Tip #1 for Drafting Executive Employment Agreements: Define “Cause” Broadly
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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, points out Bill Wortel in Bryan Cave’s At Work blog.
“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,” Wortel writes.
He advises that the agreement should include a definition of cause that provides the company with flexibility to terminate an executive for legitimate, non-discriminatory business reasons.