“Notice to All Personnel: Firings will continue until morale improves.”
ACTUAL CASE HISTORY: Brooke, 48, was a senior loan underwriter working for the investment division of a large insurance company. Her division put together pools of money from institutional investors – tens of millions of dollars at a time – to make loans to private equity firms that buy and sell businesses. She had been with the firm for four years, and had established a reputation as an astute evaluator of prospective borrowers and loans.
Brooke’s work was something like the work of a home mortgage loan evaluator, just on a much, much larger, more sophisticated scale. She didn’t review home appraisals and individual credit reports: instead, she had to make sensitive investigations into the integrity and track records of private equity firms, complex judgment calls on the capabilities of senior executives, and detailed analyses of the businesses to be bought. Brooke had been doing this work for years, was universally respected, and was at the top of her league. Every performance evaluation she had received stated “exceeds expectations.” In her four years with the firm, Brooke had been promoted twice, and granted significant stock options.
The firm Employee Manual provided that employees at her level needed to give, and would get, at least thirty days notice before resignation or termination, and one year of severance unless, that is, the employee was terminated for “cause.” As is often the case, “cause” for firing was not defined.
In November, 2005 Brooke was asked to help evaluate a prospective private equity deal. It was very important to senior management. The business to be purchased was in the new field of “internet radio.” No one at the firm was experienced in this nascent industry. Brooke was asked to do the required underwriting due to her considerable experience in the technology, media and telecom industries. Brooke did her usual investigations and analyses, and in this instance also consulted with internet industry leaders to gain insight into the direction of this “infant’ industry. Her conclusion was a resolute “thumbs down” for three reasons: (1) this was the first internet venture for the private equity buyer, (2) the business to be purchased was losing more money each year, and (3) the present business operators, who were going to operate the company after its purchase, had been sued twice for investor fraud.
Her bosses were very unhappy. This was a major firm client, and the deal offered large up-front fees for the firm. Brooke was asked to reevaluate the deal, this time from a “broader perspective.” She met with the prospective clients, who expressed their annoyance with her questions; they even asked that she be taken off the deal. Brooke felt the pressure to lower her standards, but resisted, and after a second review, confirmed her original negative recommendation. It was simple to Brooke: data doesn’t lie and, as her father taught her, “Principles are not pretzels.” The loan deal was denied, the investors went elsewhere for funds, and the matter seemed over. Or so Brooke thought.
In early January, Brooke was terminated for “cause.” As Human Resources told her at the Friday, 5:00 pm meeting, “You have unnecessarily disrupted relations with investor clients, and thus caused harm to the firm.” Despite Brooke’s request, HR wouldn’t elaborate. Did she commit “cause” for firing? It was hard to tell, since “cause” was nowhere defined. Though Brooke knew things like this happened at times, it had never before happened to her. She didn’t yet realize the very significant consequences of being fired for alleged “cause.” For her, they included loss of last year’s entire annual bonus, her 30-day pre-termination notice, one year of severance, and forfeiture of all stock options.
Fortunately, with our help Brooke was able to win back most of what she almost lost. We were able to demonstrate that Brooke had performed her job admirably, and that there was, in fact, no basis to fire her “for cause,” and that we could prove that in a court, if necessary. In the end she regained her financial losses, and preserved her all-important reputation.
LESSON TO LEARN: “Cause” for firing can be a very hazy concept. It can be defined in many different ways, for many different reasons. It can be alleged in many different circumstances, and it has very significant consequences. It can range from telling an off-color joke, to using the internet to find out how much your car is worth. What “cause” is, and how you’ll be treated if fired for “cause,” is important information. It’s important to know if, and how, “cause” is defined by your employer, its probable consequences to you, and to be vigilant for possible allegations against you, no matter how incidental or seemingly concocted they may be. You should know that:
a. “Cause” can be defined simply as “sufficient reason to justify job termination.” “Cause” is customarily a type of either (a) misconduct (that is, bad behavior), or (b) poor performance on the job.
b. Usually, employers don’t need “cause” to fire you. If you are an “at will” employee (that is, without an employment contract or company policy that limits why and how you can be fired), your employer does not need to have any “cause” to terminate your employment. The law is generally silent as to why, when or how an employee can be fired.
c. However, there are some legal limits on firing for alleged “cause.” As examples, an employer cannot fire someone for “cause” because they refused to commit an illegal act, or engage in fraudulent behavior. Additionally, false allegations about you made by your employer, whether or not communicated to others, can result in your having a legal claim against your employer.
d. Also, your employer may have limited itself as to how and when it can fire for “cause.” In employment contracts, employee handbooks, and in company benefit plans (such as severance plans, stock option plans, etc.) employers sometimes place limitations on themselves as to (a) what constitutes “cause” for firing, and (b) procedures that must be followed to fire an employee, sometimes called “graduated discipline” procedures. Many companies have “speak out” policies that say an employee cannot be fired for “speaking out” to management regarding impropriety or illegality by fellow employees.
e. The consequences of a “cause” firing are usually quite significant. Basically speaking, there are three ways to leave a job: (a) resignation by the employee, (b) termination without “cause” by the employer (for example, in a large-scale workforce reduction), or (c) termination for “cause” by the employer. The consequences of a “cause” termination are almost always the most harmful. They might include (i) non-payment of earned but unpaid bonus; (ii) forfeiture of options and stock; (iii) loss of rights to unemployment and COBRA insurance benefits; (iv) non-payment of severance benefits; (v) loss of insurance coverage, and (vi) possibly even reporting of what allegedly happened to regulatory authorities, resulting in loss of licensure.
