Backdating an employment contract

The practice of providing the employment and social services authorities with backdated documents and disguising the nature of the termination of an employment contract in order to obtain unemployment allowance payments may constitute the criminal offences of forgery and use of forgeries.

Background If an employment contract is terminated following dismissal with immediate effect or by mutual agreement, the employee is not entitled to unemployment allowance payments.

There is no statute that explicitly outlaws backdating stock-option grants, but it seems virtually impossible to backdate options and achieve the ultimate goal of putting grants “in the money” without first deliberately falsifying documents and then covering up the sham.

At least that seems to be the conclusion reached by the Department of Justice and the Securities and Exchange Commission regarding their first case against executives charged with fraud related to backdating.

Use the Contractual Relationships Toolkit to determine the most appropriate employment status arrangement for each individual.

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Should litigation occur, and if the individual is found to be an employee, the University would be obliged to offer them a full contract of employment backdated appropriately.Last week the Do J brought criminal charges against two Brocade Communications Systems executives, while the SEC filed a civil suit against the same two and the CFO.As expected, the charges focused on backdating stock options by doctoring employment documents, neglecting to record the stock-option expense on the company’s books, and misleading investors.The cascading litany of alleged charges is not likely to stop with the Brocade case.Indeed, with more than 80 companies being reviewed by the SEC for potential illegal backdating practices, and one academic study claiming that more than 2,000 companies have engaged in the practice, civil and criminal charges will probably mushroom in the next few months. The purpose of backdating is straightforward: it gives options holders an immediate paper gain, and a real gain once the option is exercised.Use the Contractual Relationships Toolkit to check if your 'worker' is now an employee.

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