Good Leaver and Bad Leaver: An explanation

In the context of equity held by employees, terms such as Good Leaver and Bad Leaver are often used on departure.

It is important to establish what these two different terms mean, and why they can be important.

Good Leaver

When an individual leaves a company under circumstances considered favourable or acceptable, such as retirement, redundancy, death or following an acceptable period of service, they will often be determined as a Good Leaver.

The distinction of being a Good Leaver typically comes with benefits aimed at rewarding their positive contributions to the company and maintaining goodwill.

One significant advantage for Good Leavers is the preservation of their vested shares, and/or being paid market value for their shares when they leave.

Bad Leaver

Conversely, being labelled a Bad Leaver can have serious repercussions for departing employees.

This classification applies to individuals who leave the company under less favourable circumstances, such as termination for cause, resignation without notice or breach of restrictive covenants.

Essentially, Bad Leavers are those whose actions are deemed detrimental, or at least unacceptable, to the company's interests.

For Bad Leavers, the treatment of their shares tends to be less favourable.

Depending on the company's policies and agreements, Bad Leavers may forfeit some or all of their vested shares, receive a lower valuation for their shares upon exit, or face restrictions on selling their shares.

These measures serve as a deterrent against behaviours that could harm the company ensuring that departing employees do not benefit unfairly from their ownership stakes after leaving under unfavourable circumstances.