What Happens When Founders are Asked to Leave Their Startup?

What Happens When Founders are Asked to Leave Their Startup?

In this interview with Jennifer Rubin, Member, Employment, Labor & Benefits Practice at Mintz Levin, we discuss how executive and founder employment agreements define what happens upon the exit of the startup executive or founder, and the importance of defining severance and the definition of “cause”. There is no standard definition of “cause”, although it implies misconduct.

Jen focuses on C-suite executive compensation practices, and on meeting the increasingly complex employment needs of executives of public and private corporations.  When she isn’t negotiating employment, equity and severance arrangements, Jen leverages her twenty-five years of experience as a trial lawyer to help clients craft business solutions to legal problems.  Jen, who has an AV Preeminent ranking from Martindale-Hubbell, which publishes a highly respected Law Directory, that provides background information on United States lawyers and law firms.

She is also a member of the Board of Directors of Big Brothers Big Sisters of San Diego County and is a faculty member and advisor to The Honor Foundation, a non-profit organization that assists Navy Seals and other armed services special operators transition from military service to the private sector.  Jen is frequently quoted in the Wall Street Journal and other publications.

According to Jen Rubin:

“The most important issue is what happens upon an exit. There are other things that you can have in there, like benefits, salary and bonuses. Those things are important. They’re material terms of an employment agreement. But everyone needs to know what happens when either the founder is asked to go or forced to go, or when the founder wants to go. Those are really important issues. When I say founder, I also mean executives. Then you know what’s going to happen. There are severance terms. They are very important. Even more important is the definition of cause. There is no standard definition of cause. There is no commonly accepted definition of cause. This is something that’s typically subject to negotiation. It implies misconduct. That’s a very good starting point. What is misconduct? Of course, the company would like to have a very robust view of that and the executive would like a very narrow view. It’s about meeting in the middle. If and when it comes time for the executive to go, the issue is going to become, ‘Is it with cause? Is it without cause? What do we have to pay this person as a result?’”

This is Patrick Henry, CEO of QuestFusion, with The Real Deal…What Matters.

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