Defining “Cause” in Employment Agreements

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The term “cause” is commonly used in employment contracts and plays a crucial role in the termination of an employee’s contract. Understanding this term is essential for both employers and employees, as it outlines the circumstances under which an employment agreement can be terminated without severance or other benefits.

What is Cause in an Employment Agreement?

In the context of an employment agreement, “cause” refers to a specific set of circumstances or behaviors that, if exhibited by the employee, can justify the employer’s decision to terminate the contract without providing any further compensation or benefits. Typically, these circumstances involve serious misconduct or a breach of the terms outlined in the employment agreement.

Examples of Cause

The specific definition of cause can and should be negotiated. That said, the following are some common examples that often are included within the definition of cause:

  • Gross Misconduct: This includes actions such as theft, fraud, violence, harassment, or any other behavior that significantly undermines the employer-employee relationship or the company’s interests.
  • Recurring Performance Issues: Consistent failure to meet performance standards or repeated negligence that significantly impacts the employee’s ability to fulfill their duties.
  • Breach of Company Policies: Violation of established company policies or codes of conduct, including but not limited to those related to confidentiality, ethics, safety, or data protection.
  • Conviction of a Crime: If an employee is convicted of a crime that affects their ability to perform their job or damages the reputation of the company.
  • Breach of Trust: Disclosure of confidential information, trade secrets, or other proprietary information without authorization or in violation of a non-disclosure agreement.

Importance of Defining Cause

Including a clear, and if successfully negotiated, more limited definition of cause in an employment agreement is beneficial for employees. It not only provides a level of transparency and ensures that termination decisions are not made arbitrarily, but if worded properly, can restrict an employer from terminating an employee without providing other contractually negotiated benefits.

Seeking Legal Advice

Given the legal complexities surrounding employment agreements, it is essential for employees to seek legal advice prior to entering into such contracts. Attorney Shafran has substantial experience reviewing and negotiating employment agreements for employees across nearly all industries, with companies of all sizes.



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