Attorney for the Company in a Negotiated Executive Exit

When a company decides to remove a senior officer, it is not buying a termination. It is buying a set of outcomes: an enforceable release, resignations from every office and board seat, covenants that will hold if they are ever tested, cooperation in matters only that person understands, a transition that does not cost you customers or lenders, and a story that everyone tells the same way. Severance is what you pay for those outcomes. The work is making sure you actually receive them.

Most of the money companies lose in these exits is not lost at the negotiating table. It is lost before the table exists, in the two weeks when someone decides to characterize the departure as for cause without following the notice and cure procedure in the executive's own agreement, or promises equity treatment the plan does not permit, or sends out a separation agreement built from a template that contains a term New York law now says voids the release you are paying for. Those errors are cheap to avoid in advance and expensive to fix afterward, because by then the executive has counsel and a reason to look.

This page is for boards, compensation committees, general counsel, founders, private equity sponsors and portfolio company boards, chief executives removing a direct report, and human resources leaders handling a C-suite departure in New York City and the surrounding counties. It covers the exit that is negotiated rather than litigated, which is how nearly all of these end and how all of them should. For an ordinary separation without equity or an employment agreement, see severance agreements. If the relationship has already broken and a claim is coming, see wrongful termination and business litigation.

Decide the Characterization Before the First Conversation

Every other decision in an executive exit runs off one question: is this a termination for cause, a termination without cause, a resignation, or a mutual separation? Settle it internally, in writing, before anyone speaks to the executive, and make sure every person who will be in a room with them describes it the same way. Companies routinely lose the ability to assert cause because a manager opened the conversation by saying the role was being eliminated, or because a well-meaning email thanked the executive for years of excellent service four days before the board voted that their conduct was materially detrimental to the company.

The Cost of Getting Cause Wrong

A for-cause termination that does not hold is the most expensive outcome available in this area. It does not merely fail; it converts. The executive is treated as terminated without cause, which triggers severance, continued benefits, equity vesting or acceleration, and in many agreements the loss of a forfeiture-for-competition provision you were counting on. Add the cost of the fight, the risk of a public airing, and the fact that a failed cause assertion is often what persuades an executive to bring the discrimination or retaliation claim they were otherwise willing to release.

Before asserting cause, work through the following, and do it with the actual documents rather than from memory:

• Does the conduct fit the contractual definition? Not the ordinary meaning of cause, and not the definition in the handbook. The definition in the employment agreement, and separately the definition in the equity plan and in each grant agreement, which are frequently different documents drafted in different years. If the equity plan uses a broader definition than the employment agreement, you may be able to forfeit awards even where severance is owed, and knowing that changes what you offer.
• Is notice and cure required? Most executive definitions require written notice specifying the conduct in reasonable detail and a cure period, commonly fifteen or thirty days, for anything curable. Skipping it is the single most common defect. If the conduct is genuinely not curable, say so in the notice and explain why.
• Who has to decide, and by what vote? Many agreements require a resolution of the full board, sometimes by supermajority, after notice to the executive and an opportunity to be heard before the board with counsel present. Hold that meeting. Give that notice. Take minutes that reflect it happened. A board that skips its own procedure hands the executive a contract claim that does not depend on whether the underlying conduct occurred.
• Can you prove it with documents you already have? Cause built on an investigation that has not concluded is not yet cause. If the investigation is still running, the safer structure is often a suspension or administrative leave under the agreement's own terms, with the cause determination made afterward.
• Is there a good reason trigger already sitting there? If duties were diminished, reporting lines changed, compensation reduced, or the office relocated in the last several months, the executive may already hold a constructive discharge trigger that converts a resignation into a without-cause termination. Diagnose it before you propose a resignation, not after they invoke it.

When Resignation Is the Right Structure

A negotiated resignation is often the cleanest outcome, and it is worth paying for. But understand what you are giving. If you agree that the resignation will be treated as a termination without cause for all purposes, you have given up forfeiture, you have given up the employee choice doctrine described below, and you have converted a voluntary departure into a severance event. That may be exactly the right trade for a quiet exit and a signed release. It should be a decision, not a sentence someone drops into the draft to close the deal on a Friday.

