Why Bank Officers Need Employment Agreements
By J. Marc Ward
Banks sometimes think their officers will never leave, so planning for their future departure from the bank is not always a high priority. But in today’s environment, bank officers are heavily recruited by competitors and loyalty to the company is not like it used to be. If your bank president leaves to work for your largest competitor, do you have an agreement in place to stop him or her from taking customers and employees?
An employment agreement usually contains provisions like compensation, benefits, duration and the employee’s key responsibilities. On one hand, these agreements can be used to attract executive talent. But an employment agreement can also put a number of protections in place that may make an officer less likely to leave. While you cannot force an employee to continue working for you, an employee may be less likely to leave for a competing bank if there are penalties or restrictions in place for doing so.
For example, employment agreements often contain non-compete and non-solicitation provisions. A non-competition provision can protect your investment in time and money in developing an employee, only to have the employee leave for higher salary or better benefits. A lawyer can help you draft a non-competition provision that will be enforceable in terms of scope, length of time and geographic distance. A non-solicitation provision also may be drafted to prevent officers from soliciting your employees and customers after they leave.
Another key term in an employment agreement is one that addresses termination of the relationship. The agreement can provide for a required notice period and grounds for termination. For example, if any employee is terminated for cause, that has a different financial outcome than a termination without cause. And if an officer terminates for “good reason,” that also has different consequences than having no reason (other than a better offer elsewhere). These phrases can be defined however you choose, or you may choose to allow either party to terminate the agreement for no reason at all.
Finally, you should always prevent your officers from taking and disclosing confidential information such as customer lists and pricing information through a confidentiality clause. Even if an officer does work around the non-competition provision and goes to a competitor, a confidentiality provision adds an extra layer of protection so your competitors do not end up with your confidential information.
In addition to employment agreements with officers, it is also advisable to have employment agreements with other key personnel who would be costly or time-consuming to replace. If you decide against entering into employment agreements with your officers, you should consider the potential business and legal ramifications if an officer or other key employee leaves to work for a competitor.