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Protecting Your Interests in Employment Agreements
Article 10 of 15 / Secret Day 4 Executive Deals Training
Key Takeaway
Request the draft agreement early and hire an employment attorney — severance, good reason provisions, and non-competes have multi-year consequences.
Protecting Your Interests in Employment Agreements
Article Objective:
Identify the most consequential contract terms in executive
employment agreements and understand what to negotiate, what to flag for counsel,
and what to accept.
An executive employment agreement is a legal document with multi-year financial
consequences. The compensation numbers get most of the attention during negotiations, but
the terms governing what happens when things go wrong often have greater long-term impact.
You should engage an employment attorney for any senior-level employment agreement
review. This article is not a substitute for legal counsel. It is designed to give you the vocabulary
and judgment to direct that review effectively and to identify the terms worth prioritizing.
One of the most common mistakes executives make is waiting until the final draft to involve their
attorney. Ideally, you want to request the draft agreement early in the negotiation process,
before you have signaled final acceptance, so that legal review and commercial discussion can
proceed in parallel.
The agreement should be treated as a negotiating document, not a formality. Companies
present first drafts that favor their interests. That is expected and appropriate. Your job is to
negotiate it to a position that is fair to both parties, with adequate protection for the scenarios
most likely to create problems.
Severance Provisions
Severance protections are among the most valuable and most often neglected elements of
executive agreements. Termination without cause should trigger a meaningful severance
benefit, typically expressed as a multiple of base salary plus a pro-rated bonus. At VP and
above, six to twelve months is common. At C-suite, twelve to twenty-four months is more
appropriate.
Pay close attention to the definition of 'cause' in the agreement. A narrow definition protects you
by limiting the company's ability to terminate you without severance obligation. A broad
definition can be used to avoid payout in circumstances that would otherwise be clearly
involuntary.
Ask specifically whether your bonus is included in the severance calculation. Many agreements
provide a salary multiple but exclude bonus, which significantly reduces the actual severance
value at the executive level where bonus represents a large share of total cash compensation.
Also confirm whether your severance is contingent on signing a release of claims. This is
standard, but the scope of the release and the time you are given to review it are both
negotiable. A rushed release signed under financial pressure is not in your interest.
Good Reason Provisions
Good reason provisions allow you to resign and collect severance if the company makes a
material adverse change to your role, compensation, reporting structure, or work location.
These provisions protect you from constructive dismissal, where the company makes the role
untenable without technically firing you.
Without a good reason provision, a company can significantly reduce your compensation,
eliminate your direct reports, or dramatically change your scope, and your only options are to
stay or resign without severance.
When negotiating good reason provisions, pay attention to the trigger threshold and the notice
and cure period. A trigger that requires a 20 percent reduction in compensation provides less
protection than one triggered by any material adverse change. A long cure period gives the
company more time to reverse the change without triggering severance.
Good reason provisions are particularly important at companies going through significant
change. In a stable organization they may never be triggered. In a volatile one, they can be the
difference between an orderly exit with financial protection and an abrupt departure without
recourse.
Non-Compete and Non-Solicitation Clauses
Non-compete clauses restrict where and with whom you can work after leaving the company.
Their enforceability varies by jurisdiction, but agreeing to a broad non-compete can meaningfully
limit your next career move. Negotiate for the narrowest scope, the shortest duration, and the
most limited geographic coverage possible.
Non-solicitation clauses, which restrict you from hiring former colleagues or soliciting former
clients, are generally more enforceable than non-competes. Review them carefully for scope
and duration.
If a non-compete is unavoidable, negotiate for garden leave compensation, meaning the
company pays your salary during the restricted period. This converts the clause from a pure
liability into a paid sabbatical, and it also gives the company a financial incentive to be
reasonable about enforcement.
Before accepting any significant non-compete, consult your employment attorney about
enforceability standards in the relevant jurisdiction. In some states, broad non-competes are
largely unenforceable. In others, they are rigorously upheld. That legal context may significantly
affect how hard you negotiate the provision.
Your Action Steps:
28. List the key provisions in your most recent or anticipated employment agreement,
ranked by financial importance.
29. Identify an employment attorney with executive contract experience and schedule a
consultation before you are under time pressure to sign.
30. Request the draft employment agreement as early as possible so that review and
negotiation can happen before the offer feels final.
- The legal structure matters, but the final phase of any executive negotiation is fundamentally about relationships. Article 11 covers how to close a deal in a way that strengthens the connection rather than straining it.