assignment vs change in control

Don’t Confuse Change of Control and Assignment Terms

• David Tollen
• September 11, 2020

An assignment clause governs whether and when a party can transfer the contract to someone else. Often, it covers what happens in a change of control: whether a party can assign the contract to its buyer if it gets merged into a company or completely bought out. But that doesn’t make it a change of control clause. Change of control terms don’t address assignment. They say whether a party can terminate if the other party goes through a merger or other change of control. And they sometimes address other change of control consequences.

Don’t confuse the two. In a contract about software or other IT, you should think through the issues raised by each. (Also, don’t confuse assignment of contracts with assignment of IP .)

Here’s an assignment clause:

Assignment. Neither party may assign this Agreement or any of its rights or obligations hereunder without the other’s express written consent, except that either party may assign this Agreement to the surviving party in a merger of that party into another entity or in an acquisition of all or substantially all its assets. No assignment becomes effective unless and until the assignee agrees in writing to be bound by all the assigning party’s obligations in this Agreement. Except to the extent forbidden in this Section __, this Agreement will be binding upon and inure to the benefit of the parties’ respective successors and assigns.

As you can see, that clause says no assignment is allowed, with one exception:

• Assignment to Surviving Entity in M&A: Under the clause above, a party can assign the contract to its buyer — the “surviving entity” — if it gets merged into another company or otherwise bought — in other words, if it ceases to exist through an M&A deal (or becomes an irrelevant shell company).

Consider the following additional issues for assignment clauses:

• Assignment to Affiliates: Can a party assign the contract to its sister companies, parents, and/or subs — a.k.a. its “Affiliates”?
• Assignment to Divested Entities: If a party spins off its key department or other business unit involved in the contract, can it assign the contract to that spun-off company — a.k.a. the “divested entity”? That’s particularly important in technology outsourcing deals and similar contracts. They often leave a customer department highly dependent on the provider’s services. If the customer can’t assign the contract to the divested entity, the spin-off won’t work; the new/divested company won’t be viable.
• Assignment to Competitors: If a party does get any assignment rights, can it assign to the other party’s competitors ? (If so, you’ve got to define “Competitor,” since the word alone can refer to almost any company.)
• All Assignments or None: The contract should usually say something about assignments. Otherwise, the law might allow all assignments. (Check your jurisdiction.) If so, your contracting partner could assign your agreement to someone totally unacceptable. (Most likely, though, your contracting partner would remain liable.) If none of the assignments suggested above fits, forbid all assignments.

Change of Control

Here’s a change of control clause:

Change of Control. If a party undergoes a Change of Control, the other party may terminate this Agreement on 30 days’ written notice. (“Change of Control” means a transaction or series of transactions by which more than 50% of the outstanding shares of the target company or beneficial ownership thereof are acquired within a 1-year period, other than by a person or entity that owned or had beneficial ownership of more than 50% of such outstanding shares before the close of such transactions(s).)

• Termination on Change of Control: A party can terminate if controlling ownership of the other party changes hands.

Change of control and assignment terms actually address opposite ownership changes. If an assignment clause addresses change of control, it says what happens if a party goes through an M&A deal and no longer exists (or becomes a shell company). A change of control clause, on the other hand, matters when the party subject to M&A does still exist . That party just has new owners (shareholders, etc.).

Consider the following additional issues for change of control clauses:

• Smaller Change of Ownership: The clause above defines “Change of Control” as any 50%-plus ownership shift. Does that set the bar too high? Should a 25% change authorize termination by the other party, or even less? In public companies and some private ones, new bosses can take control by acquiring far less than half the stock.
• No Right to Terminate: Should a change of control give any right to terminate, and if so, why? (Keep in mind, all that’s changed is the party’s owners — possibly irrelevant shareholders.)
• Divested Entity Rights: What if, again, a party spins off the department or business until involved in the deal? If that party can’t assign the contract to the divested entity, per the above, can it at least “sublicense” its rights to products or service, if it’s the customer? Or can it subcontract its performance obligations to the divested entity, if it’s the provider? Or maybe the contract should require that the other party sign an identical contract with the divested entity, at least for a short term.

Some of this text comes from the 3rd edition of The Tech Contracts Handbook , available to order (and review) from Amazon  here , or purchase directly from its publisher, the American Bar Association, here.

Want to do tech contracts better, faster, and with more confidence? Check out our training offerings here: https://www.techcontracts.com/training/ . Tech Contracts Academy has  options to fit every need and schedule: Comprehensive Tech Contracts M aster Classes™ (four on-line classes, two hours each), topical webinars (typically about an hour), customized in-house training (for just your team).   David Tollen is the founder of Tech Contracts Academy and our primary trainer. An attorney and also the founder of Sycamore Legal, P.C. , a boutique IT, IP, and privacy law firm in the San Francisco Bay Area, he also serves as an expert witness in litigation about software licenses, cloud computing agreements, and other IT contracts.

© 2020, 2022 by Tech Contracts Academy, LLC. All rights reserved.

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Difference Between Assignment, Novation and a Change of Control Clause

By Stephanie Mee Lawyer

Updated on October 14, 2022 Reading time: 5 minutes

This article meets our strict editorial principles. Our lawyers, experienced writers and legally trained editorial team put every effort into ensuring the information published on our website is accurate. We encourage you to seek independent legal advice. Learn more .

What is the Right of Assignment?

What is novation.

• What is a “Change of Control”?

How Do They Differ?

Key takeaways, frequently asked questions.

Contractual rights, obligations and performance are all essential factors of any contract landscape. Identifying the parties and their responsibilities are the key building blocks of any commercial arrangement. As a result, the rights of assignment, novation and what to do in the case of a change of control all influence the architecture of your contract. 

As a business owner entering commercial contracts, knowing what these terms mean is vital. This article will explore the differences between e ach clause and their impact on your contract.

The right of assignment arises as a boilerplate clause in most contracts. This means that it is generally included as standard wording and is not usually subject to much rewording. 

Typically, the right of assignment will look like the following:

A Party must not assign or deal with the whole or any part of its rights or obligations under this Agreement without the prior written consent of the other Party (such consent is not to be unreasonably withheld).

The effect is that you can assign certain rights under the contract to someone else with written consent. For example, the right to be paid a debt owed could be assigned to a third party, perhaps if that third party was wronged (such as in the case where the third party’s intellectual property rights were infringed). 

However, assignment is limited in that only rights can be assigned, not responsibilities . For example, you cannot assign another party the actual obligation to perform the contract. 

On the other hand, the right to novation allows for the transfer of responsibility or liability. That is, if you no longer wish to or are no longer able to perform the contract, you could novate it to a third party. 

Imagine that you are being replaced by a third party, cut out of the contract and a third party put in your place with access to your rights and burdens. Even though novation only needs to deal with the burdens of a contract, it will typically handle the whole arrangement.

As a result, novation does not occur only between two parties. A ll three parties subject to this change must be involved and sign off on the change. Typically, y ou will use a deed , and all three parties to the change must sign and acknowledge that one party is stepping out, allowing another to step in. 

What is a “Change of Control”?

A ‘change of control’ is another clause that affects who is a party to a contract and who has responsibilities for its rights and obligations. It is common to find this kind of clause in your contracts as a boilerplate or a general mention . 

A change of control refers to the make-up of a contracting party. It looks at the ownership structure of the other business contracting with you and states that if there is a significant change in the legal ownership and control of that party, you can legally exit the contract. 

