CAUSE AND GOOD REASON CLAUSES IN EXECUTIVE EMPLOYMENT AGREEMENTS

08.04.2014

In New York and most other states, employment is presumptively at-will, meaning both employer and employee are free to terminate the employment relationship at any time, for any reason.  As with many legal precepts, the employment at-will doctrine has many exceptions, and we have written often in this blog about protected-category discrimination as the most common employment at-will exception.  Another at-will employment exception is the employment agreement, which many executives have leverage to demand as their careers mature.

Indeed, negotiating a "cause" clause trumping the employment at-will doctrine is the primary reason executives demand employment agreements.  Some typical examples of "cause" as defined in employment agreements are:

1.   Failure to perform assigned employment duties (executives will often seek to require that such failure be willful, material and/or continued after an opportunity to cure).

2    Fraud, embezzlement or theft (employers relying on such a provision often involve law enforcement for verification of evidence).

3.   Criminal conviction (executives will often seek to limit this provision to felonies).

4.   Misconduct or negligence in the performance of job duties (executives will often seek to require that the misconduct or negligence be gross).

For all of the above, executives may seek the right to an appearance before the board of directors, if any, to argue his/her case (with or without counsel), and a majority or super-majority board vote to approve the for-cause termination.  On the employer side, it may seek a provision that the executive be suspended with or without pay during the time it takes for any board involvement.