Board Process and Who Is Actually Deciding

Executive compensation decisions, including separation terms, are the province of the board or the compensation committee, and the paperwork has to reflect that. Confirm that the person signing the separation agreement has authority to bind the company, that the committee's charter covers the terms being granted, and that any amendment to an outstanding equity award was made by whoever the plan names as administrator. A separation agreement signed by a chief executive granting acceleration that only the compensation committee can approve is not a settled matter; it is a future dispute with the auditors, the executive, or both.

Process discipline matters more, not less, when the departing executive is also a director, a founder, or a significant stockholder. In those situations the decision should be made by disinterested directors, the interested director should be recused from deliberation and vote, and the record should show that the terms were negotiated at arm's length. Where the exit is entangled with a buyout of that person's equity, the conflict is structural and the documentation needs to anticipate a later challenge. Our pages on shareholder derivative actions, shareholder disputes, and minority shareholder oppression describe how those challenges arrive. The governing documents control the buyout itself: see buy-sell agreements, LLC operating agreements, and founder agreements.

Settle the employment separation and the equity buyout together, in one document or in simultaneous documents that cross-reference each other. Companies that close the employment piece first, intending to deal with the shares later, routinely discover that the leverage they had is gone and the leverage the departing owner has just increased.

Equity: Confirm What the Plan Says Before You Promise Anything

Build the same schedule the executive's counsel will build, and build it first: every grant, grant date, award type, quantity, strike price, vesting schedule, current vested amount, performance conditions, and the exact treatment on each type of termination under the governing grant agreement. Do not rely on the equity administration platform, which reflects default settings rather than negotiated terms, and do not rely on the plan summary. Read the grants.

What You Can and Cannot Do

Confirm before you offer it that the plan permits what you intend. Acceleration outside the plan's terms, extension of a post-termination exercise window, continued vesting during a consulting period, or waiver of a performance condition are all amendments to an award, and most plans require administrator action and some prohibit amendments that are materially adverse or that would require shareholder approval. There is also an accounting consequence: modifying an award, including extending the exercise period or accelerating vesting, is a modification under ASC 718 that requires the incremental fair value to be measured and recognized, and where a forfeited award is revived the entire fair value can come back into expense. Loop in the finance team before the term is agreed rather than after the agreement is signed.

Repurchase and Bad Leaver Provisions

If the company holds a call right on separation, decide whether to exercise it, and note the deadline, because these rights routinely lapse after a stated number of days and no one calendars them. Where the price turns on a good leaver or bad leaver characterization, understand that the characterization you choose in the separation agreement will govern the repurchase price. You cannot agree that the departure is treated as without cause for all purposes and then repurchase at cost as a bad leaver. Where the call price is a formula or an appraisal, fix the methodology, the appraiser selection, the payment schedule, and whether interest runs, in the agreement itself.

Section 162(m) and the Deduction

For a public company, severance paid to a covered employee is subject to the one million dollar deduction limit under Internal Revenue Code § 162(m), and since the elimination of the performance-based compensation exception there is no way to structure around it. The once a covered employee, always a covered employee rule means the limit continues to apply to a former named executive officer, so a large severance paid over two years is largely nondeductible. That does not change what you should pay, but it changes what the payment actually costs, and the number the board approves should be the after-tax number.

Section 409A Is the Company's Problem Too

The tax penalties under § 409A fall on the executive, which is why companies underweight it. The exposure that falls on the company is reporting and withholding, indemnification claims when the executive discovers the penalty, and a very unpleasant conversation with the auditors during a diligence review. Executives increasingly demand a § 409A indemnity or gross-up in the separation agreement, and the reason they get one is that the company created the problem. Structure the payment correctly and the issue never arises.

