What colour is your parachute?

Not all executive agreements enforceable
By Joe Conforti
|Canadian Employment Law Today

Background

A “golden parachute,” also known as a change of control agreement, is an employment contract providing for enhanced severance or other compensation to an organization’s senior executives. In most cases the parachute is triggered and the executives are paid upon a fundamental change in the business (for example, a significant change in shareholdings or in the composition of the board of directors, privatization of a public company and sale of substantial assets) followed by a cessation of employment.

The number of takeovers of Canadian businesses over the past several years, together with initial public offerings, mergers and other business combinations, have led to an increasing use of golden parachutes. Negotiation of these arrangements — including severance — is a legitimate function of any business, as is retention of management. Golden parachutes serve a number of purposes.