Define: Good Leaver
In a contract, a Good Leaver is an employee, director, or shareholder who exits a company under circumstances the agreement treats favourably, such as death, illness, retirement, or dismissal without cause. Being classed as a Good Leaver typically preserves the individual's right to keep vested shares or receive fuller value for them, unlike a Bad Leaver.
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What Good Leaver Means in a Contract
A Good Leaver is a defined term used in shareholders' agreements, articles of association, and equity incentive documents to describe a departing employee or director whose exit is treated sympathetically by the company. The label determines what happens to that person's shares, options, or other equity interests once they stop working for the business. Rather than being a fixed legal status, it is a contractual classification that the parties agree upon in advance and apply when someone actually leaves.
The concept exists because businesses want to distinguish between departures that are, in a practical sense, no fault of the individual, such as retirement, death, ill health, or redundancy, and departures that arise from misconduct or voluntary resignation without good reason. The former group is usually classed as Good Leavers and receives more generous treatment of their equity than a Bad Leaver would receive.
How Good Leaver Is Defined or Measured
Most agreements define Good Leaver by exclusion, stating that anyone who ceases to be an employee during a specified period and who is not a Bad Leaver will be treated as a Good Leaver. This drafting technique means the Bad Leaver definition does the heavy lifting, listing specific triggering events such as dismissal for cause, breach of restrictive covenants, or insolvency of the individual, and everything else falls into the Good Leaver category by default.
Many clauses also give the board, sometimes requiring investor director consent, a discretionary power to determine that a person who might otherwise be a Bad Leaver should instead be treated as a Good Leaver. This discretion adds flexibility for situations that do not fit neatly into either category, but it also introduces an element of judgment that the parties should understand before signing.
- Death or permanent incapacity of the individual
- Retirement at a normal retirement age
- Redundancy or dismissal without cause
- Resignation with the board's consent, in some drafting
Where Good Leaver Appears in Agreements
The term is most commonly found in shareholders' agreements and investment agreements for private companies, where founders and key employees hold shares subject to leaver provisions. It also appears in share option plans, growth share schemes, and other long-term incentive arrangements, since these instruments need clear rules about what happens to unvested or vested awards when someone departs.
Because the classification affects compensation and equity value, the term intersects with broader employment documentation. An Relevant Circumstances
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