• Use the exceptions. Severance that is paid within the short-term deferral period, or that fits the separation pay exception (up to two times the lesser of the executive's annual compensation or the qualified plan compensation limit, paid by the end of the second year following separation), sits outside § 409A entirely. Structure inside an exception whenever the number permits.
• Do not restructure an existing deferred balance. Accelerating a SERP or deferral account to close the deal, or pushing it out to fit the budget, is exactly what the statute prohibits. If the executive asks for it, the answer is that the schedule stays as written.
• Fix the release timing language. Where payment is conditioned on an effective release and the consideration and revocation periods span two calendar years, the payment must generally be made in the later year. Template agreements that say payment follows within thirty days of the release becoming effective create a violation whenever the exit falls in the fourth quarter. This is the most common § 409A defect in separation agreements and the easiest to correct.
• Apply the six-month delay. For a specified employee of a public company, deferred compensation payable on separation cannot be paid for six months. Build it into the payment schedule from the start.
• Size the consulting tail deliberately. If you want the executive available after departure, remember that services continuing above roughly twenty percent of the prior level can mean no separation from service occurred, and therefore no payment event has happened. A transition arrangement that seemed generous becomes the reason the payments were impermissible. Our page on independent contractor agreements covers how to paper the engagement itself.
• Know that correction exists. IRS Notice 2008-113 for operational failures and Notice 2010-6 for document failures allow correction on defined terms and defined deadlines, generally with better results the sooner the failure is found. Finding the defect during the exit is far better than finding it in diligence three years later.

If the arrangement is an ERISA top-hat plan, the plan's own claims procedure is an asset. Administer it properly, respond within the plan's deadlines, state the reasons for a denial, and preserve the administrator's discretionary authority, because exhaustion and deferential review are the two features that make these plans defensible.

Change in Control and Section 280G

If the exit is connected to a sale, run the parachute analysis before the term sheet, not after. Where payments contingent on the change in control equal or exceed three times the executive's base amount, the excess over one times the base amount is nondeductible to the company under § 280G and carries a twenty percent excise tax on the executive under § 4999. For the company the immediate consequence is a lost deduction and a buyer who will price it.

Three practical points. First, accelerated equity vesting counts, and it is valued under the methodology in Rev. Proc. 2003-68, so the analysis cannot be done from the cash numbers alone. Second, if the corporation is privately held, the shareholder approval exemption can cleanse the parachute entirely, but only if more than seventy-five percent of the voting power approves after adequate disclosure and the executive waives the right to receive the payments absent approval. That requires planning weeks in advance and cooperation from the executive, which is much easier to obtain before the relationship deteriorates. Third, check whether existing agreements contain gross-ups, which the company pays, or best-net cutbacks, which the executive absorbs. Sponsors and acquirers should identify these in diligence rather than at signing. See our pages on mergers and private equity.

Clawbacks: What You Must Preserve and What You Can Waive

A listed company is required by SEC Rule 10D-1 and the exchange listing standards to maintain and enforce a policy recovering erroneously awarded incentive-based compensation from current and former executive officers following an accounting restatement, looking back three completed fiscal years. Recovery is no fault and does not depend on misconduct. Critically, the company generally may not indemnify the executive against recovery or waive its obligation to recover, and a separation agreement that purports to release the executive from the listed policy is a compliance problem, not a negotiated concession. Draft the release so that it expressly does not extend to recovery required by the policy or by law.

Beyond the mandatory layer, Sarbanes-Oxley § 304 reaches the chief executive and chief financial officer where a restatement results from misconduct, and most companies maintain discretionary policies broader than either. Those discretionary rights are the ones actually on the table. If you intend to preserve them, say so expressly, because a general release running from the company to the executive can otherwise extinguish them.

The same logic applies to any other claim the company might later want. A mutual release feels like a courtesy in the moment. It is a decision to give up the fraud claim, the expense reimbursement claim, and the faithless servant claim you have not yet discovered. Where the company releases at all, it should release only claims actually known to specified individuals as of the signing date, and should carve out fraud, the clawback policy, and any obligation surviving under the covenants.

