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Executive contracts can lead to legal disputes

On Behalf of | Jan 5, 2022 | Employment Litigation

Like most other states, Illinois follows what is called the employment at-will doctrine. In practice, the default is that employers in the Chicago area may terminate an employee for any reason or even no reason at all.

As many people know already, there are several broad exceptions to this rule.

One of these exceptions applies when an employer has offered a contract to an employee, and that contract includes terms about when a company may fire or discipline the employee. In this case, employers must follow the terms of their agreement even if it means they cannot fire an employee at will.

The standard for many executive and professional positions is for a company to offer the prospective employees an employment contract. This contract may include severance provisions.

If they are drafted well, these provisions should clearly set out when the company may terminate the executive and what will happen in that event.

For example, an executive’s contract may cover performance standards, separation pay and ongoing obligations with respect to confidentiality and trade secrets.

Not surprisingly, when an executive leaves a firm on bad terms, legal disputes about his or her contract provisions will often erupt. Litigation over an executive contract happens even with the best preparation.

In these situations, the business may have to put together a compelling legal case in order to defend its understanding of the contract and overall legal interests.

Litigation over an executive’s contract can happen in other contexts too

Quality executive contracts do not just cover what happens when the executive leaves the firm. They should also address the different types of compensation the executive will receive, including fringe benefits, performance bonuses and compensation that may be subject to federal and state regulations.

Likewise, the contract may include provisions prohibiting the executive from acting contrary to the business’s interests or from sharing certain information.

While these provisions may also be the subject of a legal dispute with an executive, regulatory authorities may also legally question them. Authorities may threaten fines or other legal action if they find these provisions objectionable.  A business may need a strong defense against such allegations.

 

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