WH Insights: Employment Contracts for C-Level Managers

INSIGHTS

28 May 2021

Davinia Cutajar, Partner at WH Partners, speaks about key clauses to consider when drawing an employment contract for C-Level managers. These include post-termination restrictions, probationary and termination clauses, garden leave, clauses related to travel, working for other companies within the same group, and compensation for work carried out outside office hours. 

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Post Termination Restrictions

Perhaps the most important clauses to include in these types of agreements are the so-called Post Termination Restrictions in the form of non-compete clauses, confidentiality clauses and penalties in the event of a breach.

It is common practice nowadays for employers to reserve the right to enforce a non-compete clause, prohibiting the employee from working for a competitor, for anything between 3 and 12 months after termination of employment.

Now because this actually impinges on the employee’s right to work and earn a living, an employer who is keen to enforce such a clause would have to pay the employee the equivalent of his or her salary for the duration of the non-compete.

Confidentiality clauses feature in almost all employment agreements nowadays, but they are particularly important for C-Level agreements. This is important because of the sensitivity of information that the outgoing employee would be privy to during his term of employment.

As a deterrent to breaking Post Termination Restrictions, a clause with pre-liquidated damages is often inserted in contracts. For this to work properly the amount of damages should be high enough to act as a deterrent, but not so high as to be unenforceable or easy to challenge in a court of law.

Probationary and Termination Clauses

Then there are Probationary and Termination clauses. In case of employees holding C-Level management positions, and whose wages are at least double the minimum wage in that year, the probationary period would be one year at most. A shorter period, however, may be agreed by the parties.

Now let’s move on to the Notice Period in the event of resignation. While this is open to negotiation between the employer and employee, Maltese law does provide a set of notice periods depending on the length of the employment period. For instance, if an employee has been employed for up to two years, the notice period would be of two weeks.

But having said this, two weeks is not enough time to replace a CEO or COO. So, it has become customary to require a three-month notice period. This way, the company has enough time to find a suitable replacement and to organise a proper hand-over.

Garden Leave

And what about garden leave? Well, an employer may place an employee on garden leave after serving notice. The duration may be for all or part of the notice period. And during garden leave, an employer is not obliged to provide any work to the employee and may revoke powers or authority. The employer could also insist that the employee does not engage with any of the other employees, clients or suppliers.

Other clauses to consider

Other clauses to consider when drawing up an employment agreement for C-Level Managers are those related to travel, working for other companies within the same group, and compensation for work carried out outside office hours. These clauses are usually negotiated with the prospective employee and have to be offset with an attractive remuneration package and benefits such as health insurance, housing, transportation, to name a few.

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This video is not and is not intended to constitute legal advice and should not be relied on as such. It is intended for general information purposes only.