EXECUTIVE CONTRACT: SEVERANCE

April 10th, 2018 Posted by Prior Posts

Companies are often reluctant to grant an executive severance upon the expiration of the executive’s contract term. When negotiating an executive employment agreement under these circumstances, the fall back position is to eliminate the term completely and become an “at will” employee.

It may seem counterintuitive, but most contracts for a term provide the company with the ability to exit the agreement at any time prior to expiration without “cause” so long as they pay a penalty otherwise known as severance. So, even if you have a contract for a term, the ability of the company to end the relationship before the term expires really renders the relationship “at will.”

However, as long as you have a severance provision in the contract then the “at will” arrangement will (a) eliminate an inexpensive exit strategy for the company since the company can just let the contract expire, and (b) always provide you with severance no matter how long you remain employed.