Adobe email from Theresa Townsley, Adobe’s Senior Vice President for Human Resources, to others at Adobe, regarding “Recruitment of Apple Employees.” In that email, Ms. Townsley wrote: “Bruce and Steve Jobs have an agreement that we are not to solicit ANY Apple employees, and vice versa…. Please ensure all your worldwide recruiters know that we are not to solicit any Apple employee. I know that Jerry is soliciting one now, so he’ll need to back off.”

According to the terms of a September 2010 settlement with the DOJ, the companies are already forbidden from such collusion, but the civil suit by the workers is to collect on the presumably artificially reduced wages and thwarted job offers they were subject to while their employers were abiding by the agreement.

There are reasons behavior like this is prohibited: it’s anti-competitive and deprives workers from the mailroom to the C-suite the ability to ply their trade in a fair environment. If the plaintiffs’ allegations are true, their employers were clearly engaged in a conspiracy to cut job competition and keep salaries low.

Even more globally, the free market doesn’t work properly if its players are pulling their punches. Top talent, from CEOs to secretaries, need to be able to negotiate in good faith and seek better employment if their current employers aren’t giving them what they need. They can’t do that if their current employer and their prospective employer are winking at each other and playing footsie under the table.

Executives all over should be watching this case. Here at Legal Issues in the Executive Suite, we promise to keep you posted.

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What to do when your successful business unit is sold

Posted on January 20, 2012 by joe
Joe Ahmad discusses the trend that companies are selling successful subsidiaries and what it means to executives.

VIDEO: Houston Executive Employment Attorney Joe Ahmad discusses the trend that involves companies selling successful subsidiaries and what it means to executives.

Success is sometimes rewarded in strange ways, such as when a company sells off a highly profitable business unit in order to raise cash (as Nestle did when it bought Cadbury and as Barnes & Noble is considering doing with its thriving Nook division). After all, it’s much easier to sell off a successful unit than an unsuccessful one, and they bring a much higher purchase price.

Trouble is, the management team that was most likely the reason for the unit’s profitability may not want to make the move. In such a case, both the buyer and the seller have an incentive to do what they can to keep that talent on-board. A stable management team helps bring a higher purchase price (which makes the seller happy) and means better prospects for future profitability (which the buyer likes).

It’s in everybody’s best interest, then, to give the management team an incentive to stay. Retention agreements, or any other agreement designed to keep talent from leaving, might offer executives pay hikes, bonuses, and other perks in exchange for staying with the company for a certain period of time after the sale. Granted, such agreements can be complicated, given the highly scrutinized atmosphere surrounding executive compensation these days. And the tax ramifications can be complex as well. But in such a high-stakes transaction, the buyer, seller and management team all have an interest in getting past those complications and making such agreements work.

What if you’re the executive and neither the buyer nor the seller has offered a retention agreement? Then it’s time to ask for one. Make the case that keeping you on-board is in everybody’s best interest. The worst they can do is say no. And if they do, you have a much better picture of your future employment prospects and can proceed accordingly.

Posted in CEOs, Change of Control Agreements, Dodd-Frank, Executive Compensation, Executive contracts, Legal, Retention agreements | Tagged , , , , , , , , | Comments Off

Negotiating a severance package

Posted on January 3, 2012 by joe

Litigation avoidance is very high on most companies’ priority lists, and when a company is considering letting an executive go, one of their biggest concerns is how to keep their soon-to-be-former executive from hiring someone like me to file a lawsuit on the executive’s behalf. The answer is usually fairly simple: a severance package.

A severance package can accomplish two very important things: 1) by providing the executive with various kinds of compensation and benefits, it can calm the nerves of someone who is justifiably anxious about getting back on the job market, and 2) it can head off a lawsuit against the employer. In theory, everybody wins.

