In considering an offer letter or employment agreement, employees should look closely at what constitutes "cause" for employment termination. While such contractual definitions can appear mundane, the stakes can be particularly high. In many employment agreements, a termination for "cause" means that an employee is not entitled to a notice period, is not paid a severance, and may not receive an otherwise-earned bonus after separation. A for-cause termination may even trigger a restrictive covenant, such as a noncompete or nonsolicit, or could result in the forfeiture of other benefits like stock options or post-employment healthcare benefits. The definition of "cause" can have a profound impact on an employee's rights.
Defining "Cause" in Employment Agreements
The most basic definitions of "cause" usually describe the most egregious employee conduct – like convictions of felonies or other crimes related to the job, conflicts of interest, "willful violations" of laws or regulations, or things like "gross negligence," fraud, or acts of embezzlement or dishonesty. In other words, as long as an employee generally behaves, he or she will be fine, and can feel pretty safe that the employer cannot terminate employment for frivolous reasons, like this:
Many employment agreements, however, define "cause" in a much broader way. For example, definitions of "cause" that incorporate less rigid principles like "neglect of a duty" or "insubordination" mean that an employer can claim that "cause" exists if an employee simply did not perform a task (or did not perform it as quickly as the employer claims it wanted). Given how many responsibilities most employees juggle, this means that the "cause" definition is employer-friendly, particularly if the contract provides that a determination of "cause" is solely at the employer's discretion.
Similarly, some employment agreements state that any violation of the employer's "policy" constitutes "cause." That may sound reasonable enough, until the employee reads the employer's full policy manual and realizes that "cause" exists if any one of those policies is violated a single time. If "cause" definitions are written this broadly, employees are functionally reduced to "at will" status and can be fired for nearly any reason. In such instances, the contract provides barely any security for the employee (In fact, some employers' "contracts" that say the employee's employment can be terminated at will, defeating entirely one of the major reasons an employee would want a contract in the first place.)
Negotiating Fair Definitions of "Cause" in Your Employment Agreement
Negotiating the definition of "cause" is therefore an important step in onboarding with a new employer. Alternatively (or perhaps simultaneously), an employee can demand that some, or all, of the "cause" definitions have a "notice-and-cure" protection – basically, a contractual requirement that the employer give the employee "notice" of potential cause and a defined period of time to "cure" (fix) the cause before it leads to termination.
Addressing Employment Resignation & Severance Terms
During such a negotiation, the employee should also determine whether, and how, the contract addresses resignation. Some contracts, for example, state that an employee forfeits any severance benefits in the event of a voluntary resignation. In that case, the employee should demand a clause that permits resignation with "good reason." For example, if the employer moves the employee's office location to a faraway place (thereby requiring travel that was not foreseen when the employee was hired), or substantially reduces the employee's stature, authority, or responsibilities in the organization, the employee will want the ability to resign without also being penalized.
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