What is the American executive who just has been terminated without Cause entitled to receive, if anything?
The detailed answer varies according to the executive’s particular situation, but the general answer is: whatever the executive is entitled to receive either by the explicit terms of his or her contract or as part of the employer’s overall company policy, plus a few extra entitlements under the law regardless of what the contract says, or even if there is no contract.
Considering these extra-contract legal entitlements, such as they are, will easily demonstrate why it is so important for executives in the United States to obtain a carefully-negotiated agreement when they enter into employment, since without any such agreement, the executive’s legal entitlements are modest indeed.
They include:
(a) Up to a certain number of weeks — rarely surpassing 20 weeks — of unemployment compensation from the government, administered through a type of insurance plan into which U.S. employers are obligated to make periodic contributions;
(b) The ability to remain on the employer’s health benefits plan for up to 18 months (so-called COBRA benefits, an acronym which refers to the title of the Federal legislation which created this entitlement), but it is important to note that it is the executive who has been terminated who must pay the health insurance premiums, not the employer;
(c) In the event that the employer does have a generally applicable severance pay plan or policy, the number of weeks of continuing pay provided for by that plan or policy (customarily based on a formula such as one or two weeks of pay for every year of service, sometimes commencing after a fixed number of initial years of service); and
(d) The executive’s ability to take — or “roll over” into another plan — whatever portable vested benefits to which the executive has already become entitled under any savings, deferred compensation or retirement or pension plan maintained by the employer; unvested benefits generally disappear upon termination.
This list of legally mandated entitlements is rather small.
Accordingly, United States executives, and their executive compensation and employment attorneys, know that before an executive accepts employment, he or she must carefully negotiate with the employer for a written contract containing specific additional termination entitlements. In a later blog, we will suggest what some of those contractual entitlements should be.
[1] The definition of “Cause,” which is a carefully negotiated term in most executive contracts (and, accordingly, differs from contract to contract), centers around the notion that the executive has done something so egregious or anti-social or against the letter and spirit of the employment relationship that the employer is justified in immediately terminating the executive’s employment with little or no further entitlement (e.g., the executive has committed a crime or an act of moral turpitude or violated a material term of the employment contract or the employer’s trust, or done something likely to cast the employer into public disrepute. In specific industries, breaking a rule or regulation of that industry may constitute “Cause.”) Another ground for Cause is total or substantial non-performance of one’s job duties after having been notified of this failure and given an opportunity to cure the executive’s defective performance. These are only some of the examples of “Cause” as set forth in executive employment agreements.
