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For Cause Definition Employment Agreement

In each of these definitions, the acts that precede the executive`s activity within the association would only be a reason if the act were brought to light for the first time during its term of office. Boards of directors must perform due diligence before hiring an officer to review the candidate`s well-known history. It is equally important that boards scrupulously respect their obligation to monitor leaders and set clear goals for executives. Finally, the best result is to avoid having to ever argue a determination of causes in an employment contract. It is also quite common for the definitions of cause to include a healing period for management`s breach – z.B. “a substantial violation of one of the terms of this agreement by the employee and failure to correct such an infringement within 20 (20) days of notification by the company.” By giving management the right to violate the agreement and then correct the breach (if the company learns of the violation, which it cannot do), the company limits its options and management`s ability to account for its performance. In addition, an extended healing period may have a negative effect on the business, depending on the nature of the injury and its effects on the operation of the business, even if the offence is ultimately cured. This should not indicate that an employer should never accept a healing period (many executives insist on such a provision and are quite frequent, as noted above), but the employer should weigh the pros and cons of the cure provision in general negotiations with the executive. (vi) the company`s inability to obtain written acceptance by a successor, before or on the date of the merger, of the companies` obligations to management, before or at the time of the merger, of the sale of all the company`s assets or of a similar transaction, essentially of the company, unless such written acceptance was not legally necessary to maintain the effect of that agreement. Faced with these unpleasant options, some boards may decide to keep an executive until the end of the term of the contract, even if this may harm the association, as the organization cannot afford to pay both severance pay and the successor`s salary. Other chambers negotiate a compromise award to avoid litigation or public dispute.

The definition of these circumstances will also have a significant impact on downstream issues, such as the termination of benefits or other benefits, as well as the initiation of other obligations. For these reasons, it is important to work with an experienced lawyer in negotiating and developing employment contracts for executives. From the point of view of the association, however, too narrow a definition of causes carries a considerable risk. In such a case, the board of directors, if it finds that it must remove the officer in the best interest of the organization, may be obliged to pay a significant severance package. In another common scenario, a board may attempt to stretch an ambiguous definition of causes to cover its reasons for terminating the executive`s employment. The dismissed executive then implements the board`s interpretation, and the organization is involved in a costly breach of action.

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