Inside: Your executive employment agreement in bankruptcy

The Bankruptcy Code has certain limitations on executive compensation, and here's what you can do about it

Congratulations! You are in the prime of your career. You are a senior executive at a well-respected company. You have successfully negotiated and executed an employment agreement that rewards you for your impressive skills, years of experience, and high demand in the marketplace. Although your company is not performing particularly well right now, you believe things will improve and that, in any event, you have protection through severance provisions triggered upon any termination of your employment or change of control of the company. Life is good, and you sleep well at night.

But, suppose your company doesn’t turn around and is forced to file for bankruptcy. Will you have the protections you think you have? Should you really be sleeping that well at night?

So, how can executives protect themselves? Here are several options:

Avoid “severance” claims. Because many of these limitations apply only to “severance” claims, executives might consider bargaining for other, non-“severance” benefits. Such benefits might include post-termination payments to the executive in exchange for a release of certain claims or to compensate the executive for continuing obligations related to confidentiality, non-competition, non-solicitation, and/or non-disparagement — all of which should be described as “material terms” of the agreement.

Contributing Author

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Nicholas M. Miller

Nicholas M. Miller is a partner and bankruptcy attorney at Neal, Gerber & Eisenberg LLP (Chicago). He  has substantial experience in general insolvency matters and...

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