Having represented hundreds of executives whose employment was being terminated, I could never understand the audience appeal in watching our current Chief Executive wield the axe over aspiring “Apprentices” on TV. I understand that it was “just a show,” but anyone who has been involved with an executive being fired is hard pressed to find anything entertaining about the experience.
Being terminated is a painful event. Most executives take their work lives extremely seriously, so being told that their services are no longer required can feel life-threatening.
Even if executives objectively know that their termination was not caused by any personal shortcomings (for example, when an employer’s loss of a major account or contract or a more general industry decline triggers a company-wide Reduction in Force), such knowledge offers meager consolation. Executives tend to be high-achieving, highly-functioning people. Being fired stirs up all the feelings of grief and fear which accompany other important life losses.
Since it is hard to negotiate for yourself in these circumstances, it is particularly important to obtain the right kind of professional assistance. An experienced executive compensation lawyer will understand the executive’s powerful emotions while knowing how to deal with the particular legal and monetary issues which must be addressed, generally within a tight time frame.
Don’t Sign Anything.
Executives are generally given a package of papers when they are terminated. The primary document in the package, usually termed a “Separation Agreement and Release,” not only provides basic information about the executive’s termination (date of actual departure, accrued but unused vacation pay, transitioning of health benefits and the executive’s continuing obligations, such as confidentiality, to name only a few), but it also contains other key details, such as whether the employer is offering to pay severance, and, if so, how much.
It also sets out the mechanism and the deadline for the executive to accept or decline the employer’s offer. If the executive is under 40, that time period can be 7 days or even less; if the executive is over 40, Federal law mandates that the executive must have 21 days to consider the offer; if the employer intends to treat the executive’s termination as part of a Reduction in Force, it will offer 45 days for the executive to accept or reject the offer. However, even the longest of these time periods — the number of days by which the fired executive must make crucial decisions — goes by rapidly. These time limits are strictly enforced and must be dealt with at the same time when the executive is feeling angry and overwhelmed. This presents another important task for the executive’s lawyer.
Any offer of severance almost invariably will be dependent on a requirement that the departing executive sign a full release of his or her claims against the employer. This makes sense. The employer is unwilling to provide severance or other benefits unless the executive promises not to sue. However, before giving up those claims, the executive needs a lawyer qualified to analyze them. An emotionally distraught executive is in no position to make optimal legal judgments.
Every termination involves unique facts, so the executive should not just sign the papers out of a desire to move on and stop the pain. The decisions which must be made are too important to the executive and his or her family to be rushed through.
The executive should take a deep breath, and reach out immediately to an experienced executive compensation attorney. If the executive signs without consulting the right kind of attorney who can help work through the nuances of the facts and circumstances surrounding the particular situation, the executive is likely to give up valuable rights, including:
- The amount of severance. Often the executive’s attorney is able to negotiate a greater amount of severance than the employer has originally offered. There are various reasons why the employer’s first offer may not be its final offer, ranging from having deliberately started with a “low ball” number to failing to recognize (until being persuaded by the executive’s counsel) that the executive is being asked to relinquish real legal claims which require higher compensation.
- A host of other benefits. As with severance, an experienced executive employment attorney may be able to negotiate improvements in the benefits provided upon termination, including some period of continued health care premiums to be paid or reimbursed by the employer; the resolution of discrepancies in the amount of unpaid vacation or PTO; the possible payment of unpaid bonuses; the vesting of equity grants and other deferred compensation; and the time within which to exercise an executive’s stock options. Each executive’s situation is different, and now is the time to analyze and address these issues; the “window” in which to negotiate and make important decisions quickly closes after termination and cannot be re-opened.
- Other items which are important although their monetary impact may not immediately be clear. A variety of other issues arise in connection with an executive’s termination, all of which are best handled by a skilled executive compensation attorney. For example, should the requirement that the executive not disparage the employer be made mutual? If the executive has run afoul of one or two other people who remain with the employer, an attorney can make certain that these other employees are warned not to speak negatively about the executive’s personality, character or work performance.Another example: the employer may ask the departing executive to agree to remain available to cooperate and even give sworn testimony in a lawsuit or investigation regarding some matter the executive may have worked on or acquired knowledge about while still employed. The objective here is to limit any such continuing obligation within certain reasonable bounds, so that mandatory cooperation with a former employer does not interfere with the executive’s future ability to earn a living. The executive’s attorney can also negotiate for the employer to pay for the executive to be protected by his or her own independent counsel.Other significant issues might include the scope of any on-going confidentiality, non-solicitation and non-competition restrictions to be stated or re-affirmed in the Separation Agreement.
If the executive has sought the benefit of experienced employment counsel when he or she took the job in the first place, some of these protections may already be in place in the executive’s employment contract or offer letter. However, even if the executive has not received some or all of these protections on the “way in,” there is still time — although limited — for his or her attorney to get them, or some of them, on the “way out.”
What is the take-away from all this? That with the support and guidance of a knowledgeable attorney, the difficult and often unpleasant experience of being fired can be turned into a less painful passage to a better executive employment future.