What’s in a Contract? An LO Comp Audit, or an Ally?

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Now more than ever, lenders have to pay careful attention to their contracts with employees, which in some cases will form the basis of an audit or regulatory investigation (e.g. LO comp). However, Lenders must not forget that an employment agreement is more than a recap of the compensation plan for a regulator to examine. The contract can form the basis of unintended contractual liability from promises that are not worded correctly or that are explained in short hand. Contracts can also create liability under federal and state wage-hour laws resulting from improper compensation policies, inappropriate wage deductions and set offs, and even descriptions of duties that create wage/hour liability. Contracts can also expose employers to tax liability. Moreover, what is not in a contract can be just as bad as including the wrong information. Omitting particular conditions to payments or limited scope can create far reaching liability for unintended compensation. There are endless mistakes that can be made in drafting one of these agreements.

For those tempted to stop reading and simply avoid contracts, besides the fact that it simply is not an option anymore, the fact is that artfully drawn contracts can be an employer’s best ally. It can eliminate employment class actions, prevent wage hour litigation/liability, and give employers powerful tools preventing improper competition. It can define employer-friendly circumstances as to when employment terminates and preconditions to payment of compensation. It can avoid compliance sanctions by defining duties and responsibilities that prevent improper behavior from being attributed to the entity. In short, a good employment contract can be worth far more than its weight in gold.

With a compliance deadline of January rapidly approaching—and employment agreements at the center of these changes—lenders should take the time to go through their contracts carefully to ensure they are as advantageous and accurate as possible. While it may seem like a burdensome and unnecessary exercise that can “wait until later” far too often “later” only occurs after an employer has learned the hard way the cost associated with a bad employment agreement.