An executive faced with termination should proceed cautiously, however, to make sure any package both leaves him in a good financial position and helps him find a new job. Here are some of the questions I’m asked most frequently about severance packages:

  • My employer doesn’t usually offer severance. Why would they give me one? If a company does not have a written severance plan, then it is generally not obligated to give any severance whatsoever. That’s what unemployment benefits are for. In some instances, a company may have an informal policy of giving severance, but they are not obligated to so (without a formal written severance plan). Nonetheless, I always tell my clients that it never hurts to ask. If you’re already out of a job, what’s the worst they can do?
  • How much should I ask for? First, it’s important to know that a severance package isn’t just money. But since money is probably your first concern, try to suggest a figure that is based on expected months of unemployment, and use that as the rationale. Also, if you have unvested options or stock, ask that the vesting be accelerated. Regarding unused vacation or sick time, it helps to check written company policy, if any. If there is no policy, you can still ask for it as part of a severance package. It’s also always helpful to ask for your COBRA payments to be reimbursed for the number of months you expect to be unemployed (keep in mind you may have a waiting period for medical insurance at new employer).
  • What do I want besides money? In order to make it easier for you to find a job, you’ll want to ask for a release of any non-compete obligations, as well as a good reference. You might also want to ask that you be listed as eligible for rehire or that your termination be called a layoff, if it isn’t already.
  • What if my employer asks me to sign a release? Don’t be surprised if they do, since that’s one of the reasons your employer would offer a severance package in the first place. While it’s typical and understandable to release potential claims arising out of the termination of your employment, you typically would not want to release any vested benefits such as pensions, stock, options, etc. So you’ll want to read any such release very carefully.

For all of these reasons, I advise any executive who has been terminated (or thinks he might be) to consult a qualified executive employment lawyer for help in analyzing the potential legal leverage you might have in negotiating your severance package.

Don’t let the bruised ego you may be feeling upon learning of your imminent termination keep you from ensuring your continued employability and your family’s financial well-being.

 

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What’s the Best Way to Take People With You to a New Company?

Posted on December 12, 2011 by joe

I’ve devoted a couple of blogs (here and here) to what things executives should and should not take with them when they change employers. Simply playing that part right can help avoid litigation with former employers.

Where it gets really dicey, though, is when executives want to take people with them. It’s natural, of course, to want your team with you at your next job. Your treasured assistant, longtime protégé, and lifelong right-hand man/woman, among others, more than likely played a major role in your success at your previous employer, and you wouldn’t want to leave them behind to face an uncertain future without you.

But when it comes to litigation avoidance, there are right ways and wrong ways to recruit from your former employer.

First, examine any agreements you have that might restrict your ability to recruit. Many companies require executives and other employees to sign non-recruitment or non-solicitation agreements that restrict their ability to recruit employees away. They are not always enforceable, but you should at least be aware of them so you can have a lawyer analyze them for you. 

Sometimes companies also have “confidentiality agreements” or policies that require executives to keep employee information private. Frequently, companies use these provisions to claim that an executive cannot recruit away employees, at least if the executive is relying on confidential information as defined in these agreements or policies. Again, it is helpful to get a legal opinion to determine what you can or cannot do if these circumstances apply to you.

Also, you should not take any company property to help you recruit employees. Just as a document containing contact information for customers can be a confidential and proprietary document, so too can an employee list. And it does not matter whether that document is in printed or digital form. Coming in to work the night before resigning and downloading such information onto a thumb drive is often a red flag that someone is taking something they should not.

But even assuming that you are not taking any company documents, and that you are subject to no restrictive agreements or policies, you are still not necessarily in the clear as far as recruiting other employees is concerned. Even without a specific agreement or policy, executives in most states have fiduciary duties or duties of loyalty to the company they currently work for. 

Clearly, recruiting fellow employees to come with you while you’re still working for the company is not only bad form, but it’s generally regarded as a breach of fiduciary duty or duty of loyalty. You simply can’t maintain those duties if you’re actively recruiting other employees away to a competitor. Once you leave, those employees can be fair game, but until then, you should avoid active recruitment.

Even after you leave, you should consider the wisdom — or lack thereof — of sending out a mass email or letter telling all your contacts that you’re leaving Firm X and moving to Firm Y. Of course, you should absolutely not do so while you’re still at Firm X. But even after you have left, you should know that because many companies regard contact information for employees to be confidential information, those emails and letters could end up being used as evidence that an executive misused confidential information. 