It may look something like this: 

We shall have the right to terminate, without prejudice to our other rights and remedies, with 30 days written notice to you if there is a Change of Control. 

Your business might find this clause beneficial if you are seeking to:

• preserve and recognise an existing close business relationship with the other party;
• avoid the outcome where a competitor or potential competitor comes into ownership of the other party; 
• avoid specific risks that may be posed by certain companies or groups. 

Notably, not just any change to a counterparty constitutes a change of control. In contracts, a change of control will often be defined with reference to the Corporations Act . In this legislation, a change of control has occurred when another entity has the capacity to determine the outcomes of decisions for the counterparty, particularly financial and operating decisions. Other contracts will specify that there has to be a change of 50% of the counterparty’s board or ownership. 

Both assignment and novation deal with how rights and obligations under a contract are transferred. A change of control addresses changes to the parties themselves, even as they remain linked to the rights and obligations. 

In broad terms: 

• assignment deals with transferring a benefit or right to another party; 
• novation deals with transferring a burden (and often everything else in the contract) to another party; and
• change of control deals with who the counterparty is and whether you feel comfortable continuing your commercial relationship with them, even if their ownership or leadership changes. 

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A contract is built on several key building blocks, including who the parties are and t heir responsib ilities . The rights of assignment, novation and a change of control aim to address changes to these key building blocks. They a im to give boundaries to who can be a party to the contract and t heir obligations.  

For more information about your commercial contract, our experienced contract lawyers can assist you as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page .

Before you assign or novate, you will want to consider whether the new party can properly benefit from whatever you assign to them, or perform the obligations you intend to novate. You may also want to consider the work that has already been completed and who will be liable for that prior work. Likewise, think about how you will manage other agreements attached to the contract.

Generally, this is interpreted broadly and given a common-sense meaning. It will very much depend on the particular arrangement, the nature of the contract and the benefit being assigned. A consideration of what is reasonable may also look to defaults in obligations or solvency issues of the assignee.

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Change of Control

A significant change in a company's ownership and control.

Prior to becoming our CEO & Founder at Wall Street Oasis, Patrick spent three years as a Private Equity  Associate for Tailwind Capital  in New York and two years as an Investment Banking Analyst at Rothschild.

Patrick has an  MBA  in Entrepreneurial Management from The Wharton School and a BA in Economics from Williams College.

Currently, Adin is an associate at Berkshire Partners, an $16B middle-market private equity fund. Prior to joining Berkshire Partners, Adin worked for just over three years at The  Boston Consulting Group as  an associate and consultant and previously interned for the Federal Reserve Board and the U.S. Senate.

Adin graduated from Yale University, Magna Cum Claude, with a Bachelor of Arts Degree in Economics.

• What Is Change Of Control?
• Understanding Change Of Control
• Navigating Change Of Control Challenges
• Change Of Control Advantages
• Change Of Control Process's Five Steps
• Change Of Control Under Different Agreements

What is Change of Control?

A change of control refers to a significant change in a company's ownership and control. Moreover, a change of control in finance can affect creditor agreements and executive employment contracts, which protect investors and managers from material changes in the company's operations.

Change of control provisions are significant in contracts because they address how the parties in the contract will respond to changes in ownership, ensuring the conservation of interests and streamlining the contractual obligations.

This change in control can be a result of the following events:

• Sale of the organization's assets
• Transfer of shares
• Change in board members
• Change in shareholders

Other occurrences, such as consolidations, reorganizations, or other transactions in which one of the ones that follow takes place, may also be covered by the definitions of a change in control.

Change of control can be considered in the following conditions:

• Over half of the board members are new;
• Change in the shareholders who have the right to vote for more than fifty percent of the board.

The change-of-control clauses in contracts between companies typically cover the transactions above. However, as a party to an agreement, the individual should take precautions against other situations that could result in a change of control.

Any organization can use the change of control approach to prevent a competitor from acquiring their supplier through a merger or another company.

Key Takeaways

• A change of control signifies a significant alteration in a company's ownership and control, with implications for creditor agreements and executive employment contracts.
• Change of control provisions in contracts details how parties respond to ownership changes, ensuring the preservation of interests and fulfillment of contractual obligations.
• Events triggering a change of control include asset sales, mergers, share transfers, board or shareholder changes, and other significant organizational transactions.
• Well-managed change control fosters effective communication and collaboration across departments, promoting alignment and innovation during organizational transitions.

Understanding Change of Control

Change of Control can commonly be defined as severe alterations in the control or ownership of the company. However, it can also be defined in the following ways:

• Change of control can be any change in the ownership of the entity that takes place when any person or business, directly or indirectly, gains beneficial ownership of voting equity shares of the entity or the right to purchase such shares; 
• Any direct or indirect sale or transfer of virtually all of the entity's assets; 
• The board and a plan for entity liquidation or an agreement for sale following liquidation have received legal approval.

An entity's stakeholders are affected by a change in control, including: 

• all shareholders, such as minority positions; 
• debt holders and lenders, especially unsecured lenders; 
• senior executives, except if their contracts protect them from arbitrary changes to terms or conditions of service; 
• and the relevant regulatory environment.

The sale of a company's shares frequently changes the company's control, whether on the open market or in a separate transaction at a set price.

When extra shares or rights share capital are allotted to and purchased by current shareholders or outside applicants, this can happen via the primary market route. 

This could also occur due to converting a portion of convertible debentures and bonds or any planned arrangement outlined in a contract for the future transfer of shares.

Suppose the sale or acquisition of all or a sizable portion of the entity's assets is involved. For example, a change in control may result from a complete merger/ acquisition between individuals or corporate entities and any change in ownership of more than 50% of an entity's voting shares.

The purchase of a majority interest in a publicly traded company is subject to several corporate laws, listing agreements, disclosure laws, and guidelines of security exchange boards.

Some countries' senior executive employment contracts include a change in control clause, which offers excellent protection against arbitrarily defined termination when a different owner assumes management control of a company.

Navigating Change of Control Challenges

For some businesses, a change in ownership might be acceptable. However, if the agreement is intricate or pertains to a cutting-edge good or service, replacing or duplicating it with another business might be challenging.

Resistance To Change

Employees are often the victims of changes in control. They resist changes because they fear uncertainties, conflicts, and disruptions within the organization.

The uncertainty could be related to the number of people in the workforce that would continue to be employed and the portion that would be laid off . A changing organization may also lead to operational disruptions and the loss of clients and stakeholders who didn't favor a change of control.

Lack Of Leadership Support

The lack of proper leadership will make employees question the worth and trajectory of the change initiative. This will make it difficult for employees to accept a new environment, direction, and management, hindering the achievement of corporate goals.

If the target company is acquired, the controlling authority may decide it is not worth the risk that the control change will not mesh well with the organization, their project team, or the time and inconvenience involved in getting to know the new management.

Once the new managers have evaluated the company's resources, they might prioritize the project differently.

Lack Of Clear Objective

One of the most significant challenges in implementing a change of control is the obscurity surrounding the whole idea.

A lack of clear understanding of the goals behind the change of control can hamper the achievement of expected objectives as a result of its implementation.

Contract parties should consider the consequences before accepting a change-of-control clause because it could lower the company's value in the eyes of a potential acquirer. This is crucial for small and medium-sized businesses, in particular.

Under a change-of-control provision, a party must have enough time to plan and carry out a backup strategy, if necessary, before deciding what course of action it will take in response to the change in control.

Inadequate Communication

Poor communication regarding changes in employee management and ownership can lead to speculations, rumors, and a lack of trust among employees, which can lead to delayed implementation of organizational strategies.

