Boards are trying to protect shareholder interest when they require restraints in exit clauses, Robinson says. “The person has built up in-depth knowledge. They might have acquired a great team, so the restraint might be you can’t poach our team. That team may be the best in the business, and you have to protect your assets: your people, customers and intellectual property.”
On the executives’ side, the court will only uphold restraints that are reasonable. For example, a restraint not to steal the employer’s clients would be too wide; not to take clients that the executive was working with directly would likely hold up.
Dent says: “If the court realises the restraint is so wide that you cannot make any money, they are unlikely to uphold it. Restraints that are really lengthy, or say you can’t work in this industry, are the type that would be considered too broad.”
The first step for executives is to review their contract and request changes.
However, executives need to pick their battles, Dent suggests. “A good strategy is for executives to understand which of the changes they will not compromise on, and which they are prepared to relent on.”
For example, it is common for contracts to include bonuses and incentives; what happens with these on termination is often not clear. “Negotiation for a pro-rata type of bonus is possible, as is limiting the discretion that the employer has to withhold the bonus.”
C-suite executives – chief executives, chief information officers, chief financial officers, etc – are in the best bargaining position. Robinson says that in Australia, with just a few companies dominant in each industry sector, there may only be two or three realistic candidates for a leadership position.
However, all executives should have a go at negotiating their exit clauses, such as putting up the length of notice up from three to six months to allow time to secure a new position.
Kath Walters is the editor of LeadingCompany and an award-winning journalist of 15 years’ experience. Kath was previously a senior writer and editor at BRW magazine covering management, strategy, finance, entrepreneurship and venture capital across all industry sectors. In 2006, Kath won the Citibank Award for Excellence in Journalism (General Business). Follow her on Twitter.
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