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GUEST COMMENT: This is what you need to know BEFORE you sign a new contract to work in an investment bank

Alex Kleanthous

When you have been offered a new job, the last thing you usually want to do is read through the small print and to try negotiating your terms of employment. Particularly in the current market, you may feel that to do so would be to risk jeopardising your new relationship. However, if you don’t you may come to regret it. The detail of your contract detail is very important – especially when the relationship comes to an end.

If you’re signing a new contract, we therefore suggest you work your way through the following points (bearing in mind that FSA bonus rules may or may not apply in your case):

1. Will my new employer even be willing to negotiate?

In our experience, almost invariably yes.  Some terms may not be flexible, but a lot will be.  Employers are rarely offended by a prospective employee making reasonable requests.  It can often be easier to do this through a solicitor to avoid any personal issues arising.

2. What sort of things can be negotiated?

The major areas for negotiation, apart from the obvious such as basic pay and holidays, include bonus terms, notice provisions, and restrictive covenants (which restrain competition after you leave).

3.  Bonus terms – won’t it just say that the bonus is discretionary and there is nothing I can do about that?

Yes, under FSA rules, most bonuses are discretionary there will be little you can do about this. However, you should be able to negotiate a payment to compensate you for any stock you’ve left behind (although the FSA states that this payment must remain deferred as it was before, in order to remove any incentive to change jobs). You also need to look at the conditions attached to this payment – sometimes employers will specify that it can be clawed back if you leave within a certain period (eg a year). You need to make sure that this clawback will apply only if you leave voluntarily or are dismissed for gross misconduct – and not, for example, if you are made redundant.

4.  What about an initial guaranteed bonus?

This may be appropriate for the first year where it will take time to build up business.  However, be aware that the FSA only allows guaranteed bonuses in ‘exceptional circumstances’ and then, that they must be restricted to the first year.

5. And what about the bonus when I leave?

The typical position is that bonuses are only payable if you are still employed and not under notice at the time the bonus is due to be paid.  However, this can be negotiable, and it is particularly appropriate to do so if you are in a sales role and the bonus represents commission on sales, or for example, if you are a prop trader and the bonus represents an element of profit already received by your employer.

6.  Aren’t notice provisions just standard?

No, they aren’t.  While a notice period of between 1 and 3 months would be fairly typical, employers do propose longer or shorter periods.  You should generally not accept a term that requires you to give more notice to your employer than it has to give to you.  In general, longer notice periods tend to favour employees but they can operate against you if your employer wants to keep you away from a competitor when you leave, especially if the employer operates a garden leave clause.  The way the notice works needs to be considered together with any garden leave clause and any restrictive covenants.  One advantage of using a solicitor familiar with the sector is that by seeing a wide range of contracts, your solicitor will know what is usually acceptable in the market place.

7. What about those restrictive covenants?  Can they actually enforce them?

Often, yes.  Typical clauses would restrain you for a certain period from competing with your employer generally, from trying to poach clients, from dealing with clients whether you poached them or not, and from trying to get colleagues to come to your new employer with you.  The general rule is that such clauses are only enforceable if they are reasonable, but they are often enforced by the courts.  It is very easy when joining a new firm to overlook what will happen when you leave but unless you think you’re going to stay there until you retire, you will be leaving at some point and that is going to be too late to discover that you have some crippling restrictive covenants that will prevent you from earning a living for perhaps six or 12 months.  The time to negotiate these is at the beginning.  This is a very complex area and you should always have specialist advice.  It can pay huge dividends when you leave.

Alexander Kleanthous, is a partner at Gannons Solicitors, an  employment law firm which offers advice to employees on all aspects of their employment relationship.

Comments (4)

Comments
  1. Like this. Banking world’s form of pre-nup. Your strongest negotiating stance is when they’re hungry for you, not when they’ve got you. So to speak.

  2. nice plug Mr Kleanthhous

    lostinbeinglost Reply
     
  3. lostinbeinglost: I’m probably the most cynical human in the Square Mile, but do not think this a plug. Yes, he could get some nice business out of it (all credit to him for doing that), but in my three decades (count ’em) in the City, the number of horrors that could have been headed off if folk had just had their contracts checked by a contract lawyer… doesn’t bear thinking about. So salute Kleanthous for bringing up an important topic. More people need to do this. A contract of employment is fundamentally unfair (ties you, doesn’t tie them very much). You need to get the t’s crossed and the i’s dotted. Believe me on this. I’ve done contracts both ways. Checked is best.

  4. Yes, it’s not a plug. And banks are hiring en masse, the jobs market is booming and it’s really sensible to encourage everybody to start renegotiating their contracts because as we all know, the war for talent is raging!

    Get real.

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