Restrictive Covenants: Make Them Enforceable Now

The New York Standard

New York has no statute banning non-competes. A ban passed the legislature in 2023 and was vetoed, and similar bills have been reintroduced since. The Federal Trade Commission's national rule was set aside by a federal court in 2024 and is not in effect. Confirm the current state of the law when it matters. What governs today is New York common law, which is more favorable to employers at the executive level than at any other level, and less favorable than most employers assume.

Under BDO Seidman v. Hirshberg, 93 N.Y.2d 382 (1999), a covenant is enforceable only to the extent it is reasonable in time and area, no greater than necessary to protect a legitimate interest, not harmful to the public, and not unduly burdensome. Legitimate interests, under Reed, Roberts Associates v. Strauman, 40 N.Y.2d 303 (1976), are trade secrets, confidential customer information, and services that are truly special or unique. Courts may partially enforce an overbroad covenant, but partial enforcement is discretionary and is less available where the employer drafted the overbreadth in bad faith or imposed the covenant as a condition of continued employment without genuine consideration. The practical lesson for an exit is that a narrower covenant you can enforce next year is worth more than a broad one you drafted to intimidate. Our pages on non-compete enforcement and non-solicitation agreements cover the analysis in detail.

Use the Exit to Fix the Covenants

The separation is often the last moment the company has meaningful leverage, and it is the right time to replace an unenforceable covenant with an enforceable one. Severance is consideration, and a covenant supported by a substantial payment made at the moment of departure is on far better footing than one signed years earlier as a condition of a promotion. Practical asks that hold up: a defined competitor list rather than a market-wide bar; a customer non-solicit limited to clients the executive personally serviced within a stated lookback; an employee non-solicit and a no-hire limited in duration and scope; an express acknowledgment of the confidential information and relationships at issue; a clear New York choice of law and forum; and a provision for injunctive relief with the elements acknowledged.

Two structural points. First, if you want the covenant to actually be enforced later, pair it with a payment stream that continues over the restricted period, because a court asked to enjoin an executive who is being paid during the restriction is far more receptive than one asked to put someone out of work for nothing. Second, do not condition severance on covenants and then terminate the payments the moment a dispute arises, since many agreements make the covenant unenforceable if the company stops performing.

Forfeiture for Competition and the Employee Choice Doctrine

Forfeiture provisions are often stronger than injunctions. Under the employee choice doctrine recognized in Post v. Merrill Lynch, Pierce, Fenner & Smith, 48 N.Y.2d 84 (1979), New York will enforce forfeiture of deferred compensation or equity upon competition without testing the restriction for reasonableness, but only where the employee left voluntarily. Where the employer terminated without cause, the forfeiture is subject to ordinary reasonableness analysis, and Morris v. Schroder Capital Management International, 7 N.Y.3d 616 (2006), extends that limitation to constructive discharge.

This is a direct reason to think carefully before agreeing that a departure will be treated as a termination without cause. That single characterization can cost the company the strongest tool it has for keeping the executive out of a competitor.

Garden Leave

If the agreement has a notice period, garden leave keeps the executive employed, paid, out of the market, and still bound by fiduciary duties, while the transition happens on your schedule. It is frequently cheaper than the alternative and it is time you can use to move relationships, secure systems, and prepare an announcement. It also has a cost: continued vesting, continued benefits, and an employee on the payroll whose loyalty is now divided. Set the terms in writing, including whether the executive may negotiate their next role during the period.

The Release You Are Actually Buying

The company's entire consideration is going to a release. Confirm that the release is enforceable, that it covers what you think, and that nothing in the surrounding document invalidates it.

Terms That Void a Release Under New York Law

This is the trap that catches the most sophisticated employers, because it lives in the template. Where the agreement resolves claims of discrimination, harassment, or retaliation, General Obligations Law § 5-336 and CPLR 5003-b govern the confidentiality provisions, and the amendments effective in November 2023 make the release itself unenforceable against the employee if the agreement requires the employee to pay liquidated damages for breaching a confidentiality or non-disparagement term, requires forfeiture of all consideration for such a breach, or contains an affirmative statement that the employee was not in fact subjected to unlawful discrimination or retaliation. Those three provisions appear in a very large share of older executive separation templates. Any confidentiality of the underlying facts must reflect the complainant's preference, memorialized in a separate writing, with the seven-day revocation right preserved. Run this check on every draft before it goes out.

