Q: I would like to sell my agency, and it looks like I may have a buyer. The prospective buyer wants to employ me for three years in a sales and marketing position, after which I will retire. The buyer has presented me with an employment contract covering a substantial salary plus a commission-based bonus plan. However, what's to stop the buyer from getting rid of me right away after the closing on the acquisition? That would be a disaster, as I would not only lose my compensation but the purchase price, which is based on my agency's performance over the next three years, would also go down in my absence. Also, would the proposed noncompete still apply if the buyer fired me?
A: Unless the employment contract specifically protects you from termination without cause, you are unprotected. The buyer can terminate you at any time for any reason or no reason.
The fact that your employment contract is part of an overall acquisition deal makes no difference. Although you could argue that the buyer has an implied duty of good faith to keep you for the three full years negotiated, I doubt whether that argument would prevail in court.
One of the most frequent mistakes that sellers make is to leave themselves unprotected from being fired after the sale of their agencies. The same considerations apply whether you are an employee or an independent contractor of the buyer after the sale.
Of course, if you do not care whether the buyer keeps you or, indeed, if you would secretly prefer to have nothing more to do with the business, then you don't need protection against termination.
However, if you need the work, the money or even the travel benefits, you need to make sure that the employment agreement protects you.
Ideally, your employment contract will read like a highly paid professional athlete's no-cut clause: The company cannot terminate you for any reason except a proven illegal or immoral act. Furthermore, the contract would provide that, if the employer does not want you around anymore, you get to stay home and continue to be paid for the remainder of the term.
While such a no-cut clause might seem extravagant in the travel agency business, I have seen such clauses offered by buyers, especially those that undertake campaigns to acquire large agencies. Their investors and advisers come from the worlds of private equity and venture capital, where such clauses are much more common.
If you cannot obtain a no-cut clause, the next best thing is a clause that prohibits the employer from firing you unless you breach specific standards in the agreement, following 30 days' written notice and opportunity for you to cure the breach during the 30 days. For example, if you are required to work 40 hours per week in the office but habitually take Friday off, the employer must give you notice, and if you start working on Fridays, you cannot be fired.
The relationship between the termination clause and the noncompete is completely negotiable. Typically, the contract provides that the noncompete kicks in regardless of why you are terminated. However, you can negotiate exceptions, such as a clause stating that the noncompete does not apply if you are terminated without cause.
Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email him at [email protected].