Scott Thompson Shows How Padding Your Resume Could Cost You $10 Million or More

| Zuckerman Spaeder Team

On May 13, 2012 – after just five months on the job – Scott Thompson resigned as CEO of Yahoo! Inc. in response to allegations by “activist” shareholder Dan Loeb of the hedge fund Third Point LLC that Thompson was claiming a computer science degree he did not have.  An internal investigation by Yahoo revealed that Mr. Thompson’s bachelor’s degree from Ston ehill College was in accounting, not “accounting and computer science” as listed both on Mr. Thompson’s resume and in Yahoo filings with the Securites and Exchange Commission.  Thompson – who is also recuperating from surgery for thyroid cancer -- subsequently resigned from the board of directors of software developer Splunk Inc. on May 21 as well.

One day after Thompson resigned, Yahoo stated that it would be terminating him for cause pursuant to the Yahoo Code of Ethics incorporated into Thompson’s offer letter.  If Yahoo were to litigate and prevail on this position, it could avoid paying Thompson upwards of $17 million in various stock options and severance pay that would otherwise vest with his termination.  Instead of litigating, however, Yahoo and Thompson reached a compromise settlement that paid Thompson his fully-vested restricted stock options (worth approximately $7 million) but no additional severance pay or compensation for partially vested options.  Since reaching an agreement with Thompson and naming Ross Levinsohn acting CEO, Yahoo’s stock has increased and has been the subject of favorable analyst reports and press.

The relevant provision in Thompson’s offer letter reads as follows:

“Yahoo! is committed to creating a positive work environment and conducting business ethically. As an employee of Yahoo!, you will be expected to abide by the Company’s policies and procedures including, but not limited to, Yahoo!’s Guide2Working@Y!, Yahoo!’s Code of Ethics and Yahoo!’s Corporate Governance Guidelines.  Yahoo! requests that you review, sign and bring with you on your Employment Start Date, the enclosed Code of Ethics Acknowledgment Form.”

Thompson has said that the computer science degree was added electronically to his resume by a placement firm, and that he did not deliberately mislead his employer as to his credentials.  However, on March 25, 2009, Thompson —then-president of PayPal — gave an interview to Moira Gunn on the “TechNation radio show” in which he agreed with a question that began “Your bachelor’s degree is in accounting and computer science,” failing to correct the host that his degree was not in computer science.

Although one might expect so-called “resume fraud” to be a slam-dunk showing of “cause” for termination, the reality is that many courts require an employer to demonstrate that it relied on a high-level employee’s misrepresentations on his or her resume as a basis for denying an executive severance pay, termination pay, or other equity otherwise due the employee upon termination.  For example, in Firestone v. Hawker Beechcraft Internal Service Co., 2012 WL 683286 (D.Kan. Mar. 2, 2012), a federal district court recently held that an employer could not proceed on a so-called “resume fraud” defense as a basis for terminating an executive for cause (and denying the executive $650,000 in severance pay) when the employee did not submit his resume until after he had been hired.  Id. at *6.  Here, it is unclear whether Yahoo could prove that it would not have hired Thompson had it known that his undergraduate degree from 1979 was only in “accounting.”

 More drastically, in National Medical Health Card Systems, Inc. v. Fallarino, 863 N.Y.S.2d 556 (N.Y. Sup. 2008), a state court in New York held that an employer could not rescind an employee’s contract (and thus deny him severance pay) despite numerous material misstatements and omission where the employer and its recruiter failed to ascertain the readily-available truth about the employee's employment history during the interview process.  Here, one investigative journalist has stated it took her “15 minutes flat” to discover that Thompson did not have a computer science degree from Stonehill College – because Stonehill was not awarding computer science degrees in 1979 – and suggests that it would be “rank incompentence” for Yahoo not to have uncovered that information when it hired Thompson.  If so, a court might have reasonably held that the greater failure here was Yahoo’s failure to conduct due diligence in hiring its CEO, rather than Thompson’s erroneous resume.

An independent committee of Yahoo’s directors is investigating the Thompson hiring and will be preparing a full report to shareholders.

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Information provided on InsightZS should not be considered legal advice and expressed views are those of the authors alone. Readers should seek specific legal guidance before acting in any particular circumstance.