The hiring and firing of an executive director (President or CEO – pick the title) of a nonprofit organization is a strenuous task. Basically, it is the volunteer leader’s equivalency of a root canal. Why is it so hard? Because the people who have to undertake the chore are typically volunteers with full time jobs and lives that they also need to lead and contend with. And hiring or firing a nonprofit executive can be (and usually is) a short-term full-time job for at least one or more volunteers. Lawyers from Avisen Legal’s Nonprofit Practice Team and Employment Law Practice Team hope to provide at least a little bit of guidance to those going through the process of with this series: Hiring (and Firing) the Boss of a Nonprofit Organization.
Do you need an employment agreement with your new nonprofit executive, or will an offer letter do?
Offer Letter versus an Employment Agreement – what is the difference?
Before answering the primary question, let’s make sure we are clear on vocabulary.
An Offer Letter is pre-employment communication where a potential employer, using an “informal” letter, offer’s a potential employee a position. Most offer letters include some (or all) of the following key terms:
- name/position of supervisor;
- full-time or part-time work schedule;
- exempt/non-exempt classifications;
- duties (unless title is clear as to duties);
- base salary;
- bonus possibility;
- at-will employment status;
- present confidentiality/invention assignment agreement(s) for signature;
- require disclosure of prior employer confidential information/restrictions; and
- any contingencies such as a criminal background check or drug test.
Offer letters vary by industry, job types and complexity. The offer letter for an executive may differ from an offer letter for a covered non-exempt employee covered non-exempt employee (If there is any doubt about the classification of an employee, I suggest going directly to the source). An executive will, by definition, be an exempt employee.
Offer letters can be tricky (they can create a legally binding agreement under certain circumstances), but they are generally a good first step from the employer and the employee’s perspective.
An Employment Agreement (which is the same as an employment contract) is written agreement signed by both the employer and the employee the specifically spells out the relationship between the employer and the employee. The critical point of an employment agreement is that it covers specific items that generally need to be “contracted” for between the parties such as severance, noncompete provisions, morality clauses, restrictive covenants, etc. Most average employees do not actually have an employment agreement – they are “at-will employees” who have the rights set forth under state and federal law or maybe the employer’s employment handbook. Most employment agreements follow a typical pattern (here is a good primer on What Goes Into an Employment Contract and Why) and cover most, if not all of the items covered in an offer letter.
Should a Nonprofit Organization have an employment agreement with an incoming executive?
An Employment Agreement protects the employer when it includes restrictive covenants such as noncompete provisions, employee and client non-solicitation provisions and confidential information protections. Many of these provisions can be covered by separate agreements on these points, but these rights are generally more enforceable if they are specifically bargained for in the context of an agreement (all employees owe some duty of loyalty to their employer while employed). An Employment Agreement protects the employee when it includes severance obligations that specifically lay out what the employer will need to pay the employee in the event of termination of the employee under certain circumstances. This basic balance occurs regardless of industry.
For a nonprofit organization, however, an employment agreement may be more critical if the incoming executive is recruited from another state or organization. The recruited executive might want some assurances before they leave a sure thing. In addition, the nonprofit organization might want and need some assurances that the incoming executive can be terminated easily and without cost for behavior that reflects badly on the organization (Morality Clauses are becoming more popular).
So, in my humble opinion, a well drafting employment agreement goes a long way to setting up the long-term relationship between the newly hired executive and the nonprofit organization. A nonprofit organization is well served when its board of directors takes the time to contractually outline the expectations of the employment relationship between the boss and the organization.