Change-of-control clauses are inherently ambiguous without time restriction. If a party intends to discontinue the contract because of a change in control, it can do so before the contract's deadline approaches.

If there is an acquisition, the acquiring business should know from due diligence that there is a danger of termination and that the other party may leave without responsibility.

While retaining the right to terminate the contract, a party may attempt to ensure that the other party consents to the change, upholds the agreement, or offers some form of payment in exchange. 

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Change of Control Advantages

With the aid of an organization's operating system and efficiency around the project deliverables and due dates, implementing a process for change control can assist in organizing their team. However, it is also essential to consider the effects of poorly managed change. 

A change management process can help management implement a resource management strategy or other work management objectives. Implementing a change control process also has advantages.

Increased Productivity

A change control process will clear up any ambiguity regarding project deliverables and enable the focus to shift from information gathering to actual execution. The aid of productivity software leads to improved productivity and efficiency.

Change control processes help the organization maintain the quality and continuity of the products and services, making sure that the change management has positively impacted the business and not contributed towards disruptions.

This strives to maintain and enhance the quality and quantity of the goods and services sold may lead to increased productivity. The amount of time spent on work-related activities means that productivity can only increase with a process.

Effective Communication

An effective change of control promotes effective communication and enhances the coordination between different departments. This promotes collaborations and alignments while implementing changes.

A change of documentation that is done right can help with communication problems. For instance, team communication can flourish when aims and goals are clearly stated. 

Remember that no change control process can resolve all communication problems. Work management software may be beneficial to centralize project communication. 

Sharing a change control process with executive stakeholders lets them quickly provide context for proposed changes.

Better Teamwork And Collaboration

Effective communication can enhance collaboration and be a benefit in itself. Project changes make collaboration and teamwork simpler. For instance, stakeholders have more time to concentrate on innovation and collaboration when changes are communicated for the first time. 

With clear communication, team members and stakeholders can spend more time putting information together than devising innovative solutions.

This teamwork and collaboration can speed up the development process by effectively and efficiently managing the changes in the business and its responses.

Improving Stakeholder Relationships

There might be instances when the stakeholders and management do not favor the change of control. However, there are also chances that stakeholders may approve of such a change in controls.

A proper change of control promotes controlled and open changes that help maintain investors' and stakeholders' relationships, ensuring modifications are done in a structured and agreed-upon way.

Reducing Costs And Time

A well-understood and managed change process will help the organization to save time and money that are related to the change of control. This will help the organization streamline operations and enhance capabilities with cost and time efficiencies.

Change of Control process's five steps

There are five essential steps when designing a change control process, just like the five project managerial phases. 

Despite some minor differences, all processes share a few essential components. Each of these fundamental steps, from request initiation to implementation, facilitates the smooth flow of change requests through the pipeline and helps avoid unneeded changes.

Some people find it easier to visualize the process when it is presented as a change control process flow. Whatever perspective the individual takes, the final determination of whether the change request is approved or denied will be made. 

Let's examine the five components of a successful change management process and what each step entails.

• Change request initiation
• Change request assessment
• Change request analysis
• Change request implementation
• Change request closure

Here is an example change log to help individuals format their own and understand what to include. This example of change control includes: 

• The assignee of the task 
• Time limit 
• Priority status; 
• Progress status; 
• Type of change

Change of Control under different agreements

A change of control clause is frequently included in creditor agreements and executive employment contracts to protect investors and managers from material changes in the company's direction.

In addition, contractual agreements and supplier contracts are also events where a change of controls clause is used.

When a change in company ownership triggers one of these clauses, it may state that the lender may demand full repayment. 

Creditor Agreements

A change of control clause is frequently included in creditor agreements to safeguard the lender if a new owner acquires the business. 

A bank or any other lending institution may prefer to have all of the loan principal returned right away and cancel the loan because they are unsure of the creditworthiness of the new owner(s).

These clauses might be necessary because a change in ownership can alter the company's risk profile and put lenders at a higher risk of a borrower defaulting.

Employment Agreements

In executive employment agreements, the employment contract for senior executives prevents them from being fired in the event of a change in control.

The clause will ensure that they receive a sizable payout in the event of such termination if a materialistic change in the ownership of companies leads to their termination.

Executives may claim such a clause in their agreements because new owners may have a different perspective on the best course for the company.

In other words, the new owners may have a distinct corporate vision from the previous ones rather than necessarily believing the management team is not doing a good job.

Contractual Agreements

Change of control under contractual agreements is defined as the means to regulate the changes in ownership or control that may or may not impact the terms of the contract. 

Clauses under contractual agreements define the parties' rights and duties and ensure that their interests and rights are protected after a change of control.

Mergers and acquisitions are specific events that trigger a change of control clause.

The effect of the change in control on debt in both the target and the acquirer, as well as executive compensation agreements in both companies, should be taken into account during the M&A process and the negotiation phase.

Supplier Contracts

Supplier contracts in the context of change of controls protect suppliers in the event of change management. They create the right for suppliers to terminate a contract if there is a change in ownership.

This provision allows customers to protect their interests by ensuring the performance of contractual obligations remains the same even after a change in ownership and management.

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What is change of control and how does it operate?

Written by: Kira Systems

December 10, 2015

4 minute read

For many lawyers, as soon as you set foot in a law firm, one of your very first tasks may well be a due diligence project. If you want to impress your boss with successful due diligence projects or just keep your head above the water, this guide will save your life. (Okay, so maybe that’s an exaggeration, but as a junior associate, it might feel that way!)

Change of control provisions are composed of two elements:

• The definition of what constitutes a change of control
• The operation of the provision when an event occurs that meets any requirements reflected in the definition

Seems simple enough, right?

Is It a Change of Control?

Unfortunately, there is no standard definition of a change in control. As a result, each agreement must be carefully reviewed to determine whether a proposed M&A transaction actually constitutes a change of control under the agreement. That’s why you are slaving away reading hundreds of agreements on a Friday night. However, there are some common transactions in which a change of control may be triggered.

1. Transfer of Percentage of Company Stock

A change of control typically includes the transfer of a certain percentage of the target company’s issued and outstanding shares from the target company to the acquirer. Usually, the required percentage exceeds 50%, but it may be lower or higher.

2. Sale of “All or Substantially All” Assets

A change of control may also include a sale of all or substantially all of a target company’s assets in its definition. A general rule of thumb is that a sale transaction is at a substantial risk of being deemed a change of control under this definition when the asset sales exceed 50% of the target company’s total assets.

The definition of a change of control usually includes any “merger” of the target company with another company, regardless of whether the target company survives the merger of not.

4. Other Events

The definition of a change of control may include other events such as reorganizations, consolidations or other transaction structures of various forms in which one of the following occurs:

• More than 50% of the board members change
• Change in shareholders who have the right to elect more than 50% of the board
• Standards and events drawn from special tax code provisions or securities regulations

5. Affiliate Transactions

In some cases, a transaction where the acquirer of the stock, assets or rights is an “affiliate” of the target company, may be an exclusion from the change of control definition stated in the above four instances. The exclusion is granted by counterparties to allow target companies with complex ownership structures, to move companies, assets or rights in and around those structures without triggering change of control provisions.

How Do Change of Control Provisions Operate?

To add to the complexity of understanding and reviewing this provision, change of control provisions operate by providing target companies and their acquirers with the following problematic rights upon the announcement or consummation of a proposed transaction: termination rights, consents, and payments.