As noted above, some companies explicitly state in their agreements or policies that such information is confidential. Even without such policies, some companies claim that this information is confidential as a matter of law, or that you must have stolen company documents to get the addresses for the mailing. While the confidential nature of employee contact information is highly dubious and always hotly contested, particularly without a specific agreement, an executive should at least realize that this type of mailing can provoke a lawsuit, warranted or not.

If you want to bring employees with you to your new company, the best way to do so is by way of personal phone calls after you’ve moved to your new employer. Granted, this tactic can make for some strained going-away celebrations, but those hurt feelings hopefully can be soothed later.

Once you’re with your new company, you are in theory free to recruit from your former employer. I say “in theory” because those employees may themselves have signed covenants not to compete or other agreements that restrict their ability to work for a competitor.

So just as a good first step is to determine what restrictions have been placed on your ability to compete, recruit, or use confidential information, the next step is to ask the people you want to recruit to your new firm what agreements, if any, they have with their current employer. A thorough review of those documents (preferably by an experienced executive employment lawyer) should give the potential employer an idea of whether the employee is free to make the leap.

Once you know your recruit is interested and legally available, you still should make something clear to them and, by extension, your old employer: They cannot bring confidential information with them to the new company. Of course, you can’t hire someone because they can bring confidential information with them, and their hiring cannot be contingent on providing a trade secret or other confidential information (customer lists, etc.).

But it’s a good idea to put in writing that new employees are not to bring any proprietary information with them to their new employer and that the new company’s policies prohibit the use of another company’s confidential information. Such “good faith” efforts — when genuine — can go a long way toward heading off potential litigation.

There are no guarantees that the former employer won’t sue. But, as in so many other areas, litigation avoidance is often less about the law than it is about courtesy and conscientiousness. Making it clear that you expect recruits to abide by their employment agreements can create useful goodwill, even in this touchy situation.

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Mandatory Retirement Age Policies Not so Mandatory

Posted on November 10, 2011 by joe

Two recent high-profile executive retirements, both citing the companies’ mandatory retirement age policies, raise the question “how can mandatory retirement age policies be legal?”

The truth is, most of them aren’t. Neither IBM CEO Sam Palmisano nor Freddie Mac Chairman John Koskinen had to retire this week. If they wanted to stay, and they wanted to press the point, chances are the courts would have been on their side. That’s because most mandatory retirement policies are, with relatively few exceptions for safety (such as airline pilots) and some institutions of higher education, a blatant violation of the Age Discrimination Employment Act of 1967.

So why don’t more executives dispute them? Because, in a nutshell, it’s much nicer to not work and get paid than it is to keep going to the office and get paid. And most executives are happy to exchange 60 hours a week at the office for 20 hours on the golf course. Consequently, those executives facing their company’s “mandatory” retirement age are usually happy to take that deal.

Of course, some executives may want to keep working and some companies want them to keep working. In such cases, the company is free to grant a waiver to the mandatory retirement age policy.

In cases where the executive’s desire to keep working isn’t reciprocated by their employer, however, they need to seek out a qualified executive employment lawyer for assistance negotiating with their employer.

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Changing Jobs? Here’s What Not to Take With You

Posted on October 25, 2011 by joe

In my last blog, I discussed what executives should take with them when they’re leaving their company. In this blog, we’ll go over something just as important: what they shouldn’t take with them.

VIDEO: Houston Executive Employment Attorney Joe Ahmad says if an executive takes phone numbers and other information when leaving the firm, his company will likely find out.

The short answer is, besides the employment documents you’ve signed (and with which you’ll be expected to comply), any awards or recognitions you’ve received, and personal items such as family photos, your snack stash, and your miniature putting green, pretty much everything else stays with your former employer.

Customer lists? Employee directory? Sales data? Internal marketing memos? Holiday card lists? Yes, yes, yes, yes and yes. It all stays behind. Don’t take hard copies with you, and definitely don’t download anything from your work computer to a zip drive or email those documents to yourself. Anything that could remotely be seen as confidential information needs to stay behind, and you’ll want to err on the side of caution when determining what is and isn’t confidential.

If it’s truly public information, then get it from a public source after you leave.

Companies are hyper vigilant these days about protecting their trade secrets and other confidential information, so it’s not unheard of for companies’ IT departments to scour a former executive’s computer, email and mobile phone to see if the executive (or any employee, for that matter) is attempting to take with them information they shouldn’t.

