Employment contracts for senior-level executives are, for obvious reasons, more challenging to negotiate. The key provisions to negotiate include duties (although this is often non-continuous), base salary, incentivized pay (including short and long-term incentives), benefits, company-paid perquisites (like travel arrangements, use of company-owned property, etc.), for-cause terminations, severance and what happens (if anything) if there is a change-of-control for the business). You will need an experienced business and employment contract negotiator to provide legal help and guidance.
A word on non-compete agreements, actual and stealth
In the past, negotiations with respect to non-compete provisions were essential. However, the Federal Trade Commission has recently issued a Final Rule banning non-compete agreements nationwide, even for senior level executives. Current non-compete can still be enforced for executive employees, but no new non-competes are enforceable. However, senior executives should be cognizant of employer efforts to create “stealth” non-competes as part of severance and termination provisions.
Executive Compensation
Executive compensation is often listed in a “Terms Sheet” and may have begun as part of a letter of intent. It is important to understand the compensation, including base salary, bonuses, incentives, benefits like health insurance coverage, and other forms of compensation. It is important to consult tax professionals since some forms of compensation are taxable even if no cash is provided. This is particularly true for benefits and “perks” provided by the company, such as access to a company vehicle, aircraft, watercraft, vacation property, etc. These are valid and valuable forms of compensation, but just be aware of potential tax consequences. Permissible use and limitations should be clearly established.
Bonuses should also be negotiated carefully, particularly in terms of defining when a bonus vests and under what conditions. Again, consulting a tax professional is important for determining the tax consequences of vesting bonuses and deferred bonuses.
Another common form of short- and long-term compensation incentives is various forms of stock options (or ownership-unit options). These can be straightforward grants of ownership interests, can be deferred (required or elective), and can be phantom. There are many IRS rules and regulations governing stock option plans and when “taxable events” occur. These ownership-interest options/incentives must be carefully negotiated so that all parties have a clear understanding of what is being provided. As just one example, does the ownership interest being offered/provided include voting rights? Many companies will provide ownership-interests incentives involving non-voting shares. Is that what the senior-level executive wants?
For-cause termination provisions
Another area of a senior executive employment contract that must be carefully negotiated is the for-cause termination provisions. Even somewhat “common sense” termination provisions should be carefully reviewed. For example, it makes a certain common sense that a senior executive can be fired for “criminal activity.” But what does that mean? Is for-cause termination justified for an allegation of criminal activity, an accusation, an arrest, or a conviction? Is for-cause termination justified for traffic tickets, DUI, domestic violence, being arrested at a protest, etc.?
Even more difficult to negotiate are for-cause terminations based on what are often called “morals and behaviors” provisions. These provisions allow for-cause terminations for non-work-related statements or behavior that might “tarnish” the “reputation” of the business, including matters like romantic affairs, statements on social media, public support for various political and social causes, etc. These provisions must be carefully negotiated.
Defining “Cause” for Termination: Why the Definition Matters
In executive employment contracts, the definition of “for cause” termination is one of the most consequential provisions negotiated. A broad definition of cause — one that includes “any material breach of company policy,” “conduct injurious to the company’s reputation,” or “failure to meet performance metrics” — effectively reduces the executive’s job security to near zero. Executives should push for narrow, objective definitions of cause, such as: (1) conviction of a felony involving fraud or dishonesty; (2) willful gross misconduct in the performance of duties; or (3) material breach of the agreement that remains uncured after notice and a reasonable opportunity to cure. Under this framework, cause cannot be manufactured through subjective performance assessments or changing internal policies.
The cure opportunity is particularly important. A 30-day notice-and-cure provision requires the employer to identify the specific breach in writing and give the executive time to remedy it before a for-cause termination becomes effective. This prevents sudden terminations designed to avoid severance obligations and gives the executive leverage to negotiate a more favorable exit if the dispute cannot be resolved.
The FTC Non-Compete Rule and Its Current Status
The FTC’s April 2024 Final Rule purporting to ban non-compete agreements nationwide was blocked by the Northern District of Texas in Ryan LLC v. FTC, No. 3:24-CV-986 (N.D. Tex. 2024), which vacated the rule on a nationwide basis. As a result, non-compete agreements — including those for senior executives — remain enforceable under existing state law frameworks. Executives negotiating employment agreements in 2025 and beyond must evaluate non-compete enforceability under the applicable state’s law, which varies considerably. California, Minnesota, North Dakota, and Oklahoma effectively prohibit non-competes entirely. Michigan, Florida, and Texas generally enforce them with some restrictions. Illinois and Washington have enacted significant limitations on duration and scope.
Even in states where non-competes are enforceable, executives should negotiate the narrowest possible geographic scope, shortest duration, and most targeted activity restrictions. The courts in most states will not blue-pencil an unreasonable non-compete to make it reasonable — they will simply void it. A well-negotiated, narrowly tailored non-compete is both more enforceable and more reasonable from the executive’s perspective than a sweeping restriction that courts may refuse to enforce when tested.
Change-in-Control Provisions: “Golden Parachutes” and Tax Consequences
Change-in-control provisions — commonly called “golden parachutes” — provide executives with accelerated vesting of equity, cash severance multiples, and continuation of benefits if the company is acquired and the executive is subsequently terminated. These provisions must be drafted carefully with an eye toward Internal Revenue Code § 280G, which disallows corporate deductions for “excess parachute payments,” and § 4999, which imposes a 20% excise tax on the recipient of such payments when they exceed three times the executive’s average annual compensation over the preceding five years.
A double-trigger provision — requiring both a change in control AND a qualifying termination event (such as termination without cause or constructive dismissal) within a defined window — is generally preferred over single-trigger provisions that pay out upon the change in control alone. Double-trigger structures are more defensible to shareholders and are less likely to create § 280G excess payment issues. Legal counsel familiar with both employment law and tax law is essential when structuring change-in-control provisions.
Confidentiality, IP Assignment, and Garden Leave
Executive contracts routinely include broad IP assignment clauses requiring the executive to assign all work product created during the term of employment to the company. Executives should negotiate carve-outs for personal projects, inventions developed entirely on personal time without use of company resources, and any pre-existing IP the executive holds prior to employment. California Labor Code § 2870 and analogous statutes in other states limit mandatory IP assignment to inventions related to the employer’s business — a protection executives should understand and invoke where applicable.
Garden leave — a period during which an executive is on paid leave after giving notice but before the termination date, during which the executive is barred from working for a competitor — is increasingly used in high-level employment agreements as an alternative or supplement to post-employment non-competes. Because the executive is still employed and being compensated during garden leave, these provisions face fewer enforceability challenges than traditional non-competes.
Contact the Executive Employment Contract Negotiator Attorneys at Revision Legal
For more information, contact the experienced Executive Employment Contract Negotiator Lawyers at Revision Legal. You can contact us through the form on this page or call (855) 473-8474.
