Good Leaver / Bad Leaver: what are the consequences when leaving a company?
When an executive or senior executive benefits from a management package, the circumstances of their departure may have significant consequences for the shares or rights they hold.
Some arrangements include Good Leaver or Bad Leaver provisions, which determine the consequences of departure depending on the circumstances defined in the applicable documents.
Before negotiating a termination or accepting its terms, it is therefore essential to identify these provisions and assess their implications.
As an employment lawyer, I advise executives and senior executives in Aix-en-Provence, Paris and throughout France on reviewing these mechanisms and incorporating them into their overall departure strategy.
What do Good Leaver and Bad Leaver mean?
The terms Good Leaver and Bad Leaver are used in some management packages to distinguish between different circumstances in which a beneficiary leaves the company.
The applicable documents may provide for different consequences depending on the circumstances in which the executive or senior executive leaves.
The classification may affect, in particular, the conditions under which certain shares or rights may be retained, transferred or valued.
There is therefore no single consequence associated with being classified as a Good Leaver or Bad Leaver: the wording of the applicable documents must be reviewed on a case-by-case basis..
Where can you find a Good Leaver / Bad Leaver clause?
These provisions do not necessarily appear in the employment contract.
They may be included in various documents governing the management package, such as a shareholders’ agreement, undertaking, award plan, plan rules or other contractual documentation.
Before leaving the company, it is therefore important to gather all the relevant documents and not limit the review to the employment contract or the termination proposal made by the employer.
Why are the circumstances of departure important?
The classification of a departure may depend on the situations defined in the applicable documents.
The circumstances and terms of the termination should therefore be assessed against the provisions of the management package.
A mutual termination agreement (rupture conventionnelle), dismissal, resignation or other circumstances in which the executive leaves their position should not be considered in isolation: their interaction with the management package documentation may affect the overall financial consequences of the departure.
These mechanisms should therefore ideally be identified before determining or accepting the terms of departure.
What are the potential consequences for your shares or rights?
Depending on the wording of the applicable documents, a Good Leaver or Bad Leaver provision may affect the shares or rights held by the executive or senior executive.
The review may cover, in particular:
- the retention of certain shares or rights;
- the existence of an obligation or mechanism requiring their transfer;
- the terms governing such a transfer;
- the applicable valuation conditions;
- the treatment of rights that have not yet fully vested.
The objective is to determine what each departure scenario means in practical terms for the beneficiary before comparing the different options.
How do Good Leaver / Bad Leaver provisions relate to BSPCEs, stock options and free share awards?
Good Leaver / Bad Leaver provisions may form part of a broader range of equity-based incentive arrangements.
Where an executive or senior executive benefits from BSPCEs, stock options or free share awards, the specific terms governing these instruments should also be reviewed, including vesting, exercise, retention and the applicable timetable.
All these elements should be considered together in order to obtain a complete picture of the consequences of leaving the company.
Good Leaver / Bad Leaver and management packages
A Good Leaver or Bad Leaver provision should not be assessed separately from the management package of which it forms part.
The various documents and mechanisms may interact. Reviewing a provision in isolation may therefore not provide a complete picture of the financial consequences of leaving the company.
The treatment of the shares or rights should be considered alongside the other components of the package, the applicable timetable and the proposed terms of termination.
Including Good Leaver / Bad Leaver provisions in departure negotiations
While the terms of departure are still being discussed, reviewing the applicable provisions makes it possible to identify their implications before the negotiations are finalised.
These issues should be considered alongside the other components of the departure: severance payments, departure date, notice period, bonuses and variable compensation, non-compete clauses and other rights attached to the management package.
The objective is to assess the overall financial balance of the departure, rather than focusing solely on the amount of severance negotiated.
This analysis therefore forms part of the overall negotiation of the terms of departure for an executive or senior executive.
When should you have a Good Leaver / Bad Leaver provision reviewed?
As early as possible once a departure becomes a possibility.
It is particularly useful to carry out this review before:
- accepting a proposed mutual termination agreement (rupture conventionnelle);
- agreeing on a departure date;
- taking a position in negotiations;
- signing an agreement governing the departure;
- or, more generally, when an event occurs that may lead to leaving the company.
Where discussions have already begun, reviewing the relevant documents can still help identify the consequences of the different scenarios before they are finalised.
An employment lawyer in Aix-en-Provence and Paris
I advise executives and senior executives in Aix-en-Provence and Paris, both in person and remotely, on the legal and strategic aspects of their departure.
Consultations can also be conducted in English, particularly for international executives and senior executives dealing with contractual arrangements or management packages involving English-language documentation.
FAQ
Frequently asked questions about Good Leaver / Bad Leaver provisions
Contact domaniewicz avocat
42 Avenue Victor Hugo
13100 Aix-en-Provence
9 Rue Treilhard
75008 Paris
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