1. Termination Rights

Termination rights refer to some cases where change of control provisions provide counterparties with the right to unilaterally terminate their agreements in the event of a change of control transaction. If the contract is material to the buyer, this can threaten the transaction. In this case, to terminate the agreement outright, the counterparty must undertake an affirmative action.

2. Consents

The agreement might also require the target company to obtain consent from a counterparty. Delays in this process may delay the closing of the transaction and failure to obtain consent will make the contract void post-acquisition, effectively making it a termination. No affirmative action is required by the counterparty for the agreement to be terminated or in material breach when the change of control provision is triggered if the counterparty has not provided its consent.

3_._ Payments

Payments to counterparties may be required upon the announcement or consummation of the agreement. If they are material, they can impact the transaction value. Payment rights also operate in a myriad of ways. Some payment rights may be triggered immediately upon a change of control while some may become due and payable only upon the occurrence of additional events after a change of control.

As you embark on your journey of due diligence contract review, you may find that change of control is defined and operates in ways beyond the factors discussed in this article. But at least now, you know what change of control is and how it operates. For a more in-depth discussion of reviewing change of control and assignment provisions in due diligence, take a look at our free guide .

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Understanding Change-in-Control Agreements

Understanding Change-in-Control Agreements:

Understanding Change in Control agreements, also labeled œgolden parachute agreements, arose out of the hostile takeovers that began in the 1970’s through the early nineties. In the midst of friendly takeovers in recent years, executives now demand protections for their continued employment, equity, deferred compensation and retirement benefits, in the event of a change in control of the company. A crystal ball is obviously not effective in predicting the future, so executives demand change in control agreements in order to provide some measure of predictability for the future, in exchange for the increased risk. Companies routinely enter into these agreements to avert the executive(s) departure during change in control events and provide continuity in management.

œNaturally, threats to both the economic and noneconomic incentives to remain arise. On the economic side, the executive faces the loss of his salary, retirement benefits, vacation pay, and other advantages. From the noneconomic perspective, the executive’s job security is threatened, as well as career advancement commensurate with seniority and skills, marketability, professional respect, and satisfaction of working at a prestigious company. . . Golden parachutes help offset these problems. The golden parachute shifts the risk of displacement from the executive to the corporation. The plan’s payment is intended to compensate the executive for most of the economic loss and some of the noneconomic loss associated with forced departure. The executive, therefore, remains at ease. He or she continues to acquire firm-specific knowledge, and the management team remains efficient and profitable. International Insurance Co., v Johns, 874 F.2d 1447, 1464-65 (11th Cir.1989)(internal citations omitted).

There exist various opinions about the effect of these agreements on executive objectivity. Change in control agreements generally motivate the executive to act in the best interests of the shareholders, by removing the distraction of post change in control uncertainties faced by the executive with regard to his compensation. See Fenoglio v. Augat, Inc. 254 F3d 368 (1st Cir.2001). If the executive is confident his change in control agreement will produce a substantial golden parachute payment, and a grossed up payment to account for excise taxes, his personal interests will be aligned more closely with the shareholders.

CHANGE IN CONTROL CLAUSE:

Understanding Change in Control Agreements may differ from company to company. Whether the agreement is used to defend against an unreasonable tender offer (œpoison pill) or used to instill general confidence in its key management employees, each company will draft language that best serves the reasonable short and long-term interests of the shareholders. The analytical legal theories (œthe business judgment rule and œthe reasonable relationship test) used to determine the enforceability of these agreements is outside the scope of this article.

As in all contractual transactions, the actual written provisions govern. The following is an example of a change in control definition:

œChange of Control means

(a) any œperson (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the œExchange Act)), other than a trustee or other fiduciary holding securities of the Company under an employee benefit plan of the Company, becomes the œbeneficial owner (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of (A) the outstanding shares of common stock of the Company or (B) the combined voting power of the Company’s then-outstanding securities;

(b) the Company is party to a merger or consolidation, or series of related transactions, which results in the voting securities of the Company outstanding immediately prior thereto failing to continue to represent (either by remaining outstanding or by being converted into voting securities of the surviving or another entity) at least fifty (50%) percent of the combined voting power of the voting securities of the Company or such surviving or other entity outstanding immediately after such merger or consolidation;

(c) the sale or disposition of all or substantially all of the Company’s assets (or consummation of any transaction, or series of related transactions, having similar effect);

(d) there occurs a change in the composition of the Board of Directors of the Company within a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors;

(e) the dissolution or liquidation of the Company; or

(f) any transaction or series of related transactions that has the substantial effect of any one or more of the foregoing.

When reviewing similar provisions, the executive and his/her counsel must carefully consider each word and how it is used in the agreement. Slight changes in language can have an enormous and sometimes costly impact to the executive. Remember, the terms define the œintent of the parties. If a specific term is not in the agreement, it will not be enforced. Similarly, if the controversial term is somehow negotiated into the agreement, the executive or the company will be hard press to remove the term once a dispute arises.

THE TERMINATION CLAUSE:

Golden parachute payments are triggered in one of three ways, and each is precipitated by specifically identified change in control events. There is the œsingle trigger, where the executive voluntarily resigns at his/her leisure and demands payment. The single trigger favors the executive because of the automatic nature of the change in control definition, i.e. he or she is financially protected. The executive has less concern for the future of the company after a change in control, and depending on the contractual language the executive can become reemployed the very next day.

The œdouble trigger is more common and favors the company. This trigger requires a termination without cause or with good reason by executive, and a defined period of payment of generally one year. Unlike the single trigger, the executive cannot voluntarily resign. His participation in the existing company and future company is mandated by the agreement. However, the executive still receives a great deal of protection while the change in control takes place. The company will clearly desire to retain the executive’s loyalty and commitment, and will reward the executive well after the change in control is completed. Such an outcome is attractive in order to maintain continuity and retention of key management personnel.

In Buckhorn, Inc. v. Ropak Corp, the court held that a double trigger change in control payment was valid because œthe Court believes that this provision reasonably advances the shareholders’ interest in retaining key management personnel in their present positions during a critical transition period, without unduly entrenching management or over-burdening Ropak. 656 F.Supp. 209, at *232 to*233. However, the court invalidated the single trigger change in control provision adopted by the Board of Directors as not a reasonable response to a takeover threat.

The following language is an example of a double trigger change in control provision:

(b) If the Executive’s employment with the Company shall be terminated for any reason other than as specified in Section 3(a), the Executive shall be entitled to the following: (i) the Employer shall pay the Executive all Accrued Compensation and a Pro Rata Bonus;

(ii) the Employer shall pay the Executive as severance pay and in lieu of any further compensation for periods subsequent to the Termination Date, in a single payment an amount in cash equal to two and a half (2 1/2) times the sum of (A) the Base Amount and (B) the Bonus Amount; provided, however, if an employment agreement is in existence between the Company and the Executive on the Termination Date, any amount due the Executive under this Section 3(b)(ii) shall be reduced by the amount of Base Amount and Bonus Amount paid as severance pay to Executive pursuant to such employment agreement in lieu of compensation for periods subsequent to the Termination Date.

