# Question 76: The Executive Exit Agreement Audit

## Your role

You represent Ava Soren, a departing executive negotiating severance with Meridian Forge. Review and correct the company's draft agreement and the predecessor lawyer's advice. Identify the redline priorities that protect Ava's earned compensation, future work, customer relationships, confidentiality obligations, and severance.

## Governing law

Assume the following covenant and compensation rules apply:

1. An employee noncompetition covenant is enforceable only to the extent it is no longer than 12 months and is reasonably limited to the products, services, territory, and role in which the employee had material responsibility. A restriction covering unrelated business lines or all work for a competitor is overbroad.

2. A court may sever a distinct unlawful clause but may not rewrite a covenant's duration, territory, business scope, and prohibited role to create a reasonable restraint the parties did not draft.

3. A customer nonsolicitation covenant may last no more than 12 months and may cover only customers or active prospects with whom the employee had material contact or about whom the employee received material confidential information during the final year.

4. An employee nonsolicitation covenant may prohibit targeted recruitment for 12 months of employees the executive directly supervised or worked with materially. It may not prohibit general advertising, unsolicited applications, or hiring people unknown to the executive.

5. Trade secrets may be protected while they remain trade secrets. Other confidential business information may be restricted for two years. Confidentiality does not cover public information, general skill and experience, independently developed information, or information lawfully received from others.

6. An invention assignment may cover work created during employment using company time, systems, confidential information, or business opportunities. It may not claim inventions created after employment without company resources merely because they relate broadly to the industry.

7. Earned salary, vested bonus, and vested equity may not be forfeited for post-employment competition unless a separate lawful plan term expressly makes the compensation unvested. Severance may be conditioned on a release and prospective covenants.

8. A severance agreement may provide proportionate remedies for a material covenant breach. It may not permit the company, in its sole discretion and without notice, to declare any allegation a breach and claw back earned compensation.

9. A release becomes effective after the stated seven-day revocation period. The company may condition severance payments on effectiveness but may not delay already earned compensation.

## Facts

Ava was Meridian Forge's president of the Industrial Sensors division. Meridian also operates unrelated medical-device and consumer-electronics divisions. Ava worked primarily in States Alder and Birch and managed industrial-sensor sales in those states. She had no responsibility for the other divisions or for sales outside Alder and Birch.

Ava's compensation includes:

* $360,000 annual salary.
* A $140,000 annual bonus that vested under the bonus plan on December 31 and is payable February 15.
* Vested equity not subject to any post-employment forfeiture term.

Meridian offers 12 months of salary as severance in exchange for a release. Its draft also provides:

* A 24-month worldwide bar on working in any capacity for any business that competes with any Meridian division.
* A 24-month bar on soliciting or accepting business from any Meridian customer or prospect.
* A 24-month prohibition on soliciting, hiring, or employing any current or former Meridian worker.
* Permanent confidentiality for all information learned during employment, including skills and experience.
* Assignment to Meridian of every invention Ava conceives within one year after departure if it “relates to Meridian's current or anticipated business.”
* Forfeiture of the $140,000 vested bonus and all severance if Meridian alleges any covenant breach.
* Meridian's sole discretion to stop payments and demand repayment, with no notice, cure period, materiality threshold, or adjudication.
* A release effective immediately on signing, with no revocation period.

A predecessor lawyer advised Ava:

> “Because you are highly paid, all restraints are enforceable. A court will blue-pencil anything excessive. Take the severance and rely on the judge to narrow it later.”

Ava plans to join a company that competes only in industrial sensors, in a product role covering Alder and Birch. She is willing to protect trade secrets and avoid soliciting customers she personally served, but will not risk the vested bonus or accept a bar on working.

## Assignment

Review and correct:

* The predecessor lawyer's advice.
* The noncompetition covenant's duration, territory, business line, and prohibited role.
* Customer and employee nonsolicitation.
* Confidentiality duration and exclusions.
* The post-employment invention assignment.
* Treatment of the vested bonus, vested equity, and severance.
* Breach, notice, cure, materiality, adjudication, repayment, and proportional remedies.
* Release effectiveness and revocation.
* A prioritized redline package and concrete negotiation position for Ava.

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