Termination by the Company generally takes two forms, either "For Cause" or "Without Cause", both of which are usually present in the employment agreement. The critical difference between the two forms of termination is the procedures required and the severance and additional compensation paid to the executive.
Termination For Cause generally includes a list of specific offenses that allow for termination to be "For Cause." Some of these offenses require notice to the Executive and allow for a period to cure the offense. However, if the Executive is terminated "For Cause", the clauses generally only provide to pay any compensation earned to the date of termination.
Termination Without Cause allows for termination for any reason but usually requires a longer period of notice and may require a vote by the Board of Directors (majority, 2/3 or otherwise). Additionally, Termination Without Cause generally provides for several months of severance and benefits and may accelerate vesting of other benefits.
Optional Additional Clause Elements
Additional Termination For Cause Terms.
Severance. In the event of Termination Without Cause of the Executive's employment pursuant to this Section, the Company shall continue to pay to the Executive the Executive's then current Annual Salary throughout such [90-day] notice period and shall pay the Executive (a) [six months] Annual Salary at the Executive's then current salary in equal monthly installments over the six month period following the Termination Date, [provided that such payments shall cease if the Executive becomes employed by a company which is in the Business during such six month period,] and (b) all vacation accrued as of the Termination Date.
Duties of the Executive. Upon receipt by the Executive of a Termination Notice pursuant to this Section, (a) the Executive shall assist the Company in good faith to effect a smooth transition, and (b) the Company may request the Executive to vacate the premises owned by the Company within a reasonable time, provided that the obligation of the Company to make payments to the Executive pursuant to this Section.
Examples of Termination by the Company Clause
For Cause. The Company may terminate this Agreement and Employee’s employment hereunder at any time for Cause (as defined below) upon written notice given to Employee. As used herein, “Cause” means (i) any act of Employee which would constitute a felony (other than a driving offense) or fraud; (ii) a continuing material breach by Employee in performing the duties described in this Agreement (other than by reason of physical or mental disability or impairment) which is not cured by Employee within fifteen (15) days after the Company gives Employee written notice specifying the details of the breach; or (iii) gross neglect, gross malfeasance, willful neglect, willful misconduct, or dishonesty in performance of Employee’s duties hereunder.
Without Cause. The Company may terminate this Agreement and Employee’s employment hereunder at any time and for any reason or no reason and without Cause, upon written notice to Employee, in which event the Company shall have no further obligation under this Agreement except as set forth in (the Severance Payments section).
Termination Without Cause by the Company. This Agreement may be terminated without cause by the Company upon 10 days notice. The last day of the Executive’s employment shall be referred to as the Termination Date. If this Agreement is terminated under this section 4.2, then the Executive shall be entitled to the following monies and benefits: (i) Base Salary and Benefits through the Termination Date; (ii) Base Salary for a period of 1 full year following the Termination Date, payable in quarterly installments with the first installment due on the Termination Date and the remaining 3 installments due 90 days, 180 days, and 270 days thereafter; (iii) Post-Termination Benefits; and (iv) the pro-rated portion any amounts earned under any Bonus Plan in effect prior to the Termination Date, to be determined after the close of the fiscal year in which the Termination Date occurred. The Company shall not be required to pay any monies or benefits under this section 4.2 unless and until the Executive shall have executed and delivered to the Company a Company-prepared release (“Release”) of any and all claims or potential claims, against the Company, its directors, officers, employees, shareholders and subsidiaries, arising from or related to any act or omission occurring prior to the Termination Date. This Release shall also include a release of potential claims by the Company against the Executive, arising from or related to any act or omission of the Executive occurring prior to the Termination Date, except for any act or omission by the Executive involving intentional wrongdoing, fraud, or breach of fiduciary duty. Any and all stock options granted to the Executive, which have fully vested prior to the Termination Date, shall expire as set forth in the respective plan documents that granted the options.
Termination For Good Cause by the Company. Upon written notice to the Executive, the Company may immediately terminate this Agreement for “Good Cause.” Good Cause shall include: (i) the Executive’s conviction of, or plea of nolo contendere or guilty to, any crime involving dishonesty, fraud or moral turpitude; (ii) the Executive’s gross negligence with respect to the performance of the duties of his Position; (iii) the Executive’s willful or serious misconduct, or willful or serious violation of Company policies; (iv) the Executive’s breach of trust or breach of fiduciary duty in the performance of the duties or responsibilities of his Position; (v) the Executive’s willful failure or refusal to comply with a reasonable directive of the Board; or (vi) the Executive’s breach of any term or provision of this Agreement. The last day of the Executive’s employment shall be referred to as the Termination Date. The Executive shall be entitled to Base Salary and Benefits earned and unpaid through to the Termination Date, and no other money, pay and benefits shall be owed or paid. Any and all stock options granted to the Executive, which have fully vested prior to the Termination Date, shall expire as set forth in the respective plan documents that granted the options.