(iii) for thirty (30) months following the Termination Date, (the œContinuation Period), the Employer shall at its expense continue on behalf of the Executive and his dependents and beneficiaries the medical, dental, life, disability and hospitalization benefits provided (A) to the Executive at any time during the 90-day period prior to the Change in Control or at any time thereafter (and if different benefits were paid during such period, such of those benefits as are elected by the Executive) or (B) to other similarly situated executives who continue in the employ of the Company during the Continuation Period. The coverage and benefits (including deductibles and costs) provided in this Section 3(b)(iii) during the Continuation Period shall be no less favorable to the Executive and his dependents and beneficiaries than the most favorable of such coverages and benefits during any of the periods referred to in clauses (A) and (B) above. The Employer’s obligation hereunder with respect to the foregoing benefits shall be compromised to the extent that the Executive obtains any such benefits pursuant to a subsequent employer’s benefit plans, in which case the Employer may reduce the coverage of any benefits it is required to provide the Executive hereunder as long as the aggregate coverages and benefits of the combined benefits plans is no less favorable to the Executive than the coverages and benefits required to be provided hereunder. This subsection (iii) shall not be interpreted so as to limit any benefits to which the Executive, his dependents or beneficiaries may be otherwise entitled under any of the Company’s employee benefit plans, programs or practices following the Executive’s termination of employment, including without limitation, retiree medical and life insurance benefits;

(iv) all theretofore unvested share options, restricted options, restricted share and other awards issued to the Executive pursuant to the Company’s Share Option and Share Award Plan, and all unvested benefits under any split dollar life insurance policies insuring the Executive’s life, shall immediately become 100% vested; and

(v) a payment from the Employer equal to the unvested amount contained in the Executive’s accounts in the Company’s 401(k) plan (or any other qualified plan of the Company or an affiliate) which he or she will forfeit as a result of his or her termination.

Finally, the œmodified trigger, also company friendly, requires a termination without cause or good reason. However, the executive’s resignation occurs only during the œopen window period (typically 30 days) after six to twelve months have elapsed since the change in control. During this transition period, the company benefits from continued performance. Similar to the single and double trigger, the executive still obtains financial security through the modified trigger provision.

The following language is an example of a modified trigger change in control provision: œTermination Upon Change of Control means: (a) any termination of the employment of Executive by the Company without Cause during the period commencing on or after the date that the Company first publicly announces a definitive agreement that would result in a Change of Control (even though still subject to approval by the Company’s stockholders and other conditions and contingencies) and ending on the date which is twelve (12) months following a Change of Control; or (b) any resignation by Executive based on a Diminution of Responsibilities where (i) such Diminution of Responsibilities occurs during the period commencing on or after the date that the Company first publicly announces a definitive agreement that would result in a Change of Control (even though still subject to approval by the Company’s stockholders and other conditions and contingencies) and ending on the date which is twelve (12) months following the Change of Control, and (ii) such resignation occurs within one-hundred and twenty (120) days following such Diminution of Responsibilities.

The term œTermination Upon Change of Control shall not include any other termination, including a termination of the employment of Executive (1) by the Company for Cause; (2) by the Company as a result of the Disability of Executive; (3) as a result of the death of Executive; or (4) as a result of the voluntary termination of employment by Executive for reasons other than a Diminution of Responsibilities.

THE COMPENSATION CLAUSE:

Once the change in control and trigger provisions have been met, the golden parachute payment must be determined. In 1984, Congress passed the Deficit Reduction Act as a tax penalty in reaction to a period of intense corporate takeover activity, where entrenched management teams used golden parachutes to remain in control. Senate Comm. on Finance, 98th Congress, Deficit Reduction Act of 1984, Explanation of Provisions Approved by the Committee on March 21, 1984. The Act created two new Internal Revenue Code Sections 280G, disallowing deductions for excess parachute payments, and Section 4999, which applied a 20% excise tax on the executive for excess parachute payments. The specific provisions of the two sections can be summarized in the following manner: A ˜parachute payment’ is any payment to a ˜disqualified individual’ in the nature of compensation, if such payment is contingent on a change in control of the corporation and the aggregate present value of all such payments equals or exceeds three times the individual’s ˜base amount.’ The base amount is the individual’s average compensation includible in gross income for the five taxable years preceding the taxable year in which the change in control occurs. An œexcess parachute payment’ is any parachute payment in excess of the portion of the base amount allocated to such payment. A ˜disqualified individual’ is any individual who is an employee or independent contractor of a corporation and who is an officer, shareholder, or highly compensated individual.

The Golden Parachute Provisions: Time for Repeal? Virginia Tax Review at *129, Fall 2001, Bruce A. Wolk. Calculating the excess parachute payment and base amount can be difficult. Each calculation is dependent on the makeup of the payments, the value of other benefits and the executives combined income tax rate. Such calculations are outside the scope of this article. However, œit is important to emphasize that once the three-times base amount threshold is equaled or exceeded, it is not the excess over this threshold that is penalized, but the excess over the base amount. Id. at *131.

ERISA IMPLICATIONS:

In the event of breach of contract in the parachute agreement, a federal statute provides additional protection beyond ordinary contract law, as specified in the choice of law provision of the agreement. These agreements are generally governed by the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et.seq. ERISA treats change in control agreements as employee welfare benefit plans:

Any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund or program was established or is maintained for the purpose of providing for its participants or their beneficiaries . . . any benefit described in section 186(c) of this title. . . 29 U.S.C. § 1002(1) (1988 Supp.).

In a breach of contract case, a court will decide the dispute based on the evidence of what the parties intended prior to ratifying the agreement. In the ERISA context, the executive can further allege legal arguments based on the fiduciary relationship; one where the company owed a fiduciary obligation to pay benefits in the event of a change in control. This modifies the original arms-length transaction to one of a beneficiary and trustee relationship. Where the trustee must protect the best interests of the beneficiary, the executive.

In order to usurp the ERISA fiduciary schema, the executive must first establish that the change in control agreement is a welfare benefit plan. A œplan under ERISA is established if from surrounding circumstances a reasonable person can ascertain the [1] intended benefits, [2] a class of beneficiaries, [3] a source of financing, and [4] procedures for receiving benefits. Purser v. ENRON Corp., 1988 WL 220238 at *3 (W.D.Pa.1988).

The œintended benefits equates to the golden parachute payment the executive will or should receive. In examining the change in control agreement, the company may limit it to one executive, or apply to œkey management personnel. If the agreement does not supply a source of funding, under ERISA golden parachutes would be paid out of general corporate assets. Fort Halifax Packing Co., Inc. v. Coyne, 96 L.Ed.2d 1, 15 (S.Ct.1987). The method of computing benefits is set forth in the specifically identified change in control provisions.

Although an examination of the fiduciary relationship is outside the scope of this article, the executive must understand there is possibly more to the enforceability of the change in control agreement than previously suspected. The ERISA component can have an enormous impact on how parachute payment will be adjudicated.

If you would like more information about understanding change in control agreements, please contact our Employment Law Attorneys at   Carey & Associates, P.C.  at   [email protected] .

Understanding Change in Control Agreements “ Resource:

Definition of Change in Control  

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Does a change of control constitute assignment?

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Do Change of Control Transactions Constitute an Assignment by Operation of Law?

Commercial l andlords  often  rely on  anti-assignment provisions  to  restrict the ability of tenants to assign their interest in  a  lease to a third party .  Such provisions will often explicitly restrict assignments by  “ operation of law, ”  which are generally considered involuntary assignments  mandated via a  court order. Commercial landlords may assume that a change of control transaction violates a basic anti – assignment cla use, but clear drafting is necessary for Landlords to protect their interests .  Landlords  wishing to restrict change of control of a tenant entity ,  should  have clear  anti-assignment provision s in their leases that   expressly restrict such transaction s  and characterize such “changes of control” as assignments .   

A change of control is a significant change in the equity, ownership, or management of a business entity. This can occur through a merger, consolidation or acquisition.   