The Federal Overlay

• OWBPA. For an executive aged forty or over, the ADEA release requires specific written language, advice to consult counsel, at least twenty-one days to consider and seven days to revoke, and forty-five days plus the statutory informational disclosures where the termination is part of an exit incentive or other employment termination program offered to a group. Defining the decisional unit for those disclosures is a judgment call that determines whether the age release holds, and it is not a form-filling exercise.
• Speak Out Act. Pre-dispute nondisclosure and non-disparagement clauses are unenforceable as to sexual harassment and sexual assault disputes.
• Ending Forced Arbitration Act. A claimant may void a pre-dispute arbitration agreement as to sexual harassment and sexual assault claims, at their election.
• SEC Rule 21F-17(a). Severance language that impedes communication with the Commission about possible securities violations has been the subject of a sustained enforcement effort, including against companies whose agreements merely required notice to the company or waived the right to a whistleblower award. This is enforced against companies that never had a whistleblower, on the language alone. Use a clean protected rights carve-out and do not condition anything on the executive representing that they have not filed a charge.
• What cannot be released. Unemployment insurance benefits, workers' compensation claims absent board approval, vested ERISA benefits, and claims arising after signing. Filed FLSA claims in this Circuit generally require court or Department of Labor approval to settle under Cheeks v. Freeport Pancake House, 796 F.3d 199 (2d Cir. 2015). A release cannot bar the filing of an administrative charge, though it can waive individual monetary recovery on most claims.

Consideration, and Making It Count

The consideration must be something the executive is not already entitled to receive. Paying accrued salary, earned commissions, vested equity, or a bonus already earned under the plan does not buy a release, and reciting that it does invites an argument that the release failed for want of consideration. Separate the two columns in the agreement: here is what you are owed regardless, and here is what you receive in exchange for signing. It also makes the wage law analysis cleaner, which matters more than most employers expect.

Wage Claims Are the Quiet Exposure

New York's wage statutes are the most dangerous provisions in an executive exit because the damages are disproportionate to the underlying dispute. Under Labor Law § 198(1-a), a successful claimant recovers liquidated damages equal to one hundred percent of the unpaid amount plus attorney's fees, and the lookback is six years under § 198(3). A disagreement about a two hundred thousand dollar incentive payment becomes a four hundred thousand dollar claim with fee shifting attached.

Executives are employees for Article 6 purposes under Pachter v. Bernard Hodes Group, 10 N.Y.3d 609 (2008), though certain provisions turn on a salary threshold, so the analysis is provision by provision and grant by grant. The line that matters most is between an earned incentive and a discretionary one. Under Truelove v. Northeast Capital & Advisory, 95 N.Y.2d 220 (2000), a bonus dependent on the employer's discretion and the company's overall finances is not wages, while an incentive tied to the employee's own performance under a defined formula generally is. Read the plan documents against that line before you decide to withhold. Also confirm that final wages will be paid by the next regular payday as § 191 requires, and that nothing is being deducted from the final payment that § 193 does not permit, including recovery of an unreturned laptop, a relocation repayment, or a signing bonus, unless there is a compliant written authorization. Recover those amounts by agreement in the separation document instead.

Indemnification, Advancement, and D&O

The company's instinct is to cut off everything on the last day. That instinct is usually wrong and is sometimes unlawful. Indemnification rights under the certificate of incorporation, bylaws, and any individual agreement typically survive the employment, and advancement of expenses under Business Corporation Law § 723, or Delaware General Corporation Law § 145 for a Delaware entity, is frequently mandatory upon delivery of an undertaking to repay. Advancement disputes are resolved quickly and usually in the former officer's favor, and litigating one is a poor use of the company's money and its reputation with the rest of the management team.

