Navigating Executive Transitions: Legal Insights for Senior Leaders
As senior executives navigate the complexities of employment transitions, understanding their legal rights and options is crucial. From negotiating severance packages to handling non-compete agreements, the landscape can be daunting. In this article, Executive Law Group shares essential insights on the most common legal challenges faced by executives, along with strategies for ensuring a smooth transition into new opportunities.
R. Craig Scott
CEO and Founder
Executive Law Group, Inc
How do executives find Executive Law Group?
The typical referral is from a management-side employment lawyer. She is conflicted from assisting her executive friend, or she has no experience in handling executive matters. Executives also find us on our website, www.execlaw.com. Many of our clients are repeats: we help executives exit from one employment and then assist them in moving into the next.
What are the most common legal challenges that senior executives face when they are involuntarily terminated from their positions in California?
Obtaining, understanding, and augmenting a severance package is the greatest challenge. Success hinges on the executive’s leverage. Is the executive a victim of unlawful harassment, discrimination, or retaliation, or is the executive a whistleblower? Does the contract under which the executive was employed guarantee certain separation payments, and can those benefits be increased in amount and type by the prospect of the executive’s offering a quiet, professional exit with releases?
Has there been a failure to pay full and complete salary, bonuses, and commissions? Are there waiting-time penalties owing for failure to pay the departing executive every penny owed on the day of departure (including accrued and unused vacation)?
The documentation of the separation must comport with all federal and California restrictions. Releases should not be unilateral, just from the executive to the employer. If possible, they should be made mutual between the parties. The departing professional must be protected from future disparagement.
How do you help executives negotiate severance packages, and what are the key factors that should be included in a comprehensive severance agreement?
ELG attorneys help clients in one of two ways. Either we get in front of the employer’s counsel and negotiate the terms of the severance directly, or we coach our clients in the background, and they carry on the negotiations themselves. In the latter scenario, we most often review the final severance agreement and provide suggestions for modification before the parties sign.
An agreement must provide for severance: so many months of salary and benefits, paid out in a lump sum or by salary continuation. Releases, of course. In California, this should include mutual waivers of Section 1542 of the Civil Code. Commitments to honor the employer’s trade secrets, proprietary and confidential information, and any legitimate restrictive covenants should be expected. Cooperation in litigation: this commitment to help the former employer will be for what period of time? Will there be reimbursement for hours spent in cooperation and expenses incurred?
Mutual commitments of non-disparagement are essential. How will inquiries from prospective employers be handled? Equity issues may need to be addressed, including the disposition of stock and options. Property to be transferred to the departing executive (such as laptop, cell phone, and cell number) should be identified, and a mutual commitment between the executive and employer to return property is necessary. Language addressing issues associated with IRC Section 409A may be required. It is important to reach an agreement on the text of any press release and on any internal announcement of the executive’s departure. An attorneys’ fees provision, by which the employer reimburses some or all of the fees incurred by the executive in the representation, should be included.
When a senior executive is transitioning out of a role, what are the typical benefits (such as health insurance and retirement plans) that can be retained or negotiated as part of the severance process?
ELG attorneys take the approach that everything is subject to negotiation, with the objective of obtaining a fair severance package that will bridge the executive into new employment or retirement. Exit benefits in an existing employment agreement provide the floor from which negotiations begin: so many months of severance, paid out as salary continuation or in a lump sum; typically, the same number of months of continuing health benefits through COBRA. Retirement benefits that are in place should not be disturbed. Under California law, accrued and unused vacation must be paid out, but sick leave is another matter. By contract, some or all of the accrued sick time may be owed to the departing executive, but if not, it can be requested as part of the severance package. Likewise, other accumulated leave, under whatever name (such as administrative leave), can be requested as part of a severance payout.
Those items provided for in an employment agreement that are not necessary for the departing executive, such as a car allowance, are not typically included in a severance package.
California has specific laws on non-compete agreements. How do you advise executives on handling non-competes when transitioning to a new employment opportunity?
Recent changes in California law have all but eliminated the enforceability of non-compete provisions and other restrictive covenants. However, California-based executives must have their equity and other employment documents carefully analyzed to determine if they are controlled by the laws of other states. If they are, the executive may need to be careful not to run afoul of those laws when moving to new opportunities.
What legal considerations should professionals keep in mind when transitioning into new roles, particularly concerning employment agreements and potential conflicts with their previous employers?
A provision for severance should be negotiated as part of any offer letter or employment agreement. The executive or ELG counsel should carefully review all documents that the executive will be required to sign as part of new employment. That review should include any equity grants.
The executive should be reminded of commitments made to previous employers and then go into new employment with an eye to avoiding potential claims. Where there is concern that the prior employer may come after the executive, the new employer may be asked to guarantee a defense against the former employer’s claims.
For executives involved in workplace crises, such as internal investigations or public scandals, how do you support them from a legal standpoint to ensure fair treatment and protect their reputations?
ELG attorneys are in immediate contact with the employer’s counsel. Often, the most important effort is to contain the scandal. It is essential that the employer knows that the ELG attorney is watching how an investigation is proceeding. There may be an important role for the ELG attorney to participate in the interviews of the executive. The ELG attorney may be able to influence the nature and timing of communications to the public.
What steps can executives take to prepare legally and financially before leaving a company, whether voluntarily or involuntarily?
It is essential that the executive obtain an analysis of his contractual and other legal obligations before separation occurs. For example, under his contract, does the executive have sufficient “Good Reason” to leave the employer and demand a separation package?
How do confidentiality and non-disclosure agreements impact an executive’s ability to transition to a new job, and how do you help them navigate these restrictions?
Confidentiality and Non-Disclosure Agreements are standard in most employment situations. Prospective employers should be aware of this and should respect their prospective executive’s obligations to the former employer.
When disputes arise over unpaid bonuses, stock options, or other forms of executive compensation, how do you help senior executives resolve these conflicts effectively?
Executives should first receive appropriate legal review and advice on the issues. Then, it should be determined whether it is strategically best for the executive to address the issues with the employer, or whether ELG counsel should interface directly with the employer.
About Executive Law Group:
Executive Law Group (“ELG”) has one mission: the representation of senior executives and professionals in transition. ELG attorneys understand how management typically deals with executives. With that understanding, we successfully counsel our executive clients about their severance agreements, employment contracts, and workplace challenges.
There are three groups in the employment world: employers, rank-and-file employees, and executives. Employers have counsel, and employees can easily find someone to threaten and sue for them. Executives, however, have historically been left without skilled, dedicated representation. ELG attorneys understand and meet the unique needs of executives every day.
Craig Scott
CEO and Founder
Executive Law Group, Inc.
2601 Main Street, Suite 510Irvine, CA 92614-4220
Telephone: (949) 222-0188