All employees should be aware of the employment agreements that they sign, but this is particularly true for those in high-level executive positions. We typically think that executives should have serious job security because their skills are in high demand, but this is not always true.
Executives can be subject to sudden employment changes because their company is purchased by another, they’re getting pressure from shareholders, or because the company feels that it needs to move in a new direction. In order to protect yourself from sudden termination, there are several key aspects of an employment agreement that all executives should be aware of.
Executive Termination in Rancho Cucamonga
Because job security for many executives is at the whims of shareholders, potential purchasers, or the market, many executives seek additional security in their compensation before signing an employment agreement. This allows them to receive a severance payment or payments after termination, often of a significant amount.
Severance payments are usually only allowed if the executive is not fired “for cause.” This means that defining “for cause” within your agreement is exceptionally important. You may want to limit it to intentionally wrongful conduct or criminal activity rather than something ambiguous such as poor performance.
Severance and Resignation
While executives may sometimes be forced out of a position, they also often choose to leave their job if they feel they are not given the resources or support necessary to do a good job. In order to ensure financial security even after resignation, many executive agreements allow executives to receive severance payments even after they resign if the resignation is for good cause.
Again, it will be important to carefully define what good cause means, and to ensure that the scope of good cause is not so narrow as to effectively prevent severance upon resignation.
Indemnify and Defend
Executives are often the visible face of a company. And when something goes wrong, they may be the first to be sued. In order to protect against unreasonable business expenses, most executive agreements provide that, in the event an executive is sued in his role as an executive (as opposed to in his personal capacity), the company will indemnify and defend him or her.
This means that the company will pay the executive’s attorneys fees throughout the litigation. The executive will typically only be required to pay those fees back if it is proven that he engaged in wrongful conduct.
Indemnification means that in the event an executive experiences a loss from the litigation, such as any damages that are awarded in the lawsuit, the company will reimburse the executive for those damages.
California Attorneys Making Sure Your Executive Agreement Is Comprehensive
If you are in the process of negotiating an executive agreement, it is extremely important to seek the assistance of an experienced employment attorney. Without legal advice, it can be easy to unwittingly sign an agreement that does not protect your interests.
At CKB Vienna, LLP, our employment law attorneys frequently work with executives throughout California to assist them in finalizing an employment agreement before entering a new job. For more information, contact us online or at (909) 980-1040.