What are Good/Bad Leaver Provisions?
Many Executive/partners will have the benefit of share schemes, carried interest schemes and other LTIP arrangements – and these will very often contain good leaver/ bad leaver provisions, which describes the circumstances in which a person ceases to be an employee of a company. Whether someone is a “Good Leaver” or “Bad Leaver” is often critical and will depend on the terms of the relevant contractual documentation. Ordinarily a “Good Leaver” is someone who ceases to be an employee for no fault of their own, e.g., because of death, ill-health, permanent disability, retirement or redundancy. A “Bad Leaver” can be defined as anyone who is not categorised as a “Good Leaver.” Other Bad Leaver provisions makes it clear that breaches of contract/restrictive covenants/legal action against the company will render a person a Bad Leaver. There may be a discretion to allow a person to be treated as a Good Leaver even if the reason for dismissal/departure does not immediately allow for it. Not all Bad Leaver provisions may necessarily be enforceable against the individual.
The categorisation of a person either as a “Good Leaver” or a “Bad Leaver” will often determine whether they receive any or all of their LTIP remuneration/benefit. Sometimes it can affect the price at which they are required to sell some or all of the shares in the company on departure. Certain LTIP arrangements with vesting provisions in place may also deem all shares or options of a “Bad Leaver” as unvested.
Farore Law is a leading boutique law firm that has a wealth of experience in advising senior executives on employment matters. We are well placed to provide appropriate advice regarding the enforceability of contractual terms, seeking a settlement agreement and commencing or defending litigation in the High Court or the Employment Tribunal.
Please contact us if you require legal advice.