Termination Clauses in Executive Employment Contracts

Protecting your interests under a variety of scenarios

When an executive enters an employment contact, every aspect of the agreement merits intense scrutiny. But perhaps no section is more important than that dealing with termination. At Deutsch Atkins & Kleinfeldt, P.C., our employment attorneys understand your need for security and flexibility. We negotiate and draft executive employment contracts that meet your career objectives, contain necessary safeguards and allow you to retain sufficient control if the promised position fails to meet your expectations. When terminations occur, we represent your interests aggressively, but prudently, curing the situation or negotiating an exit that upholds your contractual rights. We are one of northern New Jersey’s largest employment litigation law firms, and we have the experience, knowledge and resources to deliver positive results.

Executive termination clauses

When an employer terminates an executive, it may do so with or without cause if the executive either has an employment contract indicating the employment is at-will, or not contract at all, since the law presumes “at-will” employment. If the executive is an “at-will” employee, he or she may be terminated for any reason or no reason, except an illegal reason such as discrimination or whistleblowing.  Fairness or unfairness does not count.  If the employer has a policy concerning severance, for example, in the event of a layoff, the employee is entitled to whatever severance pay in the policy.  Length of service or position may be factors in calculating severance, but neither creates an entitlement beyond the policy.

Upon the commencement of employment, a prudent executive should negotiate a provision whereby severance is an entitlement, except in the following “for cause” circumstances:

• Intentional breaches of the employment agreement
• Willful misconduct, dishonesty or bad faith contrary to the company’s interests
• Felony conviction, or a violation of law that reflects badly on the company’s reputation
• Breach of fiduciary duty from which the employee profited
• Repeated failure to adhere to company policies
• Repeated and intentional neglect of duties

With the exception of the felony conviction, these charges are generally matters for dispute between employer and employee. Proof often depends on evidence of the employee’s bad acts and bad intent, and the employer providing adequate notice and opportunity to cure. The murkier the case against the employee, the more room an attorney has to negotiate a severance settlement that can include some or all benefits from the contractual package.

Maintaining your rights as a terminated employee when you leave voluntarily

Another scenario our firm sees often is a material change in the executive employee’s job description that either feels like a demotion or prevents the employee from achieving expected earnings. Executive employment contracts must be specific about title, duties, chain of command and bonus metrics, and allow an executive to leave the position voluntarily with full severance when the company violates these terms of employment. Our firm insists on escape clauses for our clients that contain references to substantial changes that would amount to a breach by the company:

• Assignment of duties inconsistent with the employee’s status and title
• Attempts to reduce the employee’s base salary or bonuses
• Changes in the employee’s reporting relationship
• Change of locale that unduly burdens the employee
• Change in control of the company due to sale, disposition, merger or joint venture

Evidence that the employee’s job has changed substantially from that described in the contract would trigger full, pre-agreed upon, severance benefits, e.g. six (6) months or a year’s compensation. Again, allegations of breach must be proven, and companies often deny they are in breach. But the employee has much more leverage to negotiate an exit when the contract is explicit. Our attorneys are determined to negotiate clear and precise contracts, and fight aggressively for our clients’ rights.

Contact a leading NJ law firm for executive employment matters

If you are contemplating an offer or developing your exit strategy, the experienced employment attorneys at Deutsch Atkins & Kleinfeldt, P.C. can help. We are prepared to negotiate or litigate issues related to executive employment contacts. Call us today at 551-245-8894 contact us online to schedule a confidential phone consultation or to visit one of our offices in Bergen County, New Jersey or Rockland County, New York.