Every employment relationship produces compensation and benefits terms, whether or not anyone writes them down carefully. The offer letter sets salary, bonus eligibility, and an equity promise. The worker's classification decides who can join the 401(k) and health plan. The bonus plan decides when pay is earned and whether a departing employee can claim it. The severance agreement decides what the company pays for a release and when. We draft and review these documents with the tax, ERISA, and wage law rules in view, and we work alongside our labor and employment practice when a dispute moves into discrimination, retaliation, or wage claims.
Offer Letters And Employment Agreements
Most employees work at will under an offer letter, while senior hires often negotiate a full employment agreement. Both need consistent terms: salary, bonus eligibility, benefits, equity grants subject to board approval, confidentiality and invention assignment, and any severance. Problems usually come from promises that outrun the governing documents, such as an option grant stated as a number of shares with no reference to the plan, a bonus described as guaranteed, or severance mentioned in an email. We prepare offer letter and employment agreement templates, review individual packages for executives and key engineers, and make sure the compensation terms line up with the equity plan, the bonus plan, and Section 409A.
Classification And Benefits Eligibility
Whether a worker is an employee or an independent contractor is decided under several tests: the IRS common-law control test for tax purposes, the Fair Labor Standards Act economic reality test, and in many states an ABC test for wage and unemployment law. Misclassification creates back taxes and wage exposure, and it creates benefit plan risk too. In Vizcaino v. Microsoft, workers labeled as contractors and later reclassified sought plan benefits, and the litigation lasted years. Plans should define eligibility by reference to payroll classification and expressly exclude reclassified workers. We review contractor relationships, draft the agreements, and coordinate plan eligibility language so a reclassification does not become a retroactive benefits claim.
Bonus, Commission, And Incentive Plans
Incentive plans fail most often on two questions: when the pay is earned and when it must be paid. State wage laws may treat a commission or nondiscretionary bonus as earned wages once its conditions are met, which can limit forfeiture on termination, and some states require written commission agreements. Section 409A treats a bonus paid more than two and a half months after the end of the year in which it vests as deferred compensation unless the plan fits an exception. We draft incentive plans with clear performance metrics, eligibility and continued-employment conditions, discretion where the law permits it, and payment dates that work under both state wage law and the tax rules.
Severance, Releases, And Disputes
A severance payment usually buys a release of claims, and the release must be drafted to hold. For employees 40 and older, the Older Workers Benefit Protection Act requires the release to refer specifically to the Age Discrimination in Employment Act, advise the employee in writing to consult a lawyer, allow 21 days to consider it, or 45 days in a group termination with the required age disclosures, and allow seven days to revoke. Some claims, such as vested benefits and certain wage claims, cannot be released at all. When separations turn into disputes over unpaid bonuses, forfeited equity, severance, or ownership of inventions, we represent employers and employees in negotiation, arbitration, and court.
Invention Assignments And Common Mistakes
For technology companies, the invention assignment agreement is often the most valuable document an employee signs. It should assign inventions and works created within the scope of employment, carve out what state law protects, such as under California Labor Code Section 2870 and similar statutes in Washington, Illinois, and other states, and require the employee to list prior inventions. Common mistakes include asking current employees to sign without consideration where state law may require it, using contractor agreements with no present assignment language, and tying severance to a release without fixing the payment date, which can create a Section 409A problem. Careful forms and a checklist for hiring and separation avoid each of these.