WHAT YOU CAN DO: Information about “cause” termination can be found on your employer’s website, in your employee manual, and in the formal Plans of your employer’s health, welfare, savings and equity programs. Taking these simple steps can only help you avoid a termination for “cause,” or should termination for “cause” take place, deal with it more effectively:
1. Consider, first, if you can be fired without “cause,” or only in the event of “cause.” Most working people are “at-will” employees, so no “cause” needs to be present for their termination. On the other hand, most people with employment contracts can only be fired for “cause” during the Contract’s time period, or “term.” Don’t assume that you are in one of these categories or the other; find out for sure.
2. Find out if your employer restricts itself in “how, when and why”
it can fire employees for alleged “cause.” Many employers limit themselves in “how, when and why” termination can take place. For example, one company we know of has a strict policy that any employee arrested for a crime of “moral turpitude” will be immediately fired for “cause.” Most companies, however, require that there be a conviction or guilty plea, first. If you are not performing “up to snuff,” many companies require that a two- or three-step “graduated discipline” procedure be followed to permit their employees an opportunity to improve. Most publicly-owned corporations these days have “speak out” policies that say, in effect, “If you speak out against corruption, you will not be fired for it.” Some employers even have a policy permitting employees to resign instead of being fired for alleged “cause.” It can only help you to take stock of any restrictions your employer has agreed to.
3. If you are negotiating an employment agreement, ask for these three provisions: When we negotiate employment agreements, we always ask for these three preventive provisions: (a) the clearest and narrowest possible definition for “cause.” For example, if “disclosure of confidential information” is part of the definition of “cause,” we ask that “incidental” and “accidental” disclosures be exempted; (b) “cause” cannot be considered to have taken place unless the employer provides the employee with a written description of what he or she allegedly did to constitute “cause,” and indicate which part of the “cause” definition this falls under; (c) “cause” cannot be considered to have taken place until the employee has been given fifteen days’ opportunity to “cure” the problem, if capable of cure (that is, an assault cannot be cured, but failure to submit reports can be cured) unless, of course, in emergency circumstances. If at all possible, the definition of “cause” must be drafted in such a way that is (a) serious enough to justify the effects of a “cause” firing, (b) clear enough so that disputes don’t arise when it is invoked, and (c) conducive to being confirmed or refuted if a dispute does arise.
4. Take stock of what you would lose if fired for “cause.” Among the things that may be lost are: (a) unvested stock options; (b) bonuses earned but unpaid; (c) outstanding commissions; (d) the right to continue health insurance under the federal COBRA statute; (e) accrued but unused vacation; (f) even the right to collect unemployment insurance. (You should never lose out on any salary to the date of termination, or non-reimbursed business expenses.)
5. Be aware that your career could be affected, even ended, by a firing for “cause.” Employers of licensed professionals and employers in regulated industries may be required to report firings for “cause” to regulatory agencies, licensing authorities and disciplinary boards. Nurses, stock brokers, lawyers, airline pilots, police officers, doctors, insurance salespeople and teachers, among others, must be keenly aware of this. The circumstances of every departure of Registered Securities Representatives must be divulged to the NASD – and to all future employers and the investing public – in a Form U-5.
6. Determine if your employer uses an “appeal” or “review” process for alleged “cause.” Many employers have instituted procedures to make any firing for “cause” subject to some kind of review or appeal process. Some permit an “open door” review of such decisions. Some even have “peer review” mechanisms that involve colleagues in review of your treatment.
7. Don’t fear disputing a finding that “cause” took place. If you didn’t commit the alleged “cause,” or if extenuating or mitigating circumstances make the conduct in question more understandable, don’t be afraid to raise a defense. Use of a prescription medication, for example, might explain errant behavior. A family emergency may explain absence from a critical meeting. Your view that requested conduct was criminal might excuse purported insubordination. A true belief in imminent harm may be a proper self-defense explanation to alleged workplace violence. Collect information, facts, emails, witnesses, and always make your case in writing. Many times we’ve been retained to negotiate a confidential, “non-cause” departure. Remember that the truth is always very powerful.
8. Whatever you do, don’t make a bad situation worse. If an accusation is made against you, don’t react emotionally with anger, hostility, crying, loud words or actions that could be considered violent. Just try to do two simple things: listen and ask questions, if you have any. It’s possible that your “accuser” is hoping you’ll seal your own fate by engaging in indisputable misconduct. Bear in mind, too, that anything you say or do will undoubtedly be held against you. Even in situations that would suggest that an admission and an apology may be the best course of action, it just can’t hurt for you to calm down, think things over, perhaps take counsel with a friend or attorney. You can always exit a situation by telling those around you that you don’t feel well, and would like to go home immediately.
Because the effects of a “termination for cause” are so drastic – commonly entailing significant financial loss, career dislocation and risk to reputation – “termination for cause” allegations and contractual provisions need to be taken very seriously.
SkloverWorkingWisdom™ emphasizes smart negotiating – and navigating – for yourself at work. Avoiding unnecessary risks to your job, your finances and your reputation, is essential. But it takes more than luck to make that happen. It takes forethought, care and prudence, the essential ingredients in good negotiating.
Always be proactive. Always be creative. Always be persistent. And always do what you can to achieve for yourself, your family, and your career. Take all available steps to increase and secure employment “reward” and eliminate or reduce employment “risk.” That’s what SkloverWorkingWisdom™ is all about.
If you would like to obtain a “model” memo to help you request or negotiate severance [click here].
A note about our Actual Case Histories: In order to preserve client confidences, and protect client identities, we alter certain facts, including the name, age, gender, position, date, geographical location, and industry of our clients. The essential facts, the point illustrated and the lesson to be learned, remain actual.
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