EMPLOYMENT CONTRACTS FOR EMPLOYED PROFESSIONALS

Lawrence Ian Geller.

Over the past decade we have seen a great deal of transience in employee populations. In the 1970's and 1980's it was common for employees to change jobs purely for income reasons. Fewer employees were as concerned as they had been about the permanence of jobs, this since it appeared that a good worker could get a job anywhere. This has now changed. Not only are good jobs getting harder to find, but so too are good employees. Once an employer has found someone who fits into the corporate structure, it is much easier to keep that individual than to find and train a new one.

 Employment contracts are normally entered into for the protection of both employers and employees. Without such a contract, both are constantly guessing what the other expects of the relationship and this is where problems are bound to occur. With an employment contract, neither party has to guess what they have to do for each other, as it has been previously agreed to.

It is now quite common for the professional employees of corporations to have the terms and conditions of their employment governed by employment contracts. These contracts generally deal with a number of issues relating to the employment of the individual, and both their obligations to the employer, and the employer's obligations to them, including:

1. the term (period) of employment, if limited by time, and options of each party to renew the period of employment;
   
2. the causes for termination of term of employment, by either party, with or without cause and in the event of an illness or accident;
   
3. the question of the competition of the employee with the employer after termination of the term of employment;
   
4. the confidentiality of information obtained while employed;
   
5. the compensation, bonusing, benefits (including life, disability, group medical and dental insurance and pension plan contributions), perquisites and other compensation (including share purchase options etc.) of the employee and the frequency with which these will be reviewed;
   
6. the duties of employee;
   
7. the location of employment and requirements of the employer for the travel of the employee for business purposes;
   
8. the authorization of the employee to incur expenses;
   
9. the frequency and duration of the employee's vacations;

These contracts need to be funded. The death of the employee would result not only in the loss of income to the family, but also in the loss of income to the employer. This is caused when a significant job within an organization goes without servicing (by an experienced individual) for a period of time. Customer contact is lost, resulting in the loss of future sales or work. Customers become dissatisfied by delays or errors incurred when a less experienced individual takes over. Additional employee tension results when too few people try to fill too many important positions.

In addition the employer would have to spend a great deal of time and money finding another employee who could fill the position. This would involve a lot of down time in the employee's position, and the additional loss of time of other employees (and of the employer) for interviewing prospective employees and then in training the new employee. It would also probably take a new individual several months before they were "up to speed" and this too would cause a loss to the company. For disabilities this is further aggravated. In the event of a disability it would be several months before the employer was advised of the future status of the employee. In the meanwhile, particularly for an individual in a senior position, the vacancy could not be filled, and the duties of that employee would not be done or doubling up of job duties would occur. The employer could not simply terminate the employee and start a job search immediately as this would probably result in a wrongful dismissal charge. As such, the process outlined above for death would be further compounded.

As stated earlier, before entering into an employment contract the funding of the contract should be addressed. Few businesses can self fund for contingencies such as death and long term disability. As such the insurability of the employee will be a substantial consideration. With insurance all of the financial aspects relating to the death or disability of an employee can be easily and affordably addressed. Without insurance funding the commitments and expenses anticipated by an employment contract could easily become too onerous for a corporation to be able to readily afford.

 Senior employees also tend to negotiate additional benefits. Things such as improved medical and dental plans (including Cost Plus benefits), improved travel benefits and Out-of-Country care are often required for these individuals and these are also generally covered within the employment contract. Before negotiating these benefits an employer should contact an agent specializing in supplemental executive benefits, carve-outs and top-ups. Again, however, the insurability of the employee and the availability of guaranteed coverages will be the primary factor in determining whether these benefits will be made available.

 Retirement too is an issue for all employees. This is even more the case for high income earners than for most of the general employee population of a corporation. If retiring on 50% - 60% of the best average three years' income is the goal, then high income earners will need more dollars to achieve this goal. The government has much restricted access to high pension amounts and has further complicated the issue with the introduction of rules governing Retirement Compensation Accounts and deferred compensation agreements. In consequence senior employees generally negotiate stock options as part of their retirement programmes and, in the event of a disability or death the corporation would want to repurchase their shares so as to be able to make them available to the replacement employee. The best way to guarantee the repurchase of these shares is with disability and life insurance.