Full employment for lawyers at Choice Hotels …

"Latin for Lawyers"; "2000 Famous Legal Quotations"

If you’ve ever read an executive employment contract — and we’ve read hundreds — you know they can go to exhaustive lengths to detail the various ways executives might leave, and how much they’re entitled to under each scenario.

But sometimes we wonder why companies bother — for example, when we read Friday’s 8-K from Choice Hotels International (CHH). There, we learn that Mary Beth Knight, the company’s senior vice-president for marketing and distribution, was first put on administrative leave, on October 4, and then resigned on October 7. Yet, contrary to the agreement in place before she walked out the door on Thursday, the company is easing the way with severance and health-care benefits — with nary a word of explanation.

The filing makes clear that the company considers her departure to have been without “Good Reason” according to her employment contract. Usually, Good Reason means something the company has done that harms or inconveniences the executive — the company demotes an executive or cuts his salary, moves the company across the country, and so on; it often makes the difference between severance and no severance for an executive who throws in the towel. But leaving voluntarily without good reason is typically supposed to leave the departing executive little more than pay through her departure date.

And indeed, that’s what you would expect from Knight’s 2008 severance agreement, which only provides for severance after a change of control, or if Knight leaves for Good Reason or is terminated without cause, or dies or becomes disabled on the job.

And yet, in the 8-K and attached amendment to the severance agreement, the company explains that it is nonetheless paying Knight 18 months’ salary ($387,000 using the figure in Choice Hotels’ proxy from March) and group health-care benefits, as well as the bonus she would have been entitled to for the year given corporate performance (it was $121,905, per the proxy). Cryptically, the company also says it will continue the “advancement of certain legal expenses as previously approved by the Company” — and no more is said on the matter. In return, she has to sign a 24-month non-compete agreement instead of the contractually prescribed 18-month one, and the option and restricted-stock awards awarded to her won’t continue to vest while she’s receiving severance.

Choice Hotels could have all kinds of good reasons for paying severance it apparently doesn’t have to, but you won’t find out from this filing. Which raises another possibility: Perhaps all those pages of conditions and terms in most executive pay contracts have little to do with the executive’s terms of hire, and are really just a full-employment program for compensation attorneys.

Image source: umjanedoan via Flickr


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