Change Of Control Employment Contract - Safeguarding Both Employer And Employee

A "Change of Control Employment" contract pertains to any contract that sets specific requirements that must be met when the company is sold and a change of ownership takes place.

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This can be when a private individual buys a company, companies merge, or a majority of board members change. Mergers and acquisitions happen every day and many companies are looking at this particular type of contract to help them hire new employees that will be willing to provide what is best for the company. The change of control employment contract guarantees that the company comes first but yet still maintains minimum benefits for its employees.

Some change of control employment contracts are becoming very common, especially among high market valuation companies that wish to recruit the highest level managers and CEO's as possible. Typically in a change of control employment agreement, the top ranking executives of that company will receive compensation if they lose their jobs due to mergers and acquisitions. Many times, the change of control employment agreement will state that all high level executives are required to give up their jobs if an offer comes along that is in the best interest of the stockholders. Many employees agree to this as they will receive large payouts in the event of losing their jobs.

This type of contract can cause some issues among stockholders as they don't like to be exposed to the contingent liability of what can be hundreds of millions of dollars in the event of a senior executive leaving. This usually occurs when a competitor buys them out and replaces the executives with their own management. New staff have the opportunity of benefiting from the change of control contract as they receive the best incentive and job security imaginable. They don't have to worry if they lose their jobs because they will be well taken care of while they find a new position. Often, the terminated executive will receive a one-time lump sum payment that is equal or greater to three times their annual salary and all the insurance benefits they have been receiving for a specified time. This is why a change of control employment contract is often referred to as an executive's pre-nuptial. It has some similarities to getting divorced as the terminated parties have a clear understanding of their entitlements should they part ways.

If you are a high level executive with a great reputation, you should insist on a change of control employment agreement that will grant you the job security you need and guarantee you financial security should your employment be terminated.