Executive employment agreements will ordinarily have termination of employment provisions. Executives will assume the termination provisions go one way, i.e. that the employer is always doing the terminating. What about the executive terminating his own employment?
Termination for Good Reason
The sophisticated executive or professional will negotiate a provision that allows him to terminate his employment for “Good Reason” and still receive certain compensation and benefits from his employer. The provisions for termination for good reason by the executive can range from a few sentences to several paragraphs.
Categories of Good Reason
The employment agreement should define “Good Reason.” Such definition may include an event where the assignment to the executive of any duties inconsistent in any material respect with the executive’s position, duties, responsibilities or status with the company as of the date of his employment agreement, or if a change in control has occurred, immediately prior to such change in control. It may include a change in the executive’s reporting responsibilities, titles or offices with the company. It may include any failure to re-elect the executive to any position with the company held by the executive. It may include a reduction of the executive’s rate of annual base salary. It may include any demand that the executive be based anywhere other than at the facility where the executive is currently located. It may include travel on company business to an extent substantially more burdensome than the ordinary travel requirements of the executive. It may include the failure of the company to continue in effect any employee benefit plan or compensation plan in which the executive is enrolled. It may include the failure of the company to continue to provide executive and executive’s dependents medical, dental, disability, and life insurance benefits. It may include failure of the company to provide the executive with paid vacation. It could include failure to reimburse promptly the executive for any reasonable employment expenses.
Negotiating Termination Clause
The list could go on and on about the various events that could be deemed a Good Reason for an executive to terminate the employment agreement. Like anything else, it is a matter for negotiations.
The more star power an executive has, coupled with his lack of need to take the position will increase his leverage to negotiate his right to terminate with resulting substantial compensation and benefits.
It is a wise executive who controls the circumstances of his employment. An executive employee’s right to fire his employer is a huge step in that direction.