Protecting Your Executive Compensation from Unfair Dealing by Your Employer
This article was published in IvyExec on January 5, 2026.
Have you ever lost out on a bonus, commission, stock grant, or other compensation that you earned over time through skill, dedication, and leadership? Were you terminated just before a major equity vesting or a bonus milestone without cause or justification? Did it feel like your company timed your termination to deny you compensation or benefits you had earned, in effect keeping money due to you?
As a C-suite executive or other senior leader, you are likely employed “at will,” which can leave you feeling powerless when your employer takes away your rightfully earned compensation.
But being an at-will employee doesn’t mean you have no recourse.
In many states, courts recognize a powerful legal principle known as the implied covenant or duty of good faith and fair dealing. This covenant or duty protects employees against manipulative tactics by employers designed to deprive them of compensation they have earned.
This article explores how a claim based on good faith and fair dealing works, how it can be applied to protect your executive compensation when your employer has acted in bad faith.
What Is the Duty of Good Faith and Fair Dealing?
The legal concept of the implied covenant of good faith and fair dealing is a foundational principle in United States contract law. The Restatement (Second) of Contracts (1981), which is one of the most well-recognized legal treatises in all of American jurisprudence, states in § 205: “Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.”
The official comments go on to state: “good faith performance or enforcement of a contract emphasizes faithfulness to an agreed common purpose and consistency with the justified expectations of the other party; it excludes a variety of types of conduct characterized as involving ‘bad faith’ because they violate community standards of decency, fairness or reasonableness.“
Examples of bad faith given in the Restatement include:
- Evasion of the spirit of the bargain
- Lacking diligence and slacking off
- Willful rendering of imperfect performance
- Abuse of power to specify terms
- Interference or failure to cooperate in the other party’s performance.
This principle has teeth. Courts have enforced it in favor of executives whose companies tried to maneuver around obligations like bonuses, stock vesting, or severance by exploiting technicalities or manipulating job responsibilities to avoid payment.
Examples of Enforcement by Courts
Fortune v. National Cash Register Co. (1977) is a landmark employment law case where the Supreme Judicial Court of Massachusetts ruled that terminating an at-will employee in bad faith to avoid paying earned commissions is a breach of contract, establishing an implied covenant of good faith and fair dealing in at-will employment. Salesman Orville Fortune was fired by NCR after closing a large sale, but before all machines were delivered, and NCR tried to deny him the full commission; the court held this malicious act violated the implied promise not to interfere with his right to receive the fruits of his labor.
In this case, the court stated, “The contract at issue is a classic terminable at will employment contract. It is clear that the contract itself reserved to the parties an explicit power to terminate the contract without cause on written notice. Fortune argues that, in spite of the literal wording of the contract, he is entitled to a jury determination on NCR’s motives in terminating his services under the contract and in finally discharging him. We agree. We hold that NCR’s written contract contains an implied covenant of good faith and fair dealing, and a termination not made in good faith constitutes a breach of the contract.” Thus, Fortune’s commission earned was paid.
In Sons of Thunder, Inc. v. Borden, Inc., the New Jersey Supreme Court ruled in favor of a former Borden employee who had left the company to launch a new business supplying clams exclusively to Borden. Relying on promises from his former employer, he took on significant debt to fulfill the agreement. However, after a change in Borden’s management, the company chose not to honor the contract terms, leaving the new business at risk. The court found that Borden acted in bad faith by undermining the agreement that had been relied upon in good faith. The ruling emphasized that every contract carries an implied duty of good faith and fair dealing, meaning that neither party should act in a way that deprives the other of the benefits they reasonably expected from the agreement.
Why Executives Like You Should Care
Every executive employment agreement contains an implied covenant: that both parties will act in good faith and deal fairly with one another in executing the terms of the contract. That means your employer can’t act in a way that deprives you of the benefits you reasonably expected to receive under your agreement, even if their conduct doesn’t technically violate any written clause.
Let’s say your employment agreement entitles you to a performance bonus if you hit certain metrics. If the company deliberately shifts your role or withholds resources that make those metrics unreachable – without cause – that could be considered bad faith.
Or suppose your equity is subject to time-based vesting, and your employer terminates you weeks before a major vesting milestone – solely to avoid the payout. That kind of maneuver might run afoul of the duty of good faith.
Examples of Executives Harmed by Bad-Faith Terminations
These aren’t hypothetical. In my work with executives, I’ve seen companies reduce an executive’s scope of responsibility, shift titles, or reassign key accounts – moves that are legal on paper, but ethically questionable. When done with the intention of undermining an executive’s compensation, they can form the basis of a successful legal claim or a powerful leverage point in negotiations.
In one case, a tech executive was recruited from a smaller company based on his leadership in key innovations. He negotiated a compensation package that included substantial equity, set to vest over four years. However, within the first year – after the new employer had extracted much of the strategic knowledge that motivated the hire – the company abruptly deemed his role unnecessary, despite his strong performance. This maneuver effectively cut him off from 75% of the equity he was promised, stripping away most of the value that had convinced him to leave his previous position.
In another case, a seasoned executive was hired to turn around a struggling service company in her industry. She successfully stabilized the business and played a key leadership role in driving its growth over nearly a decade. During that time, she declined an offer to join another firm, believing in the long-term value of her equity compensation. Unbeknownst to her, more than 80% of that equity was set to vest only upon an IPO. Just months before the company went public, she was terminated without cause – effectively cutting her off from the equity she had worked years to earn and relied on when turning down other opportunities.
Using a Skilled Executive Attorney in Two Different Circumstances
The duty of good faith and fair dealing is a powerful – but complex – tool. Especially in high-stakes executive compensation, understanding your legal protections isn’t just smart – it’s essential.
To safeguard your interests, if you face termination that will deprive you of benefits or compensation you earned, seek counsel from an experienced executive compensation attorney to assess whether you have a viable claim.
If you are considering joining a new company, it is wise to seek experienced counsel in the negotiation of your job offer – a well-negotiated job offer or contract can provide a structure to significantly minimize the risk that your employer can later change the rules to deprive you of what you have earned.