What can be managed is the process. Address indemnification expressly in the separation agreement rather than leaving it to a general release that may be read to waive it, which produces a dispute either way. Set out the undertaking, the process for approving counsel, reasonable rate expectations, and cooperation obligations. Notice the D&O carrier of circumstances if the exit involves conduct that could later mature into a claim, because claims-made coverage depends on timely notice and the exit is often the last uncomplicated moment to give it. Check the insured versus insured exclusion before the company considers suing its own former officer, and understand what Side A coverage does and does not do. If a sale is coming, price the run-off coverage now.

Where the exit follows an internal investigation, keep the privilege analysis straight. The privilege belongs to the company, not the executive, and interviews should have been preceded by Upjohn warnings. Decide deliberately whether investigative findings will be memorialized, who receives them, and whether any regulator must be told, because a report written for internal comfort becomes an exhibit if the matter ever goes further.

Securing the Company Before and After the Exit

Assume the executive's counsel will scrutinize how the offboarding was handled, and assume a forensic review will show what left the building. Both are ordinary. Do them properly.

• Issue a litigation hold before any collection or deprovisioning, covering the executive's devices, email, chat, and the custodians around them. Preserve first, then look.
• Image devices and accounts in a defensible way, with documentation of who did it and when. Preserve the mailbox rather than deleting the account, and disable rather than destroy.
• Time the access cutoff to the conversation, not to the day the agreement is signed. The window between learning and losing access is when documents leave.
• Stay out of personal accounts. Accessing an executive's private webmail, personal cloud storage, or social media using credentials saved on a company device can violate the federal Stored Communications Act and analogous law, and it turns the company from claimant into defendant. If the personal account holds company data, get it back through the agreement or through process, not self-help.
• Know your monitoring obligations. New York Civil Rights Law § 52-c requires notice of electronic monitoring to employees, and the existence and timing of that notice can matter to what you may rely on.
• Inventory the departure mechanics. Written resignations from every officer and director position, including subsidiaries and affiliates; removal from bank signature cards, corporate cards, and powers of attorney; regulatory filings updating control persons; return of devices with a documented inventory; and an express written agreement on what personal material the executive may retain.
• Release or preserve guaranties deliberately. A personal guaranty the executive signed for the company does not disappear on departure, and whether to release it is a term with substantial value on both sides. See our page on personal guaranty enforcement.

If the executive has taken material, New York's faithless servant doctrine and the trade secret claims that accompany it are powerful, and they are the reason many threatened executive claims never get filed. An employee disloyal during employment may be required to forfeit compensation paid during the period of disloyalty without regard to whether the employer was damaged, as in Phansalkar v. Andersen Weinroth & Co., 344 F.3d 184 (2d Cir. 2003). Our pages on trade secret theft, breach of fiduciary duty, and theft of a book of business describe how those cases are actually run.

Disclosure: Say the Same Thing Everywhere

Public Companies

The departure of a principal officer or a director is reportable on Form 8-K under Item 5.02, generally within four business days, and a material new compensatory arrangement with a named executive officer is separately reportable. The separation agreement itself is likely to be filed as an exhibit, and the following year's proxy will describe it again. Where a director resigns because of a disagreement with the company, Item 5.02(a) requires disclosure of that fact and gives the director the right to have a letter furnished with the filing.

Draft the 8-K, the press release, the internal announcement, the customer message, and the reference response as one package, and negotiate the wording with the executive as part of the deal rather than issuing it and waiting to be contacted. A description that overstates the circumstances of a departure creates a defamation exposure that no release covers if the statement is made after signing. A description that understates a cause termination can create a disclosure problem of its own. Coordinate the timing with the trading window and with Regulation FD before anyone briefs an analyst.

Registered Persons and the Form U5

A member firm must file a Form U5 within thirty days of termination, and must complete the reason for termination and the disclosure questions accurately. In New York the firm's statements on a U5 carry an absolute privilege against a defamation claim under Rosenberg v. MetLife, Inc., 8 N.Y.3d 359 (2007). That privilege protects against a lawsuit by the executive. It does not protect against FINRA, which has disciplined firms for inaccurate and untimely filings. The distinction matters at the negotiating table: the wording of a U5 is negotiable, its accuracy is not, and a firm that agrees to a materially incomplete filing in exchange for a release has traded a private problem for a regulatory one. Reach the language before filing, and do not commit to language the facts will not support.