The general rule is that change of control of a corporate entity  is  not  an assignment by operation of law ,  and therefore  does not violate a basic  anti- assignment provision. Courts have reasoned that a landlord entering into a lease with a corporate tenant should be aware that a corporation, or limited liability company, is an entity which exists separate and apart from its ownership, and that a change in ownership of the corporate entity does not change the tenant entity under the lease.   

Courts in many states including Florida, New York and Delaware have held that a change of control is not an assignment by operation of law. I n  Sears Termite & Pest Control, Inc. v. Arnold ,  a Florida court held ,  “ [t] he fact that there is a change in the ownership of corporate stock does not affect the corporation’s existence or its contract rights, or liabilities. ”  Further,   i n  Meso Scale Diagnostics LLC v. Roche Diagnostics GMBH , a Delaware court ruled, “ [ g ] enerally  mergers do not result in an assignment by operation of law of assets that began as property of the surviving entity and continued to be such after the merger.”  

Importantly,  the rule is different if the tenant entity does not survive the transaction.   In  MTA Canada Royalty Corp. v.  Compania  Minera Pangea , a  Delaware Superior Court held that a  merger in which the contracting entity does not survive may be held to be an assignment by operation of law.   

If  a  l andlord inten d s for a change of control of a tenant to violate the anti-assignment clause  in its lease, the landlord should ensure that its  lease expressly state s   that a change of control constitutes an assignment .

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What is Change Management in Project Management?

• Written by John Terra
• Updated on May 14, 2024

When people need to accomplish a specific task or achieve an assigned objective, they typically turn that effort into a project. Organized teams meet and brainstorm the project’s stages, timeline, points, and objectives. By doing this, a team creates an organized plan to help them complete that task or meet that objective. Nothing could be simpler.

However, life is full of surprises, and sometimes, in fact, things change. Perhaps the stakeholders have reduced the deadline or added another objective (or both!!). The project team must be flexible enough to work through the changes in the process, available resources, or personnel and still meet their deadlines. That’s where change management comes in.

This article explores change management in project management. We will define the term, explain its importance, acquaint you with its types and benefits, and compare it to project management and change control. We’ll also share a project management bootcamp for professionals to upskill.

Let’s kick off with a definition. What is change management?

What Is Change Management?

Change management describes the tools and processes a project team uses to manage changes within the project and its team. Change is anything that impacts or alters a project or its tasks, structure, processes, or personnel.

Change management processes typically include a project manager and a dedicated change management team. The project manager oversees the team members’ work to ensure they have successfully incorporated any changes into their practices while achieving the overall project objectives. Team responsibilities usually include communicating with stakeholders, creating training programs, and tracking engagements.

So, change management in project management is a mix of managing change and managing people (e.g., the project teams and stakeholders) to incorporate changes. The process can significantly affect employee motivation and performance.

Also Read: What is Project Resource Management? Everything You Need to Know

Why Is Change Management in Project Management Important?

Change management is essential because project management is a fast-paced process where things can change quickly. Therefore, project managers must be ready to quickly adapt to these unexpected changes accordingly.

It is also necessary to maintain a structured process so team members know how to react to pivot yet stay on the right track to meet their project targets. The Wall Street Journal says, “Good change management can help employees embrace new technologies and directions and keep companies relevant.” When everyone in the organization is aligned on change management, it increases the likelihood of project success.

Here’s a rundown of how it helps various aspects of an organization.

• Day-to-day operations. Change is a constant factor in the daily routine of business operations. These changes might be small, such as a slight adjustment to the team’s workflow, but their impact, when unmanaged, can lead to significant company-wide problems. Daily operations can slow down and become inefficient without an organized, structured approach to managing and communicating changes. Change management helps sustain smooth operations, even during busy times, ensuring that employees understand the established structures and procedures and have the tools needed to adapt, work, and maintain productivity.
• Large-scale transformations. It is also beneficial for larger organizational targets and objectives. Strategic initiatives usually require notable changes to existing systems, processes, or structures. With effective change management, initiatives may succeed and create teams and stakeholders resistant to change or need clarification on how to proceed. By ensuring that changes are suitably explained, understood, and effectively implemented, it can help businesses align workforce capabilities with strategic objectives, creating an environment of shared purpose and engagement.
• Project management. Projects inevitably face change, whether planned or unplanned. These changes can impact project resources, timelines, and scope, resulting in new challenges that must be handled for the project to succeed. Change management offers an efficient, replicable approach to handle these challenges and changes. This approach includes identifying and evaluating the challenges’ potential impact early in the project planning stage, devising strategies to handle them, and communicating with stakeholders to ensure everyone remains on track to achieve the intended outcomes.
• Internal communications. Unchecked change leads to uncertainty and confusion. Thankfully, these changes can be mitigated through clear and effective communication. Organizations can prevent rumors and false information from spreading by regularly updating employees, managers, and stakeholders on any upcoming changes, explaining the reasons behind them, and outlining what these changes mean for everyone, ensuring everyone stays informed and on track.
• Client satisfaction. Maintaining client satisfaction can be challenging in the face of organizational change. Changes can potentially impact product quality, service delivery, customer support, and other essential aspects of the business, leading to customer dissatisfaction. Organizations can minimize these effects by introducing effective change management. Companies can maintain and even enrich customer satisfaction during turbulent times of change by proactively communicating with their customers, managing consumer expectations, and addressing their concerns.

Change Management vs. Project Management

Change and project management processes can try to achieve the same specific outcome, but they approach the task differently.

Project management concentrates on executing a specific assignment with a clearly defined beginning and ending date and specified budget, scope, and resource parameters. It includes planning, organizing, and directing resources (personnel, equipment, and materials) to meet the project goals.

On the other hand, change management is a process designed to deal with any modifications to the organization’s objectives or processes. It can exist under the project management umbrella or stand alone. Change management initiates strategies for controlling, affecting, and helping teams adapt to change.

To frame the comparison in different terms, consider project management as the means of delivering a technical solution on schedule and within its budget, and change management to ensure that any changes within the project or organization will be smoothly implemented while achieving lasting benefits.

For instance, project management could ensure that a company’s cloud migration project is designed to meet the company’s needs and requirements, including cost, anticipated downtime, and timeline. In contrast, change management would train and onboard the company’s staff to use the new system, improve company-wide performance, and develop contingency plans to handle any surprises during the migration process.

Now that we’ve seen how change management and project management differ, let’s see how change management differs from change control.

Also Read: Best Apps for Project Management You Should Know in 2024

Change Management vs. Change Control

Change management and change control both exist to manage change, but they have different focus areas since each affects changes in different project stages.

Change control is the decision to implement a change, while change management is dedicated to the aftermath of the decision. Change control evaluates the incoming change request and decides which to prioritize and proceed with. Change management ensures the personnel affected by the new solution are ready for it, have accepted the change, and know how to work with it.

So, change control is procedural and is typically carried out at the team level. In contrast, change management is strategic and must be approved by upper management or the top management team.

Let’s look at an example.

A project manager receives a change request from a client who wants a new feature added to the mobile app the project team is developing. Since this new feature was never mentioned in the original app’s project scope, the project manager brings the request to the change control team. The change control team typically consists of representatives from contributing teams who are responsible for evaluating these requests.

