In an employment contract, a golden parachute is a payment guarantee often given to executives with the company. If that person loses their job in specific ways, they still receive a form of compensation.
For instance, say that the executive works at a publicly traded company. It is sold, so their job becomes redundant and they are going to be terminated. But they have a golden parachute, meaning that they will still receive a salary for five years—or it may say that they will get a lump sum payment at the time of their termination. In other cases, executives will be given stock options in the new company, which can give them significant long-term compensation, even if they lose their job.
What if your employer doesn’t pay?
Another way to trigger a golden parachute is when an executive is fired without cause. Much of the time, these employment contracts will state that they can be fired for cause, such as if they are determined to have been embezzling, breaching their fiduciary duty to the company or doing something else that negatively impacts the corporation. But if there is not necessarily a specific reason to terminate them, then they are being fired without cause. This is not illegal, per se, but it does mean that they get the golden parachute.
If you are in this situation, one complication that can arise is if your company fires you and refuses to pay. Perhaps you believe you were fired without cause, but they claim that they had a valid reason. Since post-employment compensation could be worth millions of dollars in financial compensation or stock, this can trigger significant litigation. It is crucial that all involved understand their legal options.