Can Executives Get Severance Pay When They Resign?

By Robert A. Adelson

Executive severance pay is typically associated with involuntary job termination, such as layoffs or corporate restructuring. Severance can also arise if you have a job offer or employment contract that awards severance if you are terminated by your employer without cause. However, there are circumstances when you can choose to leave your employer by your own decision and still receive a severance package. This article looks at those circumstances and suggests how, with careful planning and strategy, executives may still be able to successfully secure severance pay when they resign voluntarily.

✅ Circumstances when you may want to resign

There can be good reasons to want to leave your current employment. They often have to do with changes in your work conditions, such as:

• Your champion has left, and your new boss is not supportive or is even making life at work harder for you. 
• The company is moving in a different direction that negatively impacts your ability to perform and, hence, the bonus or equity that you expect to earn. Worse, the whole company is in decline and is causing you to suffer both financially and professionally.
• You found that your company is engaged in questionable practices. Staying with the company may ruin your reputation or even put you in legal jeopardy.

In these circumstances where you’ve done your job, but the company has failed you, you deserve to receive severance pay when you leave. Securing that severance can be especially important to you if you feel the need to leave and you have not yet secured your new executive job offer and may face a period of no income between jobs. 

So, how can you get severance pay when you resign?

✅ Termination for Good Reason Clause in Your Executive Contract

The best way to get severance pay when you choose to quit is to have a provision for this situation in your contract. Thus, in your job offer letter or your executive contract, where your contract terms provide severance if the employer terminates you without just cause, it should also include severance if you quit your employment for good reason.  

But what is a good reason? 

Generally, you want to be able to leave employment if there is any material reduction in your compensation, job title, duties, responsibilities, or authority in the company. Additionally, good reason should trigger if you are asked to relocate more than an acceptable distance. 

Furthermore, if your employer has failed to live up to its representations to you at the time of the job offer, it could be a basis for you to quit for a good reason and trigger severance. Those representations include company policy and direction, the company’s structure, its financial position, or its plans, which you relied on to make the decision to accept the job offer. 

If you have not negotiated for termination for a good reason clause in your current contract, you should consider asking for these terms in an updated employment agreement or a retention agreement when you have proved yourself and are up for a pay raise or promotion.

✅ Constructive Discharge

If you don’t have a termination for good reason clause in your job offer or employment contract, it is still possible to justify severance under the legal doctrine of constructive discharge. 

The Department of Labor defines the term “constructive discharge” as when a worker’s resignation or retirement may be found not to be voluntary because the employer has created a hostile or intolerable work environment or has applied other forms of pressure or coercion which forced the employee to quit or resign.   

Under the law, such a separation might be deemed appropriate to trigger the severance provisions of your employment agreement.

Some examples of impermissible employer conduct would be discrimination regarding a promotion decision, creating or permitting a hostile and offensive work environment through sexual harassment, significantly reducing your pay, or reducing your responsibilities by assigning your work to someone else.

✅ What severance do you seek if you face constructive discharge?   

When you face constructive discharge, you have a basis for seeking severance pay. How much should you ask for? The straightforward answer would be to ask for the same amount and benefits as if you were terminated without cause if your contract provides such protection.

But if your contract doesn’t have provisions for termination without cause, then you can see if there is an element of discrimination, such as age, gender, race, or national origin discrimination, in the constructive discharge case. If so, you can negotiate a severance package based on your loss as a result of their discrimination, including:

• Severance pay – several months, a year, or more of your salary depending on past practice of the company or industry,
• Bonus – lost bonuses, including prorated bonus for the current year,
• Equity – restitution of any lost stock options, restricted stock, or RSUs forfeited due to the constructive termination and
• Benefits – continuation of medical insurance coverage and other key benefits during the severance period.
• Forgiveness of debt – this can be the company waiving any obligation for you to repay a signing bonus or relocation payments made to you.

Getting what you deserve if you resign

In conclusion, if you are facing unfavorable conditions in your executive role and contemplating a voluntary departure, it is wise to get help from an experienced executive employment attorney regarding the viability of securing severance pay in connection with your resignation. As a senior executive who has diligently contributed to the company, and circumstances now necessitate your departure due to the company’s shortcomings, pursuing a fair severance is not only justifiable but also recommended. Advocate for your rights. Explore the possibility of a mutually beneficial severance agreement when you resign.