This also raises the issue of executives using company-owned computers, mobile phones and other company property for purposes of landing another job—or for anything they don’t want their employers to know about it (use your imagination). Misuse of company-owned property has come back to haunt more than a few executives, so, again, err on the side of caution. It could mean the difference between positive relations with your former colleagues and protracted litigation with them.

It should go without saying that retaining the services of an experienced executive employment lawyer is a smart step anytime you’re about to make a big move. A good lawyer will help you navigate the gray area between personal, professional, and confidential and help keep you out of hot water.

Posted in CEOs, Complaints Against Executives, Executive contracts, Legal, Litigation, Trade Secrets, Uncategorized | Tagged , , , , , , , , , | Comments Off

Executives Should Proceed With Caution When Changing Jobs

Posted on October 12, 2011 by joe

One of the biggest, and most likely, legal headaches highly placed executives can give themselves involves their actions just before and just after leaving one company and joining another. An executive’s actions during this time are critical to avoid getting himself (and his new employer) sued by his former employer over breach of a covenant not to compete, theft of trade secrets, breach of fiduciary duty, or any kind of dispute involving duties owed to the former employer.

In this blog and my next one, I’ll share some do’s and don’ts for executives who are pondering jumping ship.

Companies are not shy about suing former executives these days. Whether it’s because of the recession or just a naturally more competitive business environment, businesses are more than willing to take former employees to court over alleged breaches of the employee’s duty to the employer. Most, if not all, of those cases rely on signed agreements the executive herself signed when she joined the company, usually many years (even decades) earlier.

Many employees, particularly executives, can get sued unaware that a few steps in advance can often stave off a lawsuit.

1) Be aware of what you have signed. 

The first thing I tell any executive who is considering leaving (or has already left) her employer to do is get an inventory of any and all documents she signed when she came on-board. Everything from your employment contract to the form checking out your building’s card key could conceivably give rise to litigation if anything you do could be construed as violating the terms of those agreements.

Most executives probably have no idea what documents they signed last week, let alone 10 or 15 years ago, so it’s imperative to get a complete inventory from your old employer’s HR department (which should have all those documents in your employment file). That request must be in writing, by the way.

Once you have all those documents, it’s time to make a fresh pot of coffee and read them all, taking special note of any and all obligations or expectations on your part.

Chances are, you will find even a cursory glimpse of those documents enlightening. They should provide clear guidance on what is expected with regard to trade secrets and other confidential information, ability to work for competitors, ability to solicit other employees or company clients, and other duties to the former employer.

Once you know what you’ve signed, it’s much easier to comply with those agreements. But without having those documents in hand, you (and your new employer) are flying blind.

 2) Get professional help.

OK, I am biased on this one. But if there is any doubt, having a lawyer analyze your particular situation is invaluable.  Also, if you have signed a contract, it inevitably contains legalese, so it’s  important to have a qualified executive employment lawyer review it to go over all of your post-employment obligations.

3) Get your new employer involved.

It’s also a good idea to show these documents to your new employer, since the company would probably be a defendant in any potential litigation arising from your employment.

If you don’t show the documents to your new employer, and your new company is sued, it’s entirely possible that your new employer may choose not to defend you—particularly if they suspect you were withholding information about such agreements during the hiring process. Full disclosure is always a good idea.

Of course, some of the documents may themselves be confidential, so if there’s any doubt, you’ll need to get permission from your old employer to show the documents to your new employer. Most of the time, your old employer will comply with this request, at least enough to give your new employer the information it needs.

4) You can’t take it with you.

So we’ve talked about what executives should take with them. My next blog will discuss what executives shouldn’t take with them. Here’s a hint: if it’s not either the documents discussed in this blog post or pictures of your children, you probably should not take it with you.

