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CRONIN’S CORNER – The Executive Employment Agreement

By Michael T. Cronin | Categories: Business & Tax Law, Labor & Employment | June 2013

Over the years, I have negotiated and drafted numerous employment agreements for executives.  I recently came upon the attached checklist, which I find very helpful.  It is always a good idea to put together a term sheet before drafting the formal agreement.  This checklist is useful in identifying and resolving potential issues before formal drafting.  This saves time and money.

At this very moment I am counseling a company in connection with an executive’s claim of good reason termination in connection with a change of control, which entitles that executive to 1-1/2 times his base salary verses a voluntary termination by the executive without cause, which does not entitle the executive to any severance payments.  There is a several hundred thousand dollar delta, depending upon which provision applies.

On a macro level, I have noticed in the last several years that severance payments for termination without cause have been shortened.  It is not unusual to see 3-6 months severance payments as opposed to 1-2 years several years ago.  Likewise, there are fewer perks.

One of the most challenging areas in any executive employment agreement deals with restrictive covenants.  From a philosophical perspective, I like “pay or play” severance arrangements for a reasonable period of time.  In other words, if the executive is terminated without cause, then the company has the right to either pay the executive during the non-compete period or release the executive from the non-compete, which allows the executive to seek employment with a potential competitor.  Sometimes, the option is with the executive, but in my practice that is the exception rather than the rule.

I hope you find the checklist helpful. – Click here


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