What are Good Leavers and Bad Leavers?
Learn the basics of good and bad leavers in employee participation plans.
When an employee leaves a startup, either a "good leaver" or "bad leaver" is issued for the employee ownership plan.
Good leavers are issued to employees most often, and are for those who leave under positive circumstances - for example, retirement, taking another job, or maternity/paternity leave.
Bad leavers are less common and are issued to employees who leave under bad circumstances - for example being fired, laid off, or otherwise forced to leave the company.
What are a leaver clauses?
A leaver clause is included in employee shareholder agreements, and outlines what happens to an employee’s shares should they leave the company. Leavers can also be included in an employment contract and primarily protect the company if an employee leaves.
What is a leaver provision?
A leaver provision specifies the circumstances under which an employee may leave the company and what will happen to their equity or compensation.
Leaver provisions can vary depending on the type of equity or compensation involved. For instance, restricted stock units (RSUs) typically have different leaver provisions than stock options.
Conclusion
The decision of whether to include a good leaver or bad leaver clause in an employment contract is an important one that should not be taken lightly. Consider the risks and rewards of each type of clause before making a decision.
Learn more about Good Leavers and Bad Leavers here.