A clause in any type of compensation agreement, whether for NQDC or stock options, that terminates all unvested amounts if you leave the company to work for a competitor or for other specified reasons, such as a financial restatement. Legal victories by companies and new legal requirements (e.g. the Dodd-Frank Act) have boosted the popularity of these recoupment provisions and also clawbacks.

Alert: In 2023, the Federal Trade Commission proposed new rules that would prohibit noncompete agreements, except for a narrow circumstance in connection with a sale of a business. For details, see commentaries from the law firms Fenwick & West, Wilmer Hale, and Jackson Lewis. Wilmer Hale observes that the proposed rule “is likely to be highly controversial” and foresees extensive challenges via litigation if it is finalized.  The proposed rule’s application to nonqualified deferred compensation is unclear. However, as explained by an article from the law firm Haynes Boone, plans subject to Section 409A “often include provisions that forfeit any employer contributions in the event the participant violates restrictive covenants in the plan.”