CEO was terminated at the end of the first year of a five year
contract. The contract had NO provision for termination prior to the
expiration of the 5 year term. The company contended the CEO violated
company policy but did not provide any opportunity for cure. Is this a
breach of contract in New Jersey?

---

Request for Question Clarification by pafalafa-ga on 20 May 2005 16:44 PDT

Hello hammer2641-ga,

I doubt that anyone could comprehensively answer this question without
being able to see the actual contract.  And even then, the matter of
whether the termination was or was not a breach of contract may not be
all that clear cut.

A contract generally binds the parties to a set of conditions, so if
the only condition in the contract was a five year term of employment,
then there would be virtually no basis for a premature dismissal.

However, most contracts are considerably more complex than this.  NJ
case law recognizes that contracts typically (but not always) contain
a "satisfaction clause", meaning, in effect, that an employee (even
the CEO) has to "satisfy" in terms his/her job performance, or else
can be fired.

Here's what that language looks like in one NJ case:


-----
Plaintiff's two-year...employment contract contained a clause that
reserved to the company the right to terminate his services for
failing or refusing to perform his duties faithfully, diligently or
completely to the satisfaction of the company ("the satisfaction
clause"). Plaintiff was terminated nine months into the contract after
several clients and resellers communicated their disappointment with
the performance and attitude of the support services unit in general,
and several complaints targeted plaintiff specifically.
-----


The best that can be done, I believe, would be to post information
from relevant cases that shed some light on your situation.  However,
you'll need a real lawyer (who can offer you real advice...note the
caveat about Google Answers on the bottom of the page) to review your
contract and advise you accordingly.

Let me know how you'd like to proceed on this.


pafalafa-ga

---

Clarification of Question by hammer2641-ga on 21 May 2005 14:10 PDT

The written agreement did not contain a "satisfaction clause". It was
a letter agreement offering employment for 5 years with additional one
year extensions unless terminated by either party 90 days in advance
after the first 5 years.  A lawyer has been retained and a lawsuit
filed but I am interested in knowing if anyone is familiar with  any
similar instance in which the contract DID NOT contain any termination
provisions at all. There wasn't any provision for early termination
whether "for Cause" or "without cause". The agreement was silent on
the point.

---

Request for Question Clarification by pafalafa-ga on 21 May 2005 15:34 PDT

Thanks for getting back to me...now I have another question.

NJ case law (esp Woolley v. Hoffmann-La Roche) recognizes that company
personnel policies, manuals, etc. can serve as more or less an implied
contract.  So the question now becomes whether such policies are
articulated in your case, and if so, what they have to say (or not
say) about termination.

Although I'm not a legal professional, I don't believe the 'policies'
issue is distinct from the 'contract' issue in NJ -- the former can
conceivably augment the latter.

Let me know what you can, and I'll continue digging through cases to
see what else turns up.

Thanks again,

paf

---

Clarification of Question by hammer2641-ga on 22 May 2005 07:17 PDT

Thank you for your interest but each of your comments (and cases) have
been identified and interpreted. The unique circumstance here is the
fact that neither party introduced the concept of termination into the
letter agreement. It then becomes a question of contract formation and
interpretation. I am trying to see if anyone is familiar with a
parallel case whether adjudicated or not. If no one is aware of a
similar circumstance, we will try the case and set some law. If the
agreement said it could be terminated "for cause", the question then
becomes what constitutes "cause" if it is not defined. In this
instance the agreement was totally silent so from the CEO perspective,
the agreement would have had to be BREACHED materially for the
termination to be upheld. Thanks, again. Don't go out of your way to
research this. The lawyers are on top of it.

---

Request for Question Clarification by pafalafa-ga on 22 May 2005 09:35 PDT

OK, but let me just reiterate...even though the letter agreement is
silent on termination, if there are company personnel policies in
place that DO address termination, then these can become the guiding
tenets for a NJ court to consider.

If I turn up anything else, I'll let you know.


Best of luck...

paf

IN Germany, where senior executives usually have five-year contracts,
if terminated before the end of their contract, they usually get a
golden handshake based on the present value of the remaining period of
the contract, or on a negotiated amount.  Neither party wants to wash
dirty linen in the court.

Myoarin
Read an article recently (think it was in IHT) where directors of 
German companies will have have to disclose their compensation.

If I were a senior executive in Germany, I think I would love to be sacked 
with the type of "no lose" contracts these guys have.
Mongolia

Yeah, Mongolia, the boss of the Frankfurt stock exchange was just let
go with an Euro 5 million package, and I seriously doubt that he was
on a million a year salary, but the Germans thought he and the stock
exchange (a stock corporation) got a dirty deal by major foreign
stockholders.
If Ackerman (CEO) leaves the Deutsche Bank, he will probably make real headlines.

Check out a great book titled "Sue the Bastards!" by Gerald P. Fox and
Jeff Nelson.  My hunch, without knowing any specifics here, is that
unless the CEO was doing something that was clearly in breach of
company policy-check out any employee handbooks besides contract
itself- and/or illegal, there is no just cause. Get all the documents
you can showing the individual's employment activity, specifically
commendations and performance reports. Make the case that there was no
just cause for early termination and that no steps were taken to
remedy.  The employee handbook may also inform as to what steps are
necessary to remedy a breach of the company policy. If those steps
were not followed and the employee was summarily dismissed, a strong
case can be made for breach of employment contract.  A written
employment contract is great to have: most litigation attorneys will
not sue without either an oral or written employment contract, and
even though employees are considered employed 'at will', the contract
supercedes that.

Thus:

1. See what the employee manual and contract say about the violation
of company policy and what steps, if any, there are to remedy that.

2. Answer whether or not 1. The activity was likely in breach of
company policy and 2. If that activity was in breach, if appropriate
steps were taken to remedy.

3. If no steps were taken to remedy the breach of company policy, as
specified by company handbook and possibly implicit work rules, a case
can be made that just cause was not met. Without just cause,
termination is a breach of the employment contract.

4. Additional information, like evaluations, can attest to the
employee's job performance and can be used to counter allegations of
impropriety.

Hammer2641,
Kind of intriguing that the contract for a CEO would be so "informal."

If you really wish to close the question, you can cancel it.

Good luck.