In our work with individuals, one of the most frequent comments we hear is “I wish I’d known you before. . .”. That is, before an M&A deal was signed, before an acrimonious employment termination occurred, before a now-contested employment contract was finalized. When things are going well, no one (including us!) wants to inject a lawyer into the mix. However, we regularly encounter situations in which an employee is either (a) confronted with employer action that strikes him or her as dangerous, unfair or contrary to his or her interests; (b) urged to sign a document, the effects of which are unclear; (c) pressured to agree to a proposal with an uncertain impact on his or her career; or (d) undecided as to whether to pursue a claim that could negatively impact his or her future in the company or industry. In each of these cases, engaging experienced legal counsel before things escalate can make all the difference, both in terms of expense and results.

We thought it might be useful to share some of the scenarios we see time and again in our practice. Below, we look at two case studies where the counseled employee has recourse to tools and alternatives that the uncounseled employee will lack.

CASE STUDY I
THE CORPORATE DEAL:
WHAT NEEDS TO BE SIGNED, AND WHEN?
Giant Public Company Inc. (GPC), headquartered in Delaware, signs an all-cash deal to acquire all the stock of Nonpublic Target Inc. (NTI), headquartered in California. There is a sixty day period between sign and close. All NTI executives have executive employment agreements with the company that provide for protections on involuntary termination (including constructive termination) after a change in control. A condition to closing the GPC deal is that NTI bring along certain key employees who will agree to stay for a minimum of two years. Other executives will be terminated (and their contracts honored) at the close.

SCENARIO A:

Joe, NTI’s Vice President of Worldwide Sales is a key employee. GPC makes an offer to Joe to be Sr. Sales Director for NTI’s product, with the same compensation and benefits package Joe receives at NTI. However, because GPC is much larger than NTI and has a highly stratified management structure, Joe’s portfolio — and his management authority — will shrink dramatically. Moreover, GPC does not offer executive employment agreements other than at the “C-level” (CEO, COO, CFO, CTO, etc.), so if Joe accepts the GPC offer, he will lose his involuntary termination protections. Joe is also concerned that he will suffer a significant step backwards, career-wise, by going from VP of Worldwide Sales for a hot, small company to a senior director of a giant public company. The CEO of NTI, who will not be continuing on after close (but who will be receiving considerable compensation as a result of the deal) tells Joe that without Joe’s cooperation, the deal will go south. If the deal goes south, Joe could lose a lot of money that he would make by selling his NTI stock to GPC, and he could lose the goodwill of his NTI colleagues who also stand to make a lot of money on the deal.

What should Joe do?

Based only upon the above facts (which is all the uncounseled employee will usually have), there is no pat answer for Joe. There are many things, however, that the counseled employee in Joe’s situation can and will do. Essentially, Joe should take the same approach as that of a business entity – and its counsel – during any pre-close diligence process. Is Joe’s commitment to stay on an actual requirement of the deal, or is it just aspirational? Are GPC’s policies regarding employment agreements (i.e., no involuntary termination protection) really non-negotiable, or is this just an initial bargaining posture? How much of a change in job responsibility and authority will Joe really experience? Does GPC’s total package make up for what Joe is losing at NTI? If Joe is really so important to the deal, does he have more bargaining strength than is apparent to him? Can he change key components of his package (title, compensation, stock) without impacting the overall deal?

Typically, an individual employee like Joe cannot break through to the decision makers (or negotiators) at a firm like GPC without the assistance of counsel. Joe can be certain that both GPC and the principal owners of NTI are represented. He can also be certain that regardless of the good intentions (or apparent good intentions) of his “C-level” colleagues at NTI, his interests are different than theirs. On the one hand, he may be able to enlist the top executives to negotiate a satisfactory deal on his behalf. On the other hand, their own interests in closing the deal may preclude their ability to represent him fairly.

Joe could use counsel well before close. He may even be part of a group whose interests are sufficiently aligned that they can retain counsel together. And, in fact, NTI’s lawyers are likely to feel that it is in the company’s best interests to ensure that Joe and his fellow executives are individually represented. Once a deal is on the table, Joe should ask the company to assist key employees with obtaining outside counsel.