The change control team evaluates the request by considering vital factors, such as:

• The estimated time and cost of implementing the new feature
• The potential impact on the overall project’s deadline
• The value the new feature would add to the application
• The possible risks associated with adding the requested new feature

After evaluating the request, the team concludes that the new feature would improve the application’s functionality and give the client some added advantage in the marketplace. However, the team also realized that implementing the new change would extend the project timeline and raise costs. The team communicates this to the client before approving the request and adjusts the project budget and timeline accordingly.

The Types of Change Management

Change management in project management comes in several forms, including:

Anticipatory

This type involves planning changes ahead of an expected situation. Once the project manager verifies the likelihood or inevitability of such a change, the team can implement plans for when it inevitably arises. An example could be a client who didn’t factor in different displays for their mobile app. Still, the change management team is smart enough to realize that this feature will inevitably be asked for, so they craft a plan for when the customer approaches them and says, “We forgot about this feature. Can you please put it in?”

Incremental

This process refers to introducing changes gradually over a prolonged period, like adding additional new features to our mobile app example. Since these alterations are minute, they are unlikely to cause any noticeable upheaval in the project timeline. Additionally, incremental changes share a close affinity with scope creep in project management.

Life is unpredictable, so the reactive approach is used when an unforeseen event arises. This type is typically used in crises where there is little reaction time to plan, and the project manager needs to think on their feet. Reactive change management could be better, but it is often necessary.

These changes are significantly larger and can affect the organization’s overall direction. A strategic shift in project management may involve introducing brand-new technology or requiring a significant rewrite of the original project plan.

The Benefits of Change Management

Change management offers plenty to organizations that want to keep up in today’s fast-paced, competitive digital environment. It boosts the odds of a successful project delivery and organizational success by:

• Reducing disruption. Any change in a project can cause disruptions, leading to unexpected problems and even failure. Change management lessens this possibility and ensures that ongoing projects and the organization operate smoothly during and after the changes.
• Promoting acceptance and adoption. It addresses stakeholders’ resistance to changes. This benefit is particularly useful for projects involving changes to processes, workflows, or technologies since these projects are only successful when those affected go along with them.
• Improving team performance. Proper change management is essential for employee performance in individual projects and even entire organizations. It ensures that performance is maintained and improved since employees are supported through transitions.
• Fostering a culture of adaptability . It develops and nurtures a culture of improvement and adaptability. This process contributes to the organization’s longevity by ensuring the company remains open and willing to try new ways of working while keeping processes and capabilities in place to adapt to change without grinding to a halt.

A Change Management Example

Let’s look at a fictitious example. A software company is transitioning from the traditional Waterfall development methodology to a DevOps project management approach. This transition would include how tasks are assigned and tracked, any changes in project team structures, and how outcomes would be delivered. So, effective change management in this scenario would involve:

• Communicating why the transition is happening and the benefits of the DevOps methodology to the team members, appropriate management, and stakeholders.
• Providing the necessary training and support to help the teams adapt to the new way of working
• Establishing new metrics and key performance indicators (KPIs) to track progress and success using the new system
• Continuously monitoring the transition and dealing with any issues or concerns that manifest

We see how mastering change management can help organizations establish a forecasting system and mitigate the unintended adverse effects that typically come with change if they are otherwise unmanaged.

Do You Want Project Management Skills?

If you’re considering a project management career or want to expand your skill set, consider this online project management program . This 24-week bootcamp is aligned with PMI-PMP and IASSC-Lean Six Sigma and imparts valuable project management skills.

Glassdoor.com reports that project managers earn an average of $98,433 annually, and the demand for project managers is consistently high. So, check out this online project management course and get the skills you need to deliver better projects for today’s digital economy.

You might also like to read:

How to Measure Project Success? A 2024 Guide

Remote Project Management: How to Manage Remote Teams Effectively

What are Project Management Skills? Here are Top Skills You should Know in 2024

A Project Management Process Primer

Why Study Project Management? Top 5 Reasons

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A Look at the Latest Alcohol Death Data and Change Over the Last Decade

Heather Saunders and Robin Rudowitz Published: May 23, 2024

Alcohol use disorder (AUD) is often an underrecognized substance use disorder (SUD) despite its substantial consequences . Over half of US adults (54%) say that someone in their family has struggled with an alcohol use disorder, making it the most prevalent non-tobacco substance use disorder. Yet, only one-third of adults view alcohol addiction as a crisis, compared to over half who see opioids as such. Federal data show that 1 in 10 people had an alcohol use disorder in the past year, over 4 in 10 alcohol users report binge drinking in the past month, and per capita alcohol consumption is higher than the decade prior. Treatment rates for alcohol use disorders are notably low, especially for the use of medication , a recommended AUD treatment component. Although the opioid crisis has been declared a public health emergency by the U.S. Department of Health and Human Services since 2017, no similar declaration exists regarding alcohol deaths. However, HHS has set a priority goal of reducing emergency department visits for acute alcohol use, mental health conditions, suicide attempts, and drug overdoses by 10% by 2025.

This analysis focuses on the narrowest definition of alcohol deaths known as “alcohol-induced deaths” (referred to as “alcohol deaths” throughout the brief). These alcohol deaths are caused by conditions directly attributable to alcohol consumption, such as alcohol-associated liver diseases . Broader definitions of alcohol deaths extend this definition to also encompass cases where an alcohol-induced condition was a contributing factor, but not the underlying cause of death. Key takeaways from this analysis of CDC WONDER data from 2012 to 2022 include the following:

• Alcohol deaths increased steadily over the past decade with sharp rises during the pandemic years. Overall, the national alcohol death rate has risen 70% in the past decade, accounting for 51,191 deaths in 2022, up from 27,762 deaths in 2012.
• Alcohol deaths in 2022 were highest among people aged 45 to 64, American Indian and Alaska Native (AIAN) people, and males. Alcohol death rates for AIAN people are the highest–5 times higher than death rates for White people, the racial group with the next highest prevalence. Deaths are rising fastest among adults aged 26 to 44, AIAN people, and females–with these groups experiencing nearly or more than a 100% rise in alcohol mortality rates in the last decade.
• Rates of alcohol deaths varied considerably across states in 2022. While all states and D.C. experienced increases in deaths rates over the past decade and during the pandemic, the rate of change varied by state and year, with some states’ death rates rising most sharply during the pandemic and other state experiencing rises more evenly before and during the pandemic. Rural areas have a higher rate of alcohol deaths and experienced greater growth in death rates both over the past decade.
• The number of alcohol-related deaths rises to 105,308 under a broader definition that counts deaths where alcohol-induced conditions are either the underlying cause or a contributing factor. This exceeds the numbers for opioid and suicide deaths, which also use this broader definition, totaling 83,437 and 49,594, respectively.  

What are the trends in alcohol deaths?

Alcohol deaths have steadily climbed over the past decade, a trend that accelerated during the pandemic (Figure 1). When adjusted for population growth and age, the alcohol death rate has risen by 70% from 2012 to 2022, moving from 7.97 to 13.53 deaths per 100,000 people. Although deaths fell somewhat in 2022, they remain far higher than a decade ago. From 2012 to 2019, the year over year rise in deaths rates averaged about 4% per year, and then jumped during early pandemic years, with the biggest rise from 2019 to 2020. Other data mirror this trend – emergency department (ED) visits for SUD are on the rise and account for twice the number of ED visits compared to opioids. Alcohol related ED visits account for nearly half of all SUD related visits (45%), far higher than the next highest group, opioids, accounting for 13% of ED visits.

How do alcohol death rates vary and how have they changed across demographics groups?

