What is "Good Reason" termination in an employment offer?

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Short answer: Good Reason termination is a contractual clause that lets the employee resign while still triggering severance benefits, typically because the employer materially changed the role. Standard Good Reason triggers include material reduction in title or duties, reduction in base salary or target bonus, relocation more than 50 miles, or material breach by the employer. Without a Good Reason clause, an employer can constructively terminate (demote, cut comp, relocate) and pay no severance because the employee technically resigned.

Why Good Reason matters

In an at-will employment relationship, the employer can change your role unilaterally: cut your pay, demote you, relocate you, or restructure you out of meaningful work. Without a Good Reason clause, your only options are to accept the changes or resign without severance.

Good Reason solves this by treating specified adverse changes as if they were employer-initiated termination. If your employer triggers any defined Good Reason event, you can resign and receive the same severance you would have received if they terminated you without Cause.

This is especially critical for senior leaders, where:

The role itself is the point of the comp package
Constructive termination is a common employer tactic to avoid severance obligations
Equity acceleration and severance multiples are large dollar amounts at stake

Good Reason is one of the most important and most overlooked items in an offer letter.

Standard Good Reason triggers

A well-drafted Good Reason clause covers:

Material reduction in title, duties, or responsibilities: Demotion, removal of direct reports, narrowing of authority, change in reporting line.
Reduction in base salary: Any cut, often with a threshold like "more than 5%."
Reduction in target bonus or other variable compensation: Same threshold treatment.
Adverse change in equity vesting: Such as termination of accelerated vesting rights.
Material relocation of primary work location: Standard threshold: more than 50 miles from current work site.
Material breach by employer of the employment agreement: Catch-all for other violations.

Some agreements add:

Change in reporting line to a lower-ranking person
Reduction in benefits below those of similarly situated executives
Failure to be re-nominated to the board (for executives with board seats)

How Good Reason works in practice

A typical Good Reason mechanic:

The employer takes an action that constitutes Good Reason (e.g., 15% base salary cut)
The employee gives written notice to the employer specifying the Good Reason event, typically within 30-90 days of the event
The employer has a cure period (typically 30 days) to reverse the action
If the employer does not cure, the employee may resign for Good Reason within a specified window (typically 60-90 days)
On resignation for Good Reason, the employee receives the same severance, equity acceleration, and other benefits as if terminated without Cause

The notice and cure mechanic is critical. Without it, an employer might argue the employee waived the Good Reason event by not responding promptly.

Negotiating Good Reason language

When negotiating Good Reason:

Be specific about thresholds: "More than 5% reduction" not "any reduction" (the latter is too easily triggered by ordinary fluctuations like commission timing).
Include reporting line changes: Many drafts focus on title and pay but miss reporting line, which is often the most painful change for senior roles.
Define materiality carefully: "Material reduction in duties" should specify what counts (removal of P&L responsibility, removal of direct reports, etc.).
Set reasonable notice and cure periods: 30-60 days notice, 30 days cure. Longer cure periods give the employer too much room to reverse course unfairly.
Specify the resignation window: 60-90 days after the cure period expires. Don't leave it open-ended.
Mirror the Cause definition's specificity: If Cause is narrow and specific, Good Reason should be similarly so.

Counter language to propose:

"Good Reason" means, without Employee's express written consent, the occurrence of any of the following events: (i) a material diminution in Employee's title, duties, authority, or reporting line; (ii) a reduction in Employee's base salary of more than 5%; (iii) a reduction in Employee's target annual bonus; (iv) a relocation of Employee's primary work location more than 50 miles; or (v) a material breach by Company of this Agreement. Employee may resign for Good Reason only after providing Company with written notice within 90 days of the occurrence of the event, Company's failure to cure within 30 days, and Employee's resignation within 90 days following the end of the cure period.

Common drafting traps

Look out for:

"Materiality determined by the Board": Lets the employer decide whether the change is "material" enough to trigger Good Reason. Strike this language.
Excessively long cure periods: 90+ days lets the employer reverse course in time to avoid Good Reason while preserving the bad behavior pattern.
Excessively short notice periods: 7-15 days is too short to consult counsel and respond properly.
Vague triggers: "Adverse change in role" without definition is unenforceable in practice. Specify the events.
Carve-outs for "normal business adjustments": Lets the employer reduce comp or change roles as long as they call it normal.
No equity acceleration on Good Reason resignation: Some drafts grant severance pay but not equity acceleration on Good Reason. Equity is often the bigger dollar amount; insist on parity with termination-without-Cause.

What to do next

If you want a delivered analysis of your offer's Good Reason language (or lack thereof), with specific counter language to send the recruiter, we deliver one in 24 hours for $199. See Offer Review.

Sources

Standard employment contract templates from major law firms
Council of Institutional Investors guidance on executive severance
Treasury Regulation § 1.409A-1(n)(2) (Good Reason safe harbor for 409A purposes)

Get your contract reviewed

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Last updated: Sun May 31 2026 00:00:00 GMT+0000 (Coordinated Universal Time)

Counteroffer is a contract analysis service, not a law firm. This page is informational, not legal advice.