When the 2015 college football season started, Steve Sarkisian was a rising star in the coaching firmament. He had led the University of Washington Huskies and his current team, the University of Southern California Trojans, to winning records and bowl games.
In late August, however, reports surfaced that Sarkisian had behaved inappropriately at a booster event, the Salute to Troy. And by mid-October, USC had terminated Sarkisian “for cause,” with athletic director Pat Haden explaining that Sarkisian’s use of alcohol had impaired his performance of his job.
This week, Sarkisian struck back, filing a 14-count complaint against USC in Los Angeles Superior Court.
Big Brother is watching you, or at least tracking your movements through your smartphone. According to the Washington Post, employers have steadily increased their use of GPS-enabled technology to track the movements and location of “field employees” like salespeople and delivery drivers. In fact, a 2012 study by the Aberdeen Group cited an increase of over 30% in the tracking of employees over the previous 5 years. Legitimate reasons exist to track field employees, such as making sure that drivers take the best routes and sales calls are conducted efficiently. But it’s more tricky to justify the tracking of employees who are off the clock. For example, Myrna Arias, a former sales executive with Intermex, was allegedly fired for disabling a tracking app called Xora StreetSmart when she was off duty. Now Ms. Arias has sued the company, alleging wrongful termination and invasion of privacy. Jay Stanley, a senior policy analyst at the ACLU, cautions employers against collecting off-the-clock data, because it opens the door to discriminatory practices. Mr. Stanley wondered, "What happens if an employer doesn't like the choices a worker makes in their personal lives and retaliates professionally?"
We discussed emerging trends in the c-suite recently, and found that companies are increasingly tying executive compensation to performance. For those that do not, we can imagine a corporate shareholder version of peasants storming the castle with pitchforks in hand, thanks to say-on-pay voting. In the case of JP Morgan CEO Jamie Dimon’s 2014 compensation, the shareholders’ rebellion led to a relatively low approval rate for Dimon’s and other executives’ compensation. According to USA Today, 61.4% of shareholders approved the payouts, which starkly contrasts with an average 90% approval rating for companies that seek shareholder input on salary and bonus plans. Advisory firm ISS encouraged shareholders to rebuke the plan when they learned of Dimon’s $7.4 million cash bonus. ISS advised that “[t]he reintroduction of a large discretionary cash bonus in the CEO’s pay mix, without a compelling rationale, has substantially weakened the performance-basis of his pay.” If corporate leadership can provide a strong rationale for a big bonus, it’s more likely that the shareholders will drop their pitchforks and fall in line.
LSU is used to battling with its Southeastern Conference (SEC) foes on the gridiron. Now, it’s fighting in court with a former assistant who jumped ship to conference rival Texas A&M.
John Chavis, LSU’s ballyhooed former defensive coordinator, left LSU for A&M at the beginning of this year, sparking headlines about “winning big” at his new home in College Station. But storm clouds were brewing – LSU’s athletic director, Joe Alleva, said that he expected Chavis to comply with a $400,000 contractual buyout.
On February 27, Chavis sued LSU in Texas state court, seeking to avoid the buyout. He named A&M as a defendant as well, but only as an “indispensable party,” reported Jerry Hinnen of cbssports.com. The Associated Press reported that A&M agreed to pay the buyout for Chavis if he was found to owe it.
LSU, seeking a home field against Chavis, quickly filed a separate case against him in Baton Rouge, claiming that it is entitled to receive the buyout money.
Chavis’s contract reportedly said that if Chavis left in the first 11 months of his contract, before January 31, 2015, he would have to pay the buyout. The sequence of events appears to be that Chavis gave a required 30-day notice on January 5 that he was resigning and terminating his contract. Chavis says that he left LSU by February 4 – after the January 31 end to the buyout period – and didn’t join the Aggie payroll until February 13.
Helen of Troy isn’t just a famous mythological beauty. It’s also a publicly-traded maker of personal care products. And now, it and its directors are defendants in a suit by Helen of Troy’s founder, Gerald “Jerry” Rubin.
Executives who bring suit against their former employers frequently want to show that they were terminated for reasons other than performance, and Rubin is no different. In his complaint, as reported by El Paso Inc., Rubin describes the history of Helen of Troy and its staggering growth. From humble origins – a “wig shop in El Paso, Texas” – Helen of Troy grew into a “global consumer products behemoth, generating revenues in excess of approximately 1.3 billion dollars.” And then the roof caved in. Rather than “celebrating [Rubin’s] extraordinary success,” Rubin alleges, Helen of Troy’s directors turned on him in order to save their own skins, and eventually forced him out of the company.
Why did the directors need to sacrifice Rubin to save their positions? According to Rubin, the answer lies with an entity called Institutional Shareholder Services (“ISS”). ISS is a proxy advisory firm that conducts analysis of corporate governance issues and advises shareholders on how to vote. Because shareholders often follow ISS’s recommendations, it can have substantial influence over the affairs of publicly-traded companies. Indeed, some participants in a recent SEC roundtable suggested that ISS could have “outsized influence on shareholder voting,” or even that it has the power of a “$4 trillion voter” because institutional investors rely on it to decide how to vote.
Rubin alleges that if ISS decides a CEO is making too much money, it will demand that the compensation be cut or that the CEO be fired. If its demand isn’t followed, it will “engineer the removal of the board members through [a] negative vote recommendation.” Board members then will cave to ISS’s wishes to preserve their own positions.
Rubin claims that this is what happened in his case.
