Those who run businesses often receive large salaries and robust benefits packages, as well as generous severance if a company terminates them. Executives usually face very serious professional demands that justify the pay they receive. Not only must they competently manage a company, but they must act in the best interests of shareholders. Unfortunately, in some cases, they may not meet the company’s expectations. Some executives prove incompetent, while others are potentially corrupt.
In some cases, organizations may have negotiated executive employment contracts that include golden parachutes. Executives who lose their jobs due to restructuring, business sales or mergers may receive generous compensation. Do organizations have the right to challenge severance agreements and other contracts that provide golden parachutes when terminating an executive for a breach of their duty?
The contract may protect the business
Frequently, executive compensation contracts and severance agreements include clauses that protect the business in certain circumstances. Specifically, the organization may not need to provide a promised golden parachute when terminating an executive for cause.
A breach of fiduciary duty related to misconduct or egregious incompetence could be legal justification to withhold severance pay and other compensation that comprises a golden parachute. Companies often need to document issues carefully before announcing the decision to terminate an executive. A careful review of the original contract signed during onboarding is also important for the protection of the employer.
Documenting performance issues, inappropriate conduct and other issues can make it possible for organizations to proceed with a termination without incurring major financial obligations. An attorney’s support can facilitate the enforcement of contract terms and may minimize the risk of an employment contract lawsuit brought in response to a termination accordingly.