Severance Payments and Non-Competition Agreements with Executive Officers

The article deals with the issue of debates concerning the extremely high payments to the managing employees in the event of their dismissal - the so called "golden parachutes". The author makes a statement that legal limitation of the maximum amount of such payments (being three average monthly wages) is only acceptable for the state controlled companies. However, current Russian court practice puts the same limitations de facto to private companies as well. The author concludes that legal limitations for the private sector severance payments must be associated not with the maximum amount of payment, but rather with specific mechanisms of the abuse of rights in the moment of establishment or performance of such payments. This does not mean that there should be no legal framework for limitation of such payments whatsoever. The author concludes that the Supreme Court of Russia could offer tests that would allow courts to determine the fact of misuse of right in the process of establishment of such payments to the executive staff. Large severance payments in the industrialized market economies are often made in exchange for the obligation of the managing employee not to compete with the employer. Such agreements are called non-competition clauses or agreements. The article covers the illegality of such agreements under Russian law and concludes that they should be legalized, but subject to a significant number of restrictions associated with a term of such agreements, who such agreements could be concluded with, and a provision on loss of wages.

«золотые парашюты», Labour law, corporate law, "golden parachutes", executive officers, non-competition agreements

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