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Exaction of compensation for early termination of employment contract for top manager (“golden parachute”).

In connection with the change of the shareholders of a large Russian commercial bank, the employment contract with the Chairman of its board was terminated early on the basis of clause 2 of Article 278 of the Labor Code of Russia. One of the terms of the employment contract stipulated that the head of the bank was entitled to compensation, the amount of which is calculated according to the formula fixed in the contract and dependent on a number of economic indicators of the bank’s activity. The new shareholders of the bank refused to pay the compensation alleging invalidity of the employment contract term concerning the bank’s obligation to pay the compensation to the former Chairman and the norms of corporate legislation. Besides, the new management of the bank stated, as grounds for its decision to refuse the compensation, that the former Chairman had allegedly abused his powers and had caused losses to the credit organization.

Lawyers from the Law Firm "YUST" managed to prove in the Supreme Court of Russia the legality of the claim of the former top manager against the bank concerning the compensation.

This court case is of great interest for the forming of the court practice on disputes between commercial organizations and their former heads, in particular, on the matters of exacting compensation for early termination of employment contracts (“golden parachutes”), making demands to the heads of the companies to compensate the damages done to the companies, abuse of powers,  as well as on the matters of correlation of the norms of corporate law and employment law concerning the issues of regulation of the activity of the heads of commercial organizations.

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