Termination by executive: Overview, definition and example
What is termination by executive?
Termination by executive refers to the right of a senior executive or employee in a leadership position to voluntarily end their employment with a company under specific terms outlined in their employment agreement. This may include resigning for reasons such as a breach of the agreement by the employer, significant changes in job responsibilities, or personal decisions. The agreement may stipulate conditions like notice periods, severance entitlements, or grounds for "good reason" termination.
Why is termination by executive important?
Termination by executive is important because it provides a framework for executives to leave a company in an orderly and fair manner, while also protecting both the executive and the employer’s interests. Clear provisions for termination allow executives to resign without jeopardizing their contractual rights, such as severance pay or stock options, especially in cases where the employer breaches the agreement or changes the terms of employment.
For businesses, these clauses ensure that there is a clear process in place for executive departures, reducing the risk of disputes and ensuring continuity in leadership transitions.
Understanding termination by executive through an example
Imagine a CEO has an employment agreement that allows them to terminate their employment if the company significantly reduces their responsibilities or fails to pay their agreed-upon salary. If the company reassigns the CEO to a lower role without their consent, the CEO may invoke their right to terminate the agreement for "good reason," receiving severance pay as stipulated in the contract.
In another example, an executive vice president decides to resign for personal reasons. The contract specifies a 60-day notice period for voluntary termination. The executive provides the required notice, allowing the company time to find a suitable replacement while ensuring a smooth transition.
An example of a termination by executive clause
Here’s how a termination by executive clause might appear in an employment agreement:
“The Executive may terminate their employment with the Company by providing [insert notice period] written notice. Additionally, the Executive may terminate this Agreement for Good Reason, which includes a material breach of this Agreement by the Company, a substantial reduction in job responsibilities, or a relocation of the Executive’s principal place of work without consent. In the event of termination for Good Reason, the Executive shall be entitled to severance benefits as outlined in Section [X].”
Conclusion
Termination by executive ensures that senior employees have a clear and fair process for ending their employment, particularly in cases where their role or terms of employment are materially altered. For employers, including a termination by executive clause in employment agreements helps manage executive transitions and minimizes potential disputes. A well-drafted provision provides clarity, protects rights, and supports a smooth exit process for both parties.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.