The same principle governs references. Agree on a designated reference and a written script, and bind the individuals who will actually speak, since an entity cannot speak and a promise that the company will not disparage is close to unenforceable without named people behind it. Make the non-disparagement mutual, because executives will insist on it and refusing costs more than granting it.

Transition, Continuity, and the Contracts You Forgot About

Before the exit date is fixed, check what else moves when this person does.

• Key person provisions in credit agreements, investor documents, fund limited partnership agreements, joint ventures, and major customer contracts. In a private fund, a key person event can suspend the investment period. In a credit facility, it can be an event of default. These are discovered by reading the contracts, not by asking the business team.
• Licenses and registrations that name the executive as a principal, control person, qualifying individual, or licensee, including broker-dealer and investment adviser filings, insurance licenses, and industry-specific permits. Some require prompt amendment and some require a replacement to be in place before the departure.
• Immigration. If the executive holds employer-sponsored status, the company has obligations on termination, including withdrawing the petition and the labor condition application and offering the reasonable cost of return transportation for an H-1B employee terminated before the end of the authorized period. Failing to effect a bona fide termination keeps wage liability running.
• Benefits mechanics. COBRA election notice timing, whether a subsidy will be paid directly or as taxable cash, and life and disability conversion rights. Be skeptical of agreeing to keep a former executive on the group plan after termination, because plan terms, stop-loss carriers, and nondiscrimination rules often prohibit it and the promise then fails in a way that becomes the company's liability.
• Cooperation. Ask for it, but make it workable. An uncapped cooperation clause is the one term executives refuse most often. A clause that caps hours, requires reasonable scheduling, reimburses expenses, and pays for separate counsel where the executive is a witness is one that gets signed and, more importantly, one that gets performed when you need it two years later.
• Group reductions. If the executive's departure is part of a broader restructuring, check federal and New York WARN coverage. New York's statute requires ninety days notice and reaches smaller employers and smaller reductions than the federal act, and the analysis has to be done before notices go out.

Tax and Reporting Mechanics

• Severance is wages. It is reported on a W-2 and subject to income tax withholding and FICA. United States v. Quality Stores, 572 U.S. 141 (2014), settled the FICA question. Supplemental wage withholding rates apply, and the flat rate is higher above the annual threshold.
• Allocation must be defensible. Amounts allocated to non-wage claims may be reported on a Form 1099, but an allocation invented at signing to reduce withholding does not survive examination, and the company carries the withholding exposure. Where a genuine discrimination claim exists, the executive has a substantial interest in the allocation under IRC § 62(a)(20), and accommodating it costs the company little when the facts support it.
• FICA on deferred compensation follows the special timing rule under the § 3121(v)(2) regulations, with a nonduplication rule that can produce a materially better result than withholding at distribution. Failing to apply it correctly at vesting is a common and costly administrative error.
• Payment timing across tax years is often worth a meaningful amount to the executive and nothing to the company. It is a cheap concession, but coordinate it with the § 409A release timing rule rather than against it.
• Unemployment insurance. Decide whether the company will contest a claim, and be consistent, because a position taken in a benefits proceeding is admissible later and inconsistency is what a plaintiff's lawyer uses to argue pretext.

Deadlines the Company Has to Hit

• Contractual notice and cure: as written in the employment agreement, commonly fifteen or thirty days, and strictly applied against the company.
• Board action: before any cause determination is communicated, if the agreement requires it.
• Form 8-K: generally four business days after the triggering event for a principal officer or director departure.
• Form U5: thirty days after termination for a registered person.
• Final wages: by the next regular payday under Labor Law § 191.
• Written notice of termination: New York Labor Law § 195(6) requires written notice to the terminated employee of the exact date of termination and the exact date of cancellation of benefits, within five working days.
• OWBPA: twenty-one days to consider, forty-five in a group program with the required disclosures, and seven days to revoke, none of which can be shortened.
• COBRA: the plan administrator's election notice deadline following the qualifying event.
• WARN: ninety days under the New York statute where it applies, sixty under the federal act.
• Equity call rights: whatever window the plan or stockholders agreement specifies, which lapses silently.
• D&O notice: as required by the policy, which for claims-made coverage is a condition rather than a formality.

