CRONIN’S CORNER – The Executive Employment Agreement
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