July 10, 2017
Authored by: Bill Wortel
Tip No. 1: Define “Cause” Broadly
Executives and other high-level employees often negotiate a contractual provision requiring the payment of severance if terminated without “Cause” prior to the expiration of a term agreement. While the definition of Cause often depends on the parties’ respective bargaining power (highly sought talent typically has considerable leverage), the employer should attempt to negotiate as broad a definition of Cause as possible. Too often, employers limit the definition of Cause to intentional misconduct that harms the company, criminal behavior, or the executive’s death. Such a narrow definition ties the employer’s hands when an executive is not making a good-faith effort to perform well or is performing very poorly despite reasonable efforts. Under these circumstances, the employer’s options are limited to continuing to employ the underperforming executive or terminating the executive and paying out severance.
It is also fairly common for Cause definitions to include a