Highly Compensated Employees: Breaking Up Is Hard To Do

Wednesday, 01 August 2018 16:59 Written by  Patricia Collins

Employers work very hard to retain senior, key and talented employees.  In the past, we’ve discussed how workplace culture helps to retain talent, and we’ve seen an increased employer focus on those programs.  But the truth is that often what causes an employee to stay, and complicates an employee’s exit, are basic compensation programs:  competitive salaries, reasonable health insurance, and stock options or other compensation programs that vest over time.  These are difficult issues regardless of the reason for the highly compensated employee’s exit. 

Of course, any executive is reluctant to walk away from a competitive salary.  For executives who resign, this becomes the main bargaining chip with a new employer, and the main area of risk if they are retiring or starting a new business.  But, when an executive is involuntarily terminated, our first goal in representing those executives is protecting those benefits.  Executives are often eligible for severance programs that will continue their salary for a period.  We examine whether the executive is eligible given the circumstances surrounding the termination, and the amount of severance due.    Where there is no formal severance program, an executive should consider negotiating a severance package, depending on the circumstances of the termination.  For example, most actionable cases of age discrimination occur at these levels, because the more highly compensated employees are also the oldest employees.  This may provide some leverage to negotiate a severance. 

Health insurance and other benefits are often included in those severance programs.  However, if there is no severance program, all employees are entitled to continuation of health insurance under the statute commonly known as “COBRA.”  This coverage is available at the employee’s cost unless the employee is terminated for “gross misconduct”.  While this coverage is expensive, it does provide a way to continue coverage for up to eighteen months. 

The most complicated of these issues, though, is the issue of stock options and other compensation that vests over time.  Especially after a long period of employment, executives may find themselves with valuable stock options that vest three or four years in the future.  When this executive is terminated, the loss of those unvested options can represent the loss of significant funds.  Rarely do such plans allow an employee to vest if he is no longer employed, so there is little room for negotiation on this point.  Similarly, when resigning, the executive must consider his timing, calculate what he is leaving “on the table” and perhaps negotiate this loss with a new employer. 

AMM has experience navigating these complicated exit issues for executives.  We can help a terminated employee protect some of these benefits, and work with resigning employees to navigate an exit in a way that makes economic sense. 

Patricia Collins

Patricia Collins

Patty has been practicing law since 1996 in the areas of Employment Law, Health Care and Litigation, with extensive experience in advising employers and health care providers as well as complex litigation in federal and state courts. Patty’s knowledge of employment law includes the Employee Retirement Income Security Act; federal and state employment discrimination laws, and employment contracts and wage claims.

To view Patricia Collins' full profile, click here.

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