BFV Perspectives, Sports Fans Guide 2 HR, | Jan 19, 2013

Good Reason Clauses Can Protect From Being “Tebowed”

Former New York Jets special teams coordinator, Mike Westhoff went public about his displeasure with the way Tim Tebow was used.  In his words, the situation “was a mess.”  Tebow went to the Jets with the apparent understanding that he would have a legitimate shot to play quarterback as well as being incorporated into different  facets of the offense.   Unfortunately for Tebow, and at the dismay of Westhoff, Tebow was relegated to special teams and was never used as a combination tight end/halfback/fullback/quarterback as initially envisioned.

 Many executives find themselves in a similar situation as Tebow.  They leave one organization for another with the promise and expectation that they will serve a certain role.  After they are hired, however, things change and the executive’s position is different.   Sometimes the change results in lower compensation, less benefits, a different reporting hierarchy, less prestige, or  relocation.   Without contractual protection against such changes, the executive is faced with a difficult choice: quit and receive no severance or be unhappy.

To protect against the “Hey, this is not what I signed up for” situation, executives should try to negotiate contractual terms that give them an out if there terms and conditions of employment are drastically altered (“Tebowed”).   A “Good Reason” termination clause is one provision that can be incorporated into a contract to deal with this potential problem.   A Good Reason clause enumerates specific situations in which the executive shall have the right to terminate employment and receive benefits.   The most common benefit provided is severance.  

Here is a sample of such a clause:

The Executive may terminate his employment under this Agreement for Good Reason, in which case the Executive shall be entitled to Severance Benefits as stated in the Termination Benefits section. For purposes of this Agreement, “Good Reason” shall mean the occurrence of any of the following events without the Executive’s written consent: (i) a material diminution of the Executive’s title, authority, status, duties or responsibilities; (ii) any reduction in the Executive’s Base Salary; (iii) a material breach by the Company of this Agreement; or (iv) the Company requires Executive to locate his office to a location more than fifty miles outside from his current office.

It is not unusual for a company to require written notice from the executive indicating an intent to terminate and an opportunity to cure the default before the executive can quit.  Therefore, the contract may also include the following type of notice provision:

Before terminating this Agreement for Good Reason, the Executive must give the Company prior written notice indicating his intent to terminate for Good Reason and stating the reasons why he believes there are grounds to terminate for Good Reason.  The Company will have thirty (30) days to correct the default. If corrective action is not taken and the default is not cured within the thirty (30), day period, the Executive may terminate the Agreement for Good Reason.

A Good Reason clause is an important provision that can protect executives from situations where their position does not turn out to be what they envisioned. To avoid being “Tebowed” executives should do their best to negotiate a Good Reason clause into their employment agreement.

BFV Perspectives, Sports Fans Guide 2 HR, | Jan 19, 2013
Kenneth N. Winkler
Kenneth N. Winkler

Kenneth Winklera shareholder at Berman Fink Van Horn, helps employers navigate the employment laws and regulations that govern the workplace.