Florida Employment Law: What is a Clawback Provision?
A clawback provision allows an employer to take back money that has already been distributed to one of the firm’s employees. In the context of employment law, clawbacks provisions are most frequently included in contracts with executives who may receive bonuses or other incentives for performance.
Though, other employees may also potentially have clawback stipulations attached to certain payments that are made to them. In this post, our experienced Miami employment law attorneys discuss some important things you should know about clawback provisions.
Leaving a Job? Watch for Clawbacks
If you have been paid a bonus (signing bonus, retention bonus, etc) or if you have been given another type of financial benefit, you need to be sure that you are fully aware of the terms of that payment. In many cases, companies attach clawback provisions to bonus payments. Most often, a repayment obligation will be triggered if you voluntarily separate from the company within a specified period of time. For employees, it is important to know what, if any, strings are attached to the non-salary payments you receive. This will ensure that you are always fully prepared and can make an informed decision before leaving a job.
Though, job separation is not necessarily required for a clawback provision to be triggered. Indeed, if an employer determines that an employee breached the contract on which payment was granted, the employer could potentially attempt to seek repayment. One common example is if it is discovered that the employee engaged in fraud or another type of serious misconduct in order to obtain the payment in the first place, the bonus may be subject to a clawback. Under certain financial regulations, including Sarbanes-Oxley, companies are legally required to include clawback provisions for some types of executive compensation.
The Enforceability of Clawback Provisions
Clawback provisions are highly technical and extremely complex. For a provision to be enforceable, it needs to follow the legal requirements of federal and state law. Florida employers need to be sure that any clawback clauses included within their employment contracts are very carefully drafted. Otherwise, their contract may be thrown out by a court. A clawback provision may potentially be ruled to be unenforceable for a wide variety of reasons. Some of the most common examples include:
- A clawback provision is found to be an unlawful, because it presents an unjust “constraint on trade”;
- A clawback provision is designed in bad faith, as a “penalty clause”; or
- A clawback clause is too ambiguous, and thus must be construed in favor of the non-drafting party (the employee).
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At Pike & Lustig, LLP, our Florida business litigation attorneys have extensive experience drafting, reviewing and litigating clawback provisions. If you are an employer or employee in need legal advice related to a clawback provision, please do not hesitate to reach out to our team today. From our primary office in West Palm Beach, and a new location in Miami, we represent individuals and businesses throughout South Florida, including in Broward County and Miami-Dade County.