Corporate mergers aren’t just about the bottom line. They also have a human side, impacting employees who are laid off as a cost-cutting measure and employees whose responsibilities change as a result of the transition.
Contracts between executives and employers can play a role in this transition. Many employment contracts and benefit plans feature change-in-control provisions. These provisions can allow executives to obtain benefits if they are terminated after a change in corporate control, or even if they resign for “good reason” after their responsibilities are meaningfully altered.
In 2006, John D. Clayton, the Director of Worldwide Acquisitions and Divestitures for Burlington Resources, Inc., had one of these arrangements when Burlington merged with ConocoPhillips. Burlington’s severance plan provided a right to benefits if an employee quit for “good reason” within two years of a change in control. If there was a “substantial reduction” in the employee’s responsibilities, that would be a “good reason” for resigning, entitling the employee to benefits upon resignation.
Just before the March 2006 merger, Conoco offered Clayton a position as its Manager of A&D, and he signed a waiver of benefits under the plan. But then, shortly after the merger, it reassigned him to the position of Manager of Business Development. As Manager of A&D, he would have worked with properties that were already yielding petroleum, while as Manager of Business Development, he would only work with exploratory or developmental properties.
Clayton was disgruntled with the change, and filed a claim for severance benefits – without resigning – in August 2006. The trustee of the severance plan denied the claim because Clayton hadn’t actually quit. Clayton worked for Conoco for two more years, but then resigned in March 2008 (within two years of the change in control) and claimed severance benefits. The trustee denied his claim, determining that he had not suffered a “substantial reduction” in his responsibilities and therefore had not resigned for “good reason.”
Clayton then filed a claim in state court. Conoco, however, removed the dispute to federal court, on the ground that the severance plan required an “ongoing administrative program” and therefore fell within federal jurisdiction under ERISA (the Employee Retirement Income Security Act). And in federal court, Clayton’s claim met its end.
As we’ve previously covered here and here on Suits by Suits, a battle is raging in the federal courts over whether the new whistleblower protections in the Dodd-Frank Act of 2010 apply only to individuals who report misconduct to the SEC. But the fight, to this point, is as one-sided as Pickett’s Charge.
In a May 2013 decision, Judge Jesse Furman of the U.S. District Court for the Southern District of New York joined four other judges who have accepted employees’ expansive reading of the Act. Murray v. UBS Securities, LLC, No. 12-cv-5914 (May 21, 2013).
This week in Suits By Suits:
As we here at Suits By Suits continue to monitor changes in state law regarding the status of covenants not to compete (the “State-by-State Smackdown”; see our latest post here), a fifth state has gotten into the act: Connecticut.
Some background: like most states – but unlike California – Connecticut follows the traditional balancing-test approach used in most states to evaluate the legality and enforceability of employer covenants not to compete. (This is sometimes called the “legitimate business interests” or “LBI” test.) Under Connecticut law, courts must consider the reasonableness of a non-compete clause’s (1) duration, (2) geographical scope, (3) protection of the employer, (4) restraint on the employee’s right to pursue work, and (5) interference with the public interest. See Robert S. Weiss & Assocs v. Wiederlight, 208 Conn. 525 (1988).
Before the July 4 holiday, the Connecticut state legislature passed a new law with respect to non-competes. The law itself does very little to alter the landscape, but most intriguing is what the legislature rejected. Read more after the jump….
Here at Suits-by-Suits Headquarters in Washington, D.C. we’re all smarting from having our town named one of America’s snobbiest cities. Although we’re not all snobby by geography: one of our editors, P. Andrew Torrez, is in fact based in a wonderful place called Charm City.
But we’re not going to be mad for long, because it’s the week we celebrate the Declaration of Independence. As Americans, we revere this document that sets out our basic freedoms and lays the foundation for our nation. And, as lawyers, we’re proud that its author Thomas Jefferson, one of our own breed, did such a poetic job of setting forth his case with clarity and brevity. So, we’ll try to borrow some of his best lines in the Declaration for this week’s Inbox, where we highlight the interesting things that have come over the transom:
This week, we celebrate the Declaration of Independence – the document that set out the principles on which the United States claimed its independence from Great Britain. Since then, while we’ve crafted a “special relationship” with our former colonial master, we’ve gone our own way in some particulars – such as getting rid of extra vowels in some of our words and changing some spellings, and driving on the right.
One way in which our two nations are similar, however, is that severance pay that is perceived as excessive can stir public controversy.
It was the month of the Supermoon, the month Paula Deen made headlines that didn’t involve frying something in butter, and the month that a bunch of lawyers up the street from our Washington headquarters, who happen to wear black robes, did some significant stuff. But June also saw us write about some interesting developments involving say-on-pay, American Airlines’ CEO, non-competes, arbitration, and some other things—including, of course, Paula Deen:
One of the continuing themes we’ve stressed here at Suits by Suits is that a tsunami is brewing that will change the national landscape regarding whether and how employers can enforce covenants not to compete contained within an employee’s employment agreement. (We call this, with typical lawyerly restraint, “The State-by-State Smackdown.”)
Last week, Illinois got in on the act. Read on….
Yesterday, we observed that Paula Deen’s deposition testimony in the case filed by Lisa Jackson may be used to prove that one or more companies owned by Deen must pay for Jackson’s damages resulting from assault and battery by Deen’s brother, Earl “Bubba” Heirs, assuming that Jackson proves assault and battery. We said that, if Heirs worked for the companies, and the companies knew of Heirs’ misconduct and either expressly adopted it or implicitly approved of it, then the companies could be found vicariously liable based on a theory of ratification. But what if Heirs only worked for one of the companies? If Heirs is found liable, could the other companies also be found liable? They could, based on a theory of alter ego, and Deen’s testimony may be helpful in supporting the theory.
As the regulatory and business environments in which our clients operate grow increasingly complex, we identify and offer perspectives on significant legal developments affecting businesses, organizations, and individuals. Each post aims to address timely issues and trends by evaluating impactful decisions, sharing observations of key enforcement changes, or distilling best practices drawn from experience. InsightZS also features personal interest pieces about the impact of our legal work in our communities and about associate life at Zuckerman Spaeder.
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.
John J. Connolly
Partner
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Andrew N. Goldfarb
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Sara Alpert Lawson
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Nicholas M. DiCarlo
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