The C Level Employment Agreement — Termination

Big Red Car here.  The Boss is traveling and I am left with the house sitter.  Well, the house sitter has been driving the Hell out of the Big Red Car — don’t tell The Boss because he is very particular as to who gets to drive me, the Big Red Car.  Haha, joke is on you, Boss.

So, when you enter into any agreement, you have to know the circumstances under which the Employment Agreement may be terminated.  It can be terminated under three different conditions — by the CEO, by the Board or by the circumstances outlined in the Employment Agreement.

We will discuss each of these conditions and then dig into them in another post.

Termination in accordance with the Employment Agreement

The Employment Agreement will likely provide for automatic termination under the following conditions:

1.  The Employment Agreement has run its course and the term has expired without being renewed;

2.  The CEO dies or is disabled or is unable to perform the duties required by the Employment Agreement;

3.  The company is sold or 50% of the assets of the company are sold; or,

4.  There is a change of control in that a new individual or group owns more than 50% of the common stock of the company.

In each of these circumstances, the Employment Agreement will likely terminate automatically.  There may be more such circumstances that are particular to your company but these are the “normal” ones.  [Hell, nothing these days is “normal” sayeth the Big Red Car.  Haha.]

Termination by the CEO

The CEO is typically authorized to unilaterally terminate the Employment Agreement for the following reasons:

1.  “Not for cause” and with appropriate written notice to the Board of Directors as called for in the Employment Agreement;

2.  For any of the reasons enumerated in the preceding section [this may be because the parties have ignored these developments and the CEO may have to bring such matters to their attention, in particular, a change of control]; and,

3.  For an uncured default by the company or Board of Directors under the Employment Agreement after giving written notice and the expiration of an appropriate cure period.

This discussion does not touch upon the implications of severance payments or other compensation issues but we will do that in a future post.

Termination by the Board of Directors

The Board may terminate the Employment Agreement under the following circumstances:

1.  “Not for cause” and with appropriate written notice to the CEO as called for in the Employment Agreement;

2.  “For cause” and upon written notice, an opportunity to cure and the failure by the CEO to cure the objectionable behavior; and,

3.  “For cause” based upon such things as criminal behavior or an act involving moral turpitude which may be unable to cure.

Other important conditions

All of the above termination actions and triggers will be discussed in more detail in subsequent posts.  Subjects such as severance package, payment and other issues will also be developed.  Here is a quick list of those other important considerations:

1.  Severance package and eligibility.  Severance will not be paid under some obvious conditions;

2.  Final paycheck and delivery of deferred compensation, if any;

3.  The return of company owned equipment;

4.  The termination of company paid services such as social media or country club memberships;

5.  The confidentiality requirements of confidential, proprietary, trade secret information;

6.  The ownership of intellectual property and the ability to recreate such creative product in the future;

7.  The type and character of a future recommendation provided by either party;

8.  The departing CEO’s ability to compete with the company in the future or for some fixed period of time after departure;

9.  The departing CEO’s ability to hire current employees of the company in the future or for some fixed period of time after departure; and,

10.  A non-disparagement agreement between the parties.

While this list could go on a bit longer, you can get a feel for the nature of the continuing complications such an action triggers.  Make sure that your Employment Agreement addresses these issues now and don’t wait until the feathers have hit the fan and any goodwill evaporates.

OK, Old Sport, that is all for today.  The house sitter is getting ready to take me for a run through the Hill Country and to get some pie at the Blue Bonnet Cafe in Marble Falls.  He wants me to promise not to tell the The Boss.  I am starting to like this kid.

But, hey, what the Hell do I know anyway?  I’m just a Big Red Car.

Be good to yourselves, it’s summer time and the living is easy.