employee-retention-agreement

name	employee-retention-agreement
title	Employee Retention Agreement
description	Drafts enforceable U.S. Employee Retention Agreements (ERAs) for M&A, restructurings, and leadership transitions. Covers cash/equity/hybrid incentives, 409A compliance, termination scenarios, change-in-control triggers, restrictive covenants, and 280G golden parachute analysis. Trigger when drafting retention bonus agreements, executive compensation packages, or key-employee continuity contracts for business transitions.
author	CaseMark
author_url	https://github.com/CaseMark/skills/tree/main/skills/legal/employee-retention-agreement
license	Apache-2.0
version	0.1.0
execution_mode	open
jurisdiction	us
practice	employee-benefits
language	en
tags	["agreement","drafting","transactional"]

Employee Retention Agreement

Drafts a binding ERA balancing employer talent-continuity needs with enforceable, fair terms for key employees during critical business transitions.

Prerequisites

Collect before drafting:

1. Employee data — legal name, title, hire date, base salary, bonus structure, equity holdings
2. Employer data — legal entity name, state of incorporation, principal place of business, parent/subsidiary relationships
3. Existing agreements — employment agreement, offer letter, equity plan docs, prior severance/retention/restrictive covenant agreements
4. Transaction context — term sheet, board resolutions, retention budget, anticipated closing date (if M&A)
5. Jurisdiction — employee's primary work state (drives covenant enforceability)
6. Incentive parameters — cash amount/formula, equity type/amount, vesting schedule, retention period dates

Drafting Workflow

1. Recitals

• State business rationale (M&A integration, leadership transition, competitive threat)
• Frame retention payment as new consideration beyond existing duties (enforceability requirement)
• Acknowledge employee's unique skills and replacement cost

2. Retention Incentive Structure

Element	Requirements
Cash (fixed)	Gross amount; withholding acknowledgment; installment dates
Cash (formula)	Salary multiple or metric with calculation methodology
Equity	Reference governing plan; award type; attach grant agreement as exhibit
Hybrid	Define components separately; address vesting timeline interaction

409A compliance:

• Employer withholds federal, state/local, FICA; employee bears ultimate tax liability
• Classify as: (a) short-term deferral (paid within 2½ months of vesting year-end), or (b) compliant 409A deferred compensation with fixed schedule
• Define "separation from service" per 409A (reduction to <50% of prior 36-month average)
• Specified employees (public company key executives): include 6-month payment delay on separation-triggered payments

3. Retention Period

• Set exact start and end dates (not ranges)