We at Suits by Suits are so excited by American Apparel’s dispute with its recently-fired CEO and founder Dov Charney that we can barely keep our shirts on. After all, the dispute between the clothing manufacturer and its controversial former leader is bursting at the seams with takeaway points for feuding companies and C-suite employees (and those wanting to avoid having feuds). For example, as we described in an earlier post, the dispute illustrates that terminating a key company officer may jeopardize company financing. The dispute also presents the question: can a company like American Apparel, which knew that Charney was apparently known for not being able to keep his pants on, decrease its exposure to the inevitable sexual harassment lawsuit by having all of its employees acknowledge in writing that the company’s workplace is sexually charged? It depends.
Last week, American Apparel announced that its board had decided to terminate Dov Charney, the company’s founder, CEO, and Chairman, “for cause.” (We’ve discussed the meaning of terminations “for cause” in prior posts here and here.) The board also immediately suspended Charney from his positions with the company. Although the board didn’t initially disclose the reasons for its action, Charney is not new to controversy; in recent years, he has faced allegations of sexual harassment and assault.
The reasons for Charney’s termination have now become public, and they aren’t pretty. In its termination letter, available here, the board accuses Charney of putting the company at significant litigation risk. It complains that he sexually harassed employees and allowed another employee to post false information online about a former employee, which led to a substantial lawsuit. The board also says that Charney misused corporate assets for “personal, non-business reasons,” including making severance payments to protect himself from personal liability. According to the board, Charney’s behavior has harmed the company’s “business reputation,” scaring away potential financing sources.
Bon-Ton Stores, Inc. alleges in a lawsuit that it recently filed against its former Senior Vice President, Director of Sales Gary Pralle that – after the company fired Mr. Pralle – it discovered “pornographic materials” and “documents containing racial slurs” in his e-mails. According to Bon-Ton, had it known about this “after-acquired evidence” before it fired Mr. Pralle, it would have had “cause” for firing him under its “Executive Severance Pay Plan” such that Mr. Pralle would not be entitled to severance. In other words, Bon-Ton v. Pralle is an example of a company invoking the after-acquired evidence doctrine to overcome a breach of contract claim. (Bon-Ton also alleges that bad behavior by Mr. Pralle that the company knew about before it fired him also gave the company “cause,” but those allegations mess up the example so we’re ignoring them.)
Last week, Yahoo’s Marissa Mayer fired COO Henrique de Castro, reportedly because she was not satisfied with his job performance. By some estimates, de Castro will receive severance exceeding $60 million after only 15 months on the job. Also last week, Family Dollar Stores let go COO Mike Bloom because the company was not happy with his performance, and apparently was not moved by Bloom’s Undercover Boss gambit. Bloom is set to receive $4.8 million in severance after slightly more than two years on the job.
What gives? How is it that these former executives are receiving large severance payments after they were asked to leave for poor performance on the job? The definition of "cause" in their severance agreements is what gives – a topic we explored recently here at Suits by Suits in connection with the dispute over former iGate CEO Phaneesh Murthy’s termination. In the iGate case, the company contends that it terminated Murthy for cause and thus owes him no severance. Murthy’s employment agreement provides that he does not get severance in the event of a "with cause" termination, and that "cause" includes violating company policy. The company contends that Murthy’s failure to report his romantic relationship with an employee to the Board was "cause" for his termination because it violated company policy.
In the Yahoo and Family Dollar Store cases, assuming that de Castro and Bloom were let got for poor performance, unless poor performance is "cause" under their employment agreements, they will reap the severance benefits provided for in their agreements for "without cause" terminations.
In May, iGate sacked its CEO Phaneesh Murthy, claiming that the Board decided to do so after its outside legal counsel found that Mr. Murthy’s failure to report his relationship with a subordinate employee violated iGate’s policy. Outside counsel made that finding as part of their investigation of the relationship and the employee’s claim of sexual harassment. (For spicier accounts of the office affair check out the news stories from the time – like this one.) Last week, Mr. Murthy sued iGate in California state court claiming that his termination was not with cause and that he is therefore entitled under his employment agreement and company stock plans to compensation and benefits that the company has refused to pay.
The ongoing court drama between Marsh Supermarkets and Don Marsh, its former CEO, has taken another twist. As we previously covered here, in February of this year, a jury in the U.S. District Court for the Southern District of Indiana found that Marsh, the son of the company's founder, defrauded the supermarket chain and breached his employment agreement by misusing company assets to pay for personal expenses. It awarded Marsh Supermarkets $2,200,000 in damages.
Now, however, that damages award has effectively been zeroed out by the district court judge, who has found that Don Marsh is entitled to $2.1 million plus attorneys’ fees from the company based on a separate provision in his employment contract. Order, Marsh Supermarkets, Inc. v. Marsh, No. 09-cv-00458 (S.D. Ind. Jul. 29, 2013). The court accepted Marsh’s argument that the provision entitled him to payment come “hell or high water” – or fraud.
Late last week, Rutgers announced that it reached a $475,000 settlement with former men’s basketball coach Mike Rice and that no cause for Rice’s termination would be provided. Recently-publicized videotapes show Rice at practices hitting, kicking and throwing basketballs at his players and taunting them with obscenities and anti-gay slurs (not to be confused with this shocking video of Middle Delaware State women’s basketball coach Sheila Kelly throwing toasters at her players). The announcement came more than two weeks after Rutgers President Robert Barchi told reporters that Rice was fired, but not for cause. And that announcement came several months after Rice was suspended from work for three days, following an internal investigation by outside counsel, resulting in this report.
We cover a broad range of issues that arise in employment disputes. Occasionally, we also spotlight other topics of relevant legal interest, ranging from health care to white-collar defense to sports, just to keep things interesting.
Led by Jason Knott and Andrew Goldfarb, and featuring attorneys with deep knowledge and expertise in their fields, Suits by Suits seeks to engage its readers on these relevant and often complicated topics. Comments and special requests are welcome and invited. Before reading, please view the disclaimer.