An employee will want to negotiate for some liability protection. There are several ways employees’ personal assets can be protected.
Directors’ and Officers’ Insurance
For instance, if the company has Directors’ and Officers’ (D&O) insurance, the employee will want to be added to the policy. D&O insurance protects the personal assets of a company’s directors and officers, (and can even include their spouses) in the event they are personally sued due to their relationship with the company. Such parties that may sue for mismanagement are: investors, employees, suppliers, competitors, customers, etc. D&O insurance commonly covers legal fees and settlement costs. Some specific ways that executives may be sued are:
- Misrepresentation of the company’s assets or financial statements
- Breach of fiduciary duty resulting in financial losses or bankruptcy
- Misuse of company funds
- Failure to comply with securities, workplace or other laws
Illegal acts are not covered under D&O insurance.
💡 Think about who else may want D&O personal liability coverage?
Nearly all employment agreements will provide that an employee will be indemnified (fancy word that means “making one whole again”) if they are sued for something that happens at the company. You will want to specify whether the indemnification covers an advancement of legal expenses, and whether it protects employees even after they are no longer with the company (within any statutory limits).