Alcohol deaths in 2022 were highest among people aged 45 to 64, males, people living in rural areas, and AIAN people. Alcohol death rates for AIAN people are by far the highest–5 times higher than death rates for White people, the racial group with the next highest prevalence. Across age groups, people aged 45 to 64 have the highest alcohol death rate, followed by 65+. Death rates in males are more than double that of females and people who reside in rural areas have death rates higher than those who live in urban areas (Figure 2).

Over the past decade (2012-2022), alcohol death rates grew fastest among people 26 to 44, AIAN people, and females (Figure 3) . Overall alcohol consumption has risen somewhat in recent years, but increases may have been concentrated among certain populations as well as other risk factors.

• People aged 26 to 44 . Individuals aged 26 to 44 experienced the fastest increase in alcohol death rates, with a rise of 144% over the past decade and over 50% during the pandemic. While this younger age group showed the steepest rate of increase, the largest overall growth in the number of deaths occurred among those aged 45 to 64. This somewhat older group already had the highest death rates and experienced the largest increase in death rates (12 additional deaths/100,000) in the past decade, more than any other group.
• AIAN people. Alcohol deaths for AIAN people have nearly doubled in the last 10 years. During the pandemic years, alcohol death rates increased by almost 25 deaths per 100,000 AIAN people. Increases in alcohol deaths among AIAN people follows worsening trends in other areas related to behavioral health, where AIAN have both the highest rate and fastest growing suicide and overall drug overdose death rates.
• Although males die of alcohol causes more often than females, the relative growth was faster for females over the past 10 years, increasing by 86% for females compared to 61% for males. Impact of heavier drinking may impact women more quickly than men, which may result in the faster development of serious health consequences that contribute to death.

How do alcohol death rates vary and how have they changed across geography?

In 2022 there was wide variation in alcohol death rates. In 2022, New Mexico’s death rate was the highest at 42.7 per 100,000 people, which was more than six times higher than Hawaii, the state with the lowest rate at 7.1 per 100,000 people (Figure 4).

While all states experienced an increase in alcohol deaths, those rates varied widely.  Nationally, alcohol death rates increased by 70% over the past decade, including a 30% rise during the pandemic years alone (2019-2022). However, the extent of these increases varied substantially across states. For instance, the District of Columbia saw a relatively low increase of 24% over the decade, whereas Connecticut experienced a much larger rise of 167%. During the pandemic, increases ranged from 9% in Wyoming and New Jersey to 86% in Mississippi. Some states, like Vermont, had most of their rises in alcohol death rates before the pandemic, with only 12% of the growth occurring during pandemic years. In contrast, Mississippi’s rates more than doubled over the past decade, and over half of that increase happened during pandemic years. Many factors may contribute to the differences in alcohol mortality rates across states, some of which may include differences in alcohol consumption and cultural attitudes, state-specific alcohol policies , and treatment rates (Figure 4).

Rural areas experienced faster growth in alcohol deaths than urban areas, driven by sharp rises during the pandemic. Deaths grew across both rural and urban areas in the past decade; however growth was fastest in rural areas–nearly doubling in the past decade and increasing by 35% during pandemic years. Existing shortages of mental health and substance use treatment professionals may make it particularly difficult to access care in rural areas, where the supply of behavioral health workforce is even more scarce . During the pandemic, telehealth services for behavioral health and other care may have been more accessible to those living in urban areas, where an internet connection is more likely to be available or reliable (Figure 5).

What factors may contribute to the increases in alcohol deaths in the past 10 years?

Alcohol contributes to more deaths than opioids and suicides when the alcohol conditions that contribute to death are included. Defining alcohol deaths can be complex due to the gradual onset of many conditions caused by or linked to alcohol and its ability to exacerbate or increase the risk of developing other health conditions. This analysis adopts the strictest definition of alcohol deaths, focusing on deaths that were directly caused by conditions directly due to alcohol, such as alcohol-related liver diseases. However, if deaths where alcohol conditions are a contributing factor listed on the death certificate —termed ‘ alcohol-related deaths’—are included, the number of deaths increases to 105,308 in 2022, though some cases may overlap. This exceeds the numbers for opioid and suicide deaths, which also use this broader definition, totaling 83,437 and 49,594, respectively. Unlike the immediate effects of opioid overdoses or suicides, alcohol-related conditions often develop slowly over many years. These conditions can directly cause death or worsen other illness. For instance, it may take many years of heavy drinking before alcohol-associated liver diseases , the most common cause of alcohol deaths, to develop. This slower disease progression as well as the role of alcohol in exacerbating other conditions may contribute to the higher number of deaths counted under the expanded definition. The number of alcohol deaths rise even more when the criteria are broadened to include alcohol’s role in increasing the risk of death by other conditions or events, such as cancer or car accidents involving alcohol (Figure 6).

Rises in alcohol deaths may be attributed to a variety of factors including, in part, increases in drinking and low treatment rates. Alcohol consumption and some indicators of binge drinking have been on the rise in recent years , particularly among some demographic groups . Excessive alcohol consumption is tied to the development of alcohol-related diseases, which can be fatal. A variety of factors may have contributed to increases in drinking including a growing social acceptability of alcohol and loosening of alcohol policies at a state level. Other factors, such as increased stressors due to the pandemic and other issues may have increased drinking behaviors.

Treatment rates for alcohol use disorder are very low. Federal survey data show that in 2022, only 7.6% of people (12+) with a past year alcohol use disorder received any treatment. Although medications for alcohol use disorder have been shown to reduce or stop drinking, uptake of these medications is extremely low; with only 2.1% of people who meet criteria for an alcohol use disorder (diagnosed or not) receive medication treatment. Treatment rates are slightly higher among those who do receive a diagnosis–for instance, 10% of Medicaid enrollees diagnosed with an alcohol use disorder received medication, 34% received counseling services, and 74% received some type of interaction with a treatment, such as therapy, medication, assessment, or supportive service.

Barriers to alcohol use disorder treatment include a combination of provider, patient, financial, and infrastructure factors. Providers often lack confidence or knowledge in treating alcohol use disorder and are uncomfortable with medication and other treatment options, which may decrease the likelihood that they will manage treatment or make referrals . To address this, recent initiatives are enhancing education for both practicing and training providers through mandatory training programs and curriculum enhancements in medical schools . Further, recent changes to SUD confidentiality regulations are expected to simplify the diagnosis and coordination of care for individuals with substance use disorders (SUD). Insufficient treatment infrastructure or a shortage of a skilled workforce to staff facilities and deliver care can also play a role in treatment rates.

From the patient perspective, limited understanding of what constitutes problematic drinking and attitudes towards seeking treatment can hinder recognition of the need for help . For example, among those who meet the criteria for SUD—which may include symptoms like increased tolerance, repeated attempts to quit or control use, or social problems related to use– 95% of adults did not seek treatment and didn’t think they needed it. Initiatives aimed at early screening in non-traditional settings, such as schools may help early detection and lead to more timely linkages of individuals to treatment resources. When people think they might need treatment, practical issues such as insurer coverage of services, locating a provider that will accept the patient’s insurance, availability of time off from work, childcare, and the affordability of treatment/out of pocket costs can also influence decisions about seeking or staying in treatment.

This work was supported in part by Well Being Trust. KFF maintains full editorial control over all of its policy analysis, polling, and journalism activities.

• Mental Health

Also of Interest

• A Look at the Latest Suicide Data and Change Over the Last Decade
• COVID-19 Cases and Deaths by Race/Ethnicity: Current Data and Changes Over Time
• Recent Trends in Mental Health and Substance Use Concerns Among Adolescents