Investment banks' employment contracts - what to watch for
When you're signing a contract to work in an investment bank in the UK, you need to go in with your eyes open. Banks aren't bad, but they will try and slip things into the document which could impact you in future. And these things can often be negotiated away.
1. Watch out for restrictive covenants
There are four types of post-termination restrictive covenants used in banking contracts: non-compete, non-solicitation, non-dealing, and non-solicitation of employees. They are all intended to restrict your freedom after you have left the bank. You need to know what you are signing up to.
For example, non-solicitation covenants state that you should not solicit your former clients for a competing business, whereas the more onerous non-dealing covenants require that former employees should not have any dealings whatsoever with those clients for the restrictive period. Non-compete covenants, on the other hand prohibit you from working for competing firms.
A typical restrictive covenant period is between 3-6 months, but they can be up to 12 months for more senior staff.
Restrictive covenants are widespread in investment banking at both junior and senior levels, and you can come unstuck if you breach them (e.g.) by taking your team to a competing business. A breach could also render you a “bad leaver”, which might limit your access to your deferred stock. However, for a covenant to be enforceable, banks have to show they have a “legitimate business interest to protect”, and that the covenants are not overly onerous, otherwise they could be void for being in restraint of trade.
2. Watch out for clauses relating to your bonus - and especially, to your deferred stock
Check all the clauses relating to your bonuses in your contract especially carefully. Contracts will usually make it clear that bonus schemes are discretionary. They will often also include criteria (such as performance and/or team targets) for determining the amount you'll be paid. In this case, make sure the criteria specified are achievable.
Most bonus clauses will also say that you need actually to be employed at the bonus payment date, and that to receive the bonus you must not be under notice of termination. Watch out for this! Many bankers get caught out and lose their bonus entitlement when they resign, even though they are still working at the “bonus payment date”.
You should also check what the bank’s 'Long Term Incentive Plan' (LTIP) is. This may well be in the form of restricted stock units (“RSU’s), which amount to an agreement to issue stock or shares when the award vests. At some banks you're required to retain a percentage of the restricted stock units even after they've vested. - Be aware of this.
3. Watch for clauses concerning notice periods and gardening leave
Finally, it's not uncommon in banking contracts to have a three, six or even 12 month notice period for the most senior staff. Be aware of these notice clauses when you sign the contract, and try to negotiate a longer (or shorter) period depending on whether you think you prefer the security of a longer notice, or whether this will hamper you moving to a new position.
You may also have a “gardening leave” clause, whereby you could be asked not to attend the workplace during your notice period, even though you continue to be paid. This is something many banks are keen on, especially where you hold a senior role with important client contacts and are privy to confidential information. Putting you on gardening leave takes you out of the equation for the period of your notice. You are unable to contact clients or colleagues for this period.
Philip Landau is an employment lawyer at Landau Law Solicitors