Feature

How to Negotiate an Employment Contract

Want a sweetheart deal if the job goes sour? Here's how to negotiate it before you start work.

March 27, 2007 — CIO — While working as a managing director in charge of IT infrastructure, Christopher Barron noticed some inadequacies in his company's effort to comply with federal regulations. He didn't think his company, which he declined to name, was doing enough to comply with the regs. Although he pressed and pressed, he couldn't convince his CIO and the rest of the senior management team that what they were doing was deficient. The CIO felt the measures his company was taking were adequate, but Barron, who was leading the compliance effort, knew it wasn't enough. Due to this disagreement, Barron and his employer decided to part ways, and Barron left the company with what he describes as a sufficient severance package. (He declined to disclose the specifics.)

Barron was entitled to that severance because he had bargained for an employment contract with the company upon being hired. "Had I not had an employment contract, I've been told I would have been summarily dismissed from the company," says Barron, who is now vice president and CIO of CPS Energy in San Antonio, Texas. "Having the employment contract allowed me to maintain my ethical and professional integrity without sacrificing my financial security."

Employment contracts are written agreements between an employee and an employer that define an individual's role at a company over a specific period of time, usually from two to five years. They often outline the employee's responsibilities, reporting relationship, salary, benefits, perks, and in some instances, the terms and conditions of a severance package.

As Barron's experience shows, employment contracts are worthwhile documents to draw up when you're negotiating a position with a new employer. These documents can protect an employee's personal, professional and financial interests in the event the employer decides that it no longer needs the employee's services. Such a scenario might arise if a new CEO comes on board or there's a "change in control" because the company has been bought, sold or merged with another.

"If you don't make earnings improve by 10 percent in the first six months, you're out of a job. That's the kind of risk an employment agreement protects against," says Susan Egan, an employment attorney with Egan Law Firm in New York City. "You're protecting against the risk that you're going to end up out the door."

Employment contracts are standard for CEOs and are often inked for other high-level executives like presidents, chief operating officers and even chief financial officers. However, they're not the norm for IT executives, according to IT executives and headhunters. What's more, many executive recruiters and employment attorneys observe companies moving away from employment contracts because they see the contracts as a liability. They're also tricky for employees to negotiate.

Nevertheless, it's a wise idea to ask for some kind of an employment agreement—whether a formal contract, a list of stipulations in a multipage offer letter or a severance agreement—that sets forth the terms of your hire and termination. Doing so can mean the difference between smooth sailing or a crash landing in the event your employer decides to drop you like a bad habit.

To learn more about the benefits, perils and pitfalls of negotiating employment contracts, keep reading.