Employment and Compensation: Building the Legal Architecture That Attracts, Retains, and Protects

An employment and compensation agreement that simply recites the employee's title and salary without addressing the ownership of work product created during employment and the post-employment obligations the employee will be subject to leaves the company exposed to disputes about whether a termination was for cause and whether the technical work created belongs to the company. Restrictive covenants counsel must tailor non-compete, non-solicitation, and confidentiality provisions to the specific competitive risks the company faces.

Misclassification exposure includes back payroll taxes, unpaid overtime, and per-worker state penalties, with California's ABC test presuming employee status and the federal economic reality test focusing on economic dependence. Independent contractor agreement counsel must evaluate each worker relationship against the applicable classification standard in the relevant jurisdiction.

An employment and compensation FLSA audit evaluates whether each exempt employee's salary meets the threshold, whether actual duties qualify for the exemption, and whether the regular rate of pay correctly incorporates non-discretionary bonuses, shift differentials, and commissions. Wage and hour counsel must identify every additional pay element that affects the overtime calculation, since failure to include non-discretionary bonuses in the regular rate is among the most common sources of FLSA collective action liability.

A plan that does not specify when a bonus is earned, what reduces a partially earned bonus, and what happens upon pre-payment termination will be interpreted against the company in any pro-ration dispute. Labor laws counsel must also address the plan's clawback provisions, specifying the circumstances for recovery, the assertion timeline, and the recovery mechanism, since clawback provisions that omit these procedural details are frequently unenforceable when the company attempts to assert them.

A nonqualified stock option plan must specify the exercise price at or above fair market value on the grant date, the vesting schedule, the treatment of unvested options upon termination, and the post-termination exercise window to avoid adverse Section 409A consequences. Startups and growth counsel must confirm compliance with applicable securities law exemptions, since grants above certain thresholds trigger disclosure obligations that can be burdensome for companies that have not yet built public-company reporting infrastructure.

Golden parachute payments that exceed three times the executive's five-year average compensation trigger Section 4999 excise taxes and the Section 280G non-deductibility rule, and the compensation committee must document the market data and business justification for each compensation element. Corporate governance advisory counsel must confirm that independent directors approved the package, since say-on-pay failures and derivative suits are most effectively defended on the basis of a well-documented deliberative process.

A termination based on documented performance deficiencies or policy violations is far more defensible than one connected to the employee's exercise of a protected right, and the supporting documentation must predate the protected activity rather than being assembled retroactively. Wrongful termination counsel must also evaluate whether the termination triggers WARN Act obligations, since employers with one hundred or more employees must provide sixty days advance notice of a plant closing or mass layoff.

A valid release must provide consideration beyond amounts already owed, comply with OWBPA for employees over forty including a twenty-one-day review period and seven-day revocation window, and include mutual non-disparagement and confidentiality obligations. Employment litigation counsel must confirm that the release language covers claims the employee may not yet know about and does not interfere with the employee's right to file a charge with the EEOC.