26 Jul 2022

Executive Severance Compensation When You Choose to Leave

Executive severance compensation is often quite lucrative when you have the option to attain it. While there are many reasons people leave C-suite or senior executive positions, it usually boils down to the employee or employer moving on. 

When it comes time to negotiate an executive employment contract, many higher-ups focus on the former. However, this neglects the fact that a carefully drafted severance package is equally important when you are the one to move on. 

Below, we look at the circumstances in which you might seek severance and how you might attain it when you choose to leave the company. 

When You Choose to Leave, Can You Receive Executive Severance Compensation?

Often, executives find themselves in a situation where they’ve lost their champion. Whether it was the Chairman of the Board who pushed for your hire or a senior supervisor who moved on, it can leave you with a new boss. Unfortunately, new bosses typically prefer to put their own teams together. 

This can make life at work harder. 

Additionally, it can lead to a change in the overall conditions of the business. For instance, a major client may move on. This can lead to a position no longer being lucrative or attractive. 

Alternatively, perhaps you don’t agree with the direction of the company, or the sector is not as profitable as it once was. Often, this change to earnings that you depend on can nudge you back to the job market. 

In the worst situation, you may also come to question the tactics and ethics of the company. Sticking around may have a negative impact on your reputation or put you in jeopardy from a legal standpoint. 

So, when you choose to leave, is it possible to receive executive severance compensation? 

Getting Severance When You Choose to Quit

All of the above are reasonable circumstances to want out of your current position. In those situations where the company lets you do, it’s normal to desire executive severance compensation upon your departure. This is especially important if you leave before you line up a new position. 

In the majority of executive agreements, the terms of severance packages are defined clearly. Typically, they apply when the employer terminates you, activating provisions for what they must do or pay as well as any benefits the company must provide. 

However, if you are able to claim wrongful termination, you may have the leverage to negotiate greater severance. In order to do that, it’s a good idea to partner with a skilled attorney

What happens when you want to leave, though? Is it still possible to receive severance? 

With careful planning and strategic negotiations, you may be able to attain an executive severance package. 

Termination for Good Reason

In order to leave and trigger executive severance compensation, the best route is to plan ahead. When you first negotiate a job offer or employment agreement, it’s possible to trigger severance when you decide to leave for “good reason.”

So, what is “good reason”?

Generally speaking, you want to be able to leave if there is a reduction or material reduction in your pay, benefits, job title, responsibilities, duties, or authority at the company. However, there’s the potential to add more triggers. 

Representation

In accepting the position, was there a specific expectation regarding the policy or direction of the company? Was there something a prospective boss shared about the financial position, plans, or present make-up that made you want to take the position? 

If there is, it’s a good idea to include this representation of the company in your agreement. Then, if the company fails to live up to this representation, it may be the basis for leaving with good reason, triggering severance. 

However, not everyone has the leverage to include such provisions in their job offer agreements. Still, if you prove yourself and find yourself up for a promotion or pay raise, you may have an opportunity to update your agreement and include these terms. 

Constructive Discharge

What happens when you can’t negotiate a “good reason” clause in your offer or agreement? It’s still possible to seek executive severance compensation. Here, the main justification would be “constructive discharge.”

Under Texas law, constructive discharge is when you leave for purposes of wrongful termination, discrimination, anti-retaliation, or other legal issues because the working conditions are so intolerable that a reasonable person might feel forced to resign. 

Typically, this circumstance arises when an employer wants to get rid of someone but doesn’t want to pay out an executive severance compensation package. Instead, they actively work to make the conditions of the job so intolerable that it leaves the individual with little choice but to resign. 

Resignation vs Constructive Discharge

While a constructive discharge is technically a resignation, the law may consider it constructive termination, which can trigger severance. For example, if discrimination around a promotion is found, it may trigger a severance package. 

Additionally, it includes a handful of other employment matters. 

  • Permitting or creating a hostile work environment
  • Sexual discrimination 
  • Significant cuts to pay or benefits
  • Emasculation of a position, removing authority or duties

These have the potential to be strong grounds for constructive discharge. 

Severance to Seek in Constructive Discharge

If you face constructive discharge, it may trigger your executive severance compensation. When this happens, the severance you seek is the amount in income and benefits that you’d receive for termination without cause. 

In Texas, employment is at-will, but elements of discrimination allow you to seek severance based on the impact of the discrimination. This has the potential to include several elements. 

  • Severance pay: your salary for a number of months
  • Equity: restitution for lost options 
  • Bonus: payment for lost bonus or a prorated bonus for the year
  • Benefits: continuation of insurance and other key benefits for a certain period

Seeking Executive Severance Compensation When You Want to Leave

When things don’t feel right with your current company, it’s a good idea to seek the counsel of an employment attorney experienced with executive representation. At The Craighead Law Firm, we work with you to explore your options and help you find the best path forward. 

To learn more, contact our team today to schedule a consultation.