Posted in CEOs, Complaints Against Executives, Covenants Not to Compete, Executive contracts, Fiduciary Duty, Legal, Litigation, Trade Secrets | Tagged , , , , , , , , | Comments Off

Executive Deposition Tips, Part 7: Practice Makes Perfect

Posted on September 27, 2011 by joe

The most important step in preparing for a deposition is a full-blown cross examination dress rehearsal—minus opposing counsel, of course. After I’ve coached my client on all the do’s and don’ts of depositions (click here to see previous Executive Deposition Tips), it’s time to bring in a videographer and see if my client has absorbed all my guidance. Deposition training, as it turns out, is not a spectator sport.

VIDEO: Executive Employment Attorney Joe Ahmad says he prepares his clients for legal proceedings by staging mock depositions.

What am I looking for? Among other things, whether my client listens to and understands the question and whether he or she falls for ambiguities or false premises. A lot of lawyers will lead up a question with a false premise before they go on to the question, and the witness needs to be on his toes and point out that the premise of the question is false. But you have to practice that.

I also want to make sure the executive understands the theory of our case and can articulate the evidence we have to support our position. Depending on the circumstances, saying “I don’t know” can be just the answer the other side is looking for.

The videographer is a crucial part of this exercise, even if it makes the client uncomfortable. After all, there’s going to be a videographer in the real deposition, so it’s better to get used to it before game time. The real reason to videotape the mock cross examination, though, is that most people don’t realize how they appear on camera. Are they sitting up straight? Does their striped tie look like a test pattern? Is the executive’s hairstyle distracting?

It’s vitally important that executives watch themselves on video before the real deposition in order to correct what may very well be cosmetic impediments that can nevertheless prejudice a jury.

Finally, I like to reverse roles with my clients and let them be the opposing lawyer and I’ll be the executive. I want my clients to have a chance to pose their own false premises and inject their own ambiguities and see how I correct them. This exercise is good on many levels and makes tangible and concrete what had previously been a fairly intangible and amorphous concept.

Depositions are difficult and, more often than not, at least a little unpleasant. But the better prepared an executive is before heading into one, the more likely she is to come off as trustworthy, honest and sincere.

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Executive Deposition Tips, Part 6: Lose the Ego

Posted on September 13, 2011 by joe

Executives face several perils in a deposition, but perhaps none more perilous than their own egos. Few executives got where they are by being shy, retiring types. They probably achieved success the old fashioned way: by being disciplined, demanding, type A workaholics.

That can be great for a company’s bottom line, but it doesn’t always play with juries. So when I’m working with an executive who is going to be deposed, I remind him or her that, in the court’s eyes, they’re no more or less important than a custodian. Reining in one’s ego is sometimes the hardest part of witness preparation, but it pays off.

Attorneys know how prickly executives can be, and they use that to their advantage by trying to get under their skin in hopes of throwing the witness off balance. They want the executive to forget all the good advice her lawyer has given her (see our previous deposition tips) and lose her temper, be sarcastic, or just generally lose her cool.

Smart executives—or, at least, executives who have been deposed a couple of times—don’t fall for it. They keep their cool, listen to the question, and give a well thought-out answer. They don’t try to come off as know-it-alls, and they’re not afraid to say they don’t know the answer to a question they honestly don’t know the answer to.

They also don’t take potshots at the other side or the other side’s attorney. This is one of the greatest disservices Hollywood has done to the justice system. They make courtroom testimony seem like a battle of wits, an opportunity to make cutting remarks aimed at the other side.

Those remarks may work on film, but real juries seldom appreciate them. Juries actually prefer humility, honesty and sincerity—traits that many executives may find hard to access in themselves.

The most important reason to resist the temptation to make a cutting remark or a negative insinuation is that a good lawyer will call you on it. He’ll make you identify every reason you said what you said and give facts to back up any allegations. It’s usually not a gamble that pays off, and only the witness ends up looking bad.

Most executives are used to asking the questions, not answering them. But in a deposition, an attorney can (and will) follow up on an answer given by the executive. The attorney, not the executive, decides when to stop the discussion about an issue, so the executive does not get the last word—something that causes many executives to be poor witnesses in a deposition, because they just are not accustomed to it.

Of course, thinking they have it all figured out only exacerbates the problem. It takes preparation to give a deposition, and no one, no matter how smart, can just walk into an important deposition and expect to do well. Unfortunately, many executives do not appreciate this and limit the time they prepare for the deposition. The executive has to lose the ego to give a good deposition.

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