How executives can protect themselves when changing jobs |
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How executives can protect themselves when changing jobs

Published on Saturday, 03 Sep 2016

The Background

A survey by Morgan Philips held prior to the British referendum in early 2016  suggested that 21 per cent of executives in Hong Kong would be looking to change jobs this year.

In the aftermath of the Brexit vote, it remains to be seen whether voluntary job moves will decrease this year – either due to executives opting not to risk a move in the current climate, or a lack of openings as employers impose hiring freezes.

For those executives who, voluntarily or otherwise, find themselves seeking a new role, the global uncertainty wrought by Brexit makes it important to consider and negotiate the terms of any new role carefully.

This can help mitigate against the risk and costs of termination, as well as the risk of compensation being effectively devalued by plunging currency rates.


The Issues

In the “worst-case scenario” for a senior executive who has recently resigned, a new role could be withdrawn prior to the start date – or shortly thereafter – thus leaving the executive with no role and, potentially, minimal or no compensation for the loss of the new role.

The risk of this happening increases in such times of uncertainty, with employers trying to cut costs by withdrawing offers, implementing hiring freezes or terminating contracts  – and often selecting new joiners as those which it can terminate the most cheaply.

While the executive may have a claim for breach of contract against the new employer if an offer has been agreed upon and is then withdrawn, such a claim may offer only limited remedy for the executive.

The courts will generally hold that an employer is entitled to terminate a contract in these circumstances, provided the employer abides by the terms of the contract.

If a contract has a probationary period, allowing an employer to terminate on short or no notice, then – in the absence of any other contractually negotiated protections for the employee – the employer will be able to terminate the agreement prior to the start date, or during the probationary period, with minimal notice.

It is also important to consider strategies for protecting the value of a compensation package, particularly if any element is being paid in foreign currency (whether in the form of salary, bonus or deferred compensation).


The Solution

In order to mitigate the risk and impact of termination – either before a new role starts or more generally – executives should consider negotiating for specific protections, including the removal of probationary periods and providing for reasonable notice periods.

For executives who are being promised buyout of awards (which they are forfeiting by leaving their prior employer), sign-on awards, or other guaranteed payments, contracts should also include protection to ensure that these remain payable to the employee, even if the employment is terminated or the contract is withdrawn.

This would apply in circumstances other than, for example, cases in which the termination or withdrawal is due to employee misconduct or failure to satisfy reasonable background checks.

Executives being paid in whole, or in part, in foreign currency should consider whether they wish to request a clause regarding fluctuation of currency exchange rates.

It is becoming increasingly common to ask for exchange rates to be calculated as an average over an agreed period of time  – or to be set at a fixed rate – in order to ensure the employee is not bearing the risk of large fluctuations.

Executives who are relocating for a role should also consider their rights with regards to termination at any time.

It is surprising how often executives negotiate for relocation costs and allowances to be paid at the start of the contract, but do not ask for confirmation that such costs will also be covered to return back home in the event the contract is terminated. Such costs can be significant, and it is much easier to negotiate for them to be covered at the outset rather than when termination is looming.

An individual’s negotiating leverage may vary, depending upon seniority and how unique their skill set is. All executives, however, should approach contract negotiations cautiously and with a recognition that “worst-case scenarios” could become an increasing reality in the current economic climate – as well as in the post-Brexit business world.

This article appeared in the Classified Post print edition as Executives: protect yourself when changing jobs.

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