Executive Employment Contract Review: Restraints, LTI, Garden Leave

An executive employment contract — for a CEO, CFO, GM, or senior leader — is meaningfully different from a standard employment agreement. The base salary is one element of the package. The real economics sit in long-term incentives, restraints, termination provisions, and garden-leave clauses that can dictate your career for years after you leave.

Before signing, the contract review needs to surface the structural issues that won’t matter while you’re succeeding — and will matter enormously if you’re not.

The clauses that matter most

• Restraint of trade. Post-employment restraints are partially enforceable in Australia under the doctrine of restraint of trade. Reasonable in scope (geography, duration, activities) — yes. Excessive — courts will read down or strike out. New South Wales has cascading restraint clauses; other states require careful drafting. Push for reasonable bounds: 6–12 months, defined geography, specific competing activities.
• Long-Term Incentives (LTI). Performance rights, options, restricted shares, deferred bonuses. Vesting schedules, performance hurdles, treatment on termination (good leaver / bad leaver), tax implications. Unvested LTI on termination is often the largest single financial issue.
• Short-Term Incentive (STI). Annual bonus structure, KPIs, payment timing, treatment on termination. “At the discretion of the Board” with no objective metrics is risky.
• Garden leave. The ability to require you to stay on payroll but not work during your notice period — typically 3–6 months for executives. Stops you joining a competitor immediately, but you continue accruing entitlements.
• Notice period and termination. Termination by company (for cause vs without cause), termination by you, termination on change of control. Notice periods of 6–12 months are standard for executives. Payment in lieu of notice (PILON) provisions — what’s included?
• Severance and “without cause” payments. Beyond notice, are there severance entitlements? Watch for the cap on termination benefits under the Corporations Act (12 months’ base salary for “officers” of disclosing entities — anything more requires shareholder approval).
• Confidentiality and IP assignment. Standard but check scope — pre-existing IP carve-outs, post-employment confidentiality term, return of materials.
• Indemnity and D&O insurance. Director-and-Officer insurance coverage during employment AND after departure for legacy claims. Indemnity by the company for actions in the role.

Common red flags

• Cascading restraints with no realistic bound — courts may strike them entirely, leaving you with no enforceable restraint at all (or letting the company keep choosing the version they argue)
• “Cause” definitions broad enough to include negligence or performance issues — converts any termination into “for cause” and forfeits LTI
• LTI vesting that accelerates only on company-favourable events (e.g. takeover) but not on without-cause termination
• Discretionary STI with no minimum payment on termination during the bonus year
• Garden-leave triggers at the company’s sole discretion — converts your notice into garden leave without negotiation
• No D&O coverage for the period after departure (run-off cover) — leaves you exposed to legacy claims
• Change-of-control clauses that extend restraints rather than triggering accelerated vesting

What Claim Done’s contract review delivers

Upload the contract (and any LTI plan rules and offer letters). The review returns an A4 PDF flagging restraint enforceability, LTI vesting risk, termination cap exposure, and garden-leave breadth. The report sets out good, fair and watch points, key obligations, fees and penalties found, and questions to raise with the other side. Flat $49 fee, 24/7.

The restraint enforceability matrix

Australian courts apply a sliding scale to post-employment restraints. A 6-month restraint over a defined geography (e.g. metropolitan Sydney) preventing competition with the specific business unit is generally enforceable. A 12-month restraint covering all of Australia preventing all employment in the broader industry is generally not. New South Wales uses cascading clauses (multiple alternative formulations, with the court selecting the most reasonable enforceable version under the Restraints of Trade Act 1976). Other states require single-clause drafting that must stand or fall as written. The practical impact: an executive in New South Wales with a poorly-drafted restraint may find the court reads it down to enforce something. The same executive in Victoria or Queensland may find the entire restraint struck down — leaving them free to compete immediately. This jurisdictional difference is worth understanding before signing.