SCENARIO B:

In connection with the acquisition, the job of the CFO of NTI, Sally, will be terminated. Under her employment agreement with NTI, Sally is entitled receive significant severance benefits on such a termination. In addition, like all shareholders of NTI, she will receive cash in exchange for her equity stake in the company, which stake equals slightly less than 1% of NTI’s outstanding capital. As a condition to receiving her severance, NTI requires Sally (and all employees who receive severance) to sign its standard waiver/ release, which she is ready to do. However, GPC has now imposed an additional requirement that Sally sign a two-year noncompete in order to receive her negotiated benefits. The noncompete, provided by GPC, relates to GPC’s business generally, a business that is much broader than that of NTI. Sally wants to turn her NTI equity into cash. Sally cannot, however, afford to stop working, and her finance background makes her a prime candidate for CFO jobs in firms which, under the broad definition in the noncompete, could be deemed to “compete” with GPC.

What should Sally do?

We see Sally’s situation regularly. Again, the counseled employee, and her lawyer, will open a dialogue with counsel to those parties who want to see the deal close. Is NTI’s requirement that Sally agree to GPC’s non-compete an actionable violation of her employment agreement, or of California law; i.e., does she have a good lawsuit against NTI if they don’t pay her severance after she refuses to sign the non-compete? Does GPC really need the non-compete from the CFO (as opposed to, e.g., the chief technical officer)? Can the definition of “competition” be narrowed sufficiently to permit Sally to pursue her likely job opportunities and still satisfy GPC? Is the non-compete, even if Sally signs it, enforceable, either in California, if that’s where Sally intends to stay, or in other jurisdictions where she may wish to work in the next two years? Answering these sorts of questions is why people like Sally should consider retaining counsel before the deal is signed.

CASE STUDY II
PERFORMANCE ISSUES:
DEALING WITH (WRONGFUL) TERMINATION

Mary, a single mother with sole custody of her small children, is a customer sales associate at a California branch of Big Box Retail Ind. (BBR). After her first six months of employment, Mary was informally reviewed (in accordance with company policy) and her performance was rated “satisfactory.” However, during that six month period and for the rest of her first year of employment at BBR, Mary was sexually harassed (propositioned in crude terms, pressured for dates, subject to salacious inquiries about her sex life and her body) by her immediate supervisor. During most of that time, she said nothing out of fear that she would lose her job if she complained. By the end of the year, however, her supervisor, angry at her continued rejection of his advances, made it clear to Mary that he planned to give her a negative performance review. Feeling that she hadn’t much to lose, she complained to her human resources rep, who promised to open an investigation.

SCENARIO C

The very next month, Mary receives her first annual formal review, in which her performance was downgraded to “unsatisfactory.” As a condition to continued employment, BBR required Mary to agree in writing to a 6-week Performance Improvement Plan (“PIP”). At the end of the performance period, BBR terminates Mary’s employment for failure to meet the requirements of the PIP. The human resources rep tells Mary she will receive (a much needed) 4 weeks of separation pay so long as she signs off on BBR’s “standard exit package.” The package includes a “termination certificate” including a release of all claims. The human resources rep says nothing about the progress, if any, of the sexual harassment investigation.

Mary has been subjected to not only sexual harassment, but to two requests that she sign documents she may not fully understand.

What does it mean to sign off on negative review and “agree” to the PIP? Is she simply acknowledging that she has received these documents, or is she agreeing that the negative critique is valid and that the PIP is reasonable and achievable? The counseled employee will be able to prepare a response that makes her response, and the significance of her sign-off, clear. Assistance of counsel in this situation can make a very big difference. Mary may wish to submit a rebuttal of the performance review to HR. She may wish to explain why the PIP is unrealistic (and probably just a pretext for a retaliatory termination). She may use either or both submissions to bolster her sexual harassment allegations and call the company on its failure to report the progress of its investigation, if any. In fact, Mary has a lot of options; options that could translate into very different resolutions of her problems with BBR. The counseled employee may be in a very strong position on the above facts. The uncounseled employee is likely to be at the mercy of BBR.

Even if Mary does not seek counsel until she is terminated, are her only options to accept the four weeks pay in exchange for a release or walk away with nothing?

The uncounseled employee – particularly one in Mary’s situation – may well conclude that these are, in fact, her only options. BBR seems to hold all the cards. The counseled employee, on the other hand, soon learns that negotiation is likely to significantly increase her severance package. Further, the counseled employee – if her conclusion that sexual harassment and/or retaliation has indeed taken place is credited by counsel – may well find herself with a robust claim for significant multiples of what BBR is offering. Indeed, counsel may well be willing to take such a case on a contingent fee arrangement. The uncounseled employee will never know. And if she signs the release without first investigating a legal analysis, she will be barred from ever asserting her claims, regardless of how justified (and valuable) they might have been.