Worked example. A board decides in September 2026 to remove a chief operating officer after a difficult quarter, and the chief executive tells her the role is being restructured and offers six months if she resigns by September 30. What the board has not checked: her two direct reports were reassigned in June, which is a material diminution of duties and gives her a live good reason trigger; her equity plan defines cause more broadly than her employment agreement, which the company could have used; her deferred compensation is payable in installments and she is a specified employee, so the six-month delay applies; and the draft separation agreement contains a liquidated damages clause for breach of non-disparagement, which under the November 2023 amendments would render her release unenforceable as to discrimination claims. Handled as offered, the company pays six months, gets a release that may not hold, loses the forfeiture provision because the departure is documented as a termination without cause, and finds out about the good reason trigger from her lawyer. Handled properly, the board follows its own procedure, the release is redrafted to survive § 5-336, the equity treatment is confirmed against the grants rather than promised, the announcement and reference language are agreed in advance, and a narrower but enforceable covenant is purchased with the same money. Same budget, materially different result.

What to Do Now

1. Do not have the conversation yet. Not a preliminary one, not an informal one, and not an email that thanks the executive for their service. The first thing said sets the characterization, and it is very hard to move afterward.
2. Collect the complete file: employment agreement and all amendments, offer letter, equity plan and every grant agreement, bonus and commission plans, deferred compensation and SERP documents, the indemnification agreement, the D&O policy, every restrictive covenant, the stockholders or operating agreement if the executive holds equity, and the current form of separation agreement.
3. Build the entitlement schedule with dates and dollar amounts, exactly as the executive's counsel will. Know the number before you propose one.
4. Diagnose cause, good reason, and the equity definitions against what has actually happened, and decide the characterization in writing.
5. Confirm authority and follow the process, including committee action, board vote, recusal of interested directors, and minutes.
6. Run the compliance check on the draft agreement: GOL § 5-336 and CPLR 5003-b, OWBPA, Rule 21F-17, § 409A release timing, and the clawback carve-out.
7. Issue the litigation hold and plan the preservation and access cutoff before anyone speaks to the executive.
8. Draft the announcement, the reference script, the 8-K, and any regulatory filing language in advance and negotiate them as part of the deal.
9. Identify key person and licensing consequences in credit agreements, fund documents, customer contracts, and registrations.
10. Price the deal honestly. The distance between a closed matter and a public one is usually two months of severance, and it is almost always the best money the company will spend on the exit.

How We Work These Exits for Companies

We start with the documents and value the company's actual exposure before anyone proposes a number, because the party who has calculated the entitlements accurately controls the negotiation and the party who has not ends up paying twice. We decide the characterization first and build the process to support it, including the notice, the cure period, and the board record, since procedural failure is what converts a defensible cause termination into a full severance payout. We draft releases that survive New York law rather than templates that quietly void themselves. We use the exit to replace unenforceable covenants with enforceable ones while the company still has leverage. We structure payments inside a § 409A exception so the arrangement does not become a tax indemnity claim later. We coordinate the announcement, the reference, and any 8-K or Form U5 language so that the company says one accurate thing in every forum. And we tell the board candidly when the right answer is to pay more and close it, because in most executive exits the objective is a signed release, a clean transition, and a departure nobody writes about, not a case.

Where the exit is planned rather than forced, the same issues are far cheaper to handle in advance: see our pages on business succession planning and employment contract review, since the definitions of cause and good reason you negotiate at hiring are the ones that decide the exit years later. If the matter has already moved past negotiation, see business litigation and mediation and arbitration. The executive's side of the same negotiation is set out on our page on the negotiated exit of an executive.

You can contact the Law Offices of Albert Goodwin by phone at 212-233-1233 or by email at [email protected].