• Suppose there’s an old employment agreement between the employer and employee. Then the employer fires the employee.
  • But there’s been a few intervening events and it’s not exactly clear that the employment agreement still applies.
  • Indeed, there’s another contract (let’s call it an supplier agreement) that seems to provide an independent basis for ending the

Polo Ralph Lauren's agreement is online
Polo Ralph Lauren’s agreement is online

One of the little facts that’s not widely known is that the SEC typically publishes all sorts of executive employment agreements for publicly-traded companies.  They’re ready and available for download.

Why might the average person do that? Well, for one, these agreements can sometimes contain

My colleague Chris Engler reports today on a new Connecticut Appellate Court case that focuses on a often misunderstood concept in employment contracts — the need for “consideration”.  What was it that Dire Straits’ sang about in the 1980s? Getting “Money for Nothing”?

We’ve all been told that you can’t get something for nothing.  That lesson was reiterated in a new case by the Appellate Court due to be officially released next week. 

The Facts

As told by the Court, the facts of the case,  Thoma v. Oxford Performance Materials, Inc., revolve around the employer’s attempts to attract investors. 

One investment company told the employer, Oxford, that it wanted assurances that key personnel would not leave.  Oxford dutifully entered into employment contracts with various employees, including Lynne Thoma.

The details of the contracts are important.  This first employment contract gave Ms. Thoma a higher salary, job security (termination could only be with 60 days’ notice), and a severance package.  In return, Ms. Thoma promised not to leave during the contract period and not to work for a competitor for six months after leaving.  Ms. Thoma signed this contract.

 At this point, both parties had gotten a benefit, and all seemed well.

But then a second investment company informed Oxford of its dissatisfaction because the employment contract was “too strong.”  So Oxford went back to the drawing board and crafted new contracts.

 Ms. Thoma’s second contract was quite different.  It removed all of the monetary elements, including the salary increase.  The new contract also allowed Oxford to fire Ms. Thoma without notice or cause.  Finally, it prohibited Ms. Thoma from working for a competitor.  (The length of this prohibition was unclear.  If you’re a contract jargon junkie, I recommend reading the court’s analysis in full.) 

Nevertheless, Ms. Thoma went ahead and signed this contract as well.

A year later, Oxford fired Ms. Thoma.  She demanded the benefits from the first contract.  Thus commenceth this case.

Is the Second Contract Enforceable?

Ultimately, both the trial court and the appellate court sided with Ms. Thoma, concluding that she didn’t receive any consideration in exchange for the sacrifices she made in the second contract.  In other words, she gave up some perks without getting anything in return.


Continue Reading “Consider” This Important: Employment Contracts Are a Two-Way Street

It’s hard to read the Connecticut Law Tribune’s Editorial this week on “The Problem of Workplace Arbitration Clauses” with a straight face. It is dripping with sarcasm, filled with sweeping generalities, and reserves its greatest enmity for employers and the lawyers that represent them.

If the editorial is to be believed, employers and their lawyers apparently routinely use “deceptive” arbitration clauses — often pushed by a “third assistant personnel clerk” — that are hidden until “defense counsel raises the jury waiver or arbitration agreement from its dusty grave in the company’s personnel files.”

But perhaps I’m overreacting. So let’s review the editorial more closely and try to separate fact from fiction.  The editorial, in its full unedited version, is in italics. 

Over the last decade, employers have more and more often incorporated jury waiver or mandatory arbitration clauses into their employment arrangements to avoid the perceived horror of facing jury review of the way they treat their employees. These clauses are often presented in circumstances that many argue are deceptive, if not downright coercive.

On the first premise — that employers are using arbitration agreements more — the editorial doesn’t provide numbers. But I’ll tend to agree with the notion that the use of arbitration agreements are increasing. However, most employers are not concerned with “jury review.”  Just a handful of cases ever see a court room. Only 2.9 percent of federal employment cases even reach trial! The reasons for their use are complicated but part of it is that the cost of defending cases has skyrocketed. Indeed, from 2010 to 2013, the median time from filing to trial of a civil case in federal court in Connecticut has risen from 27.9 months to 35.7 months (nearly three years!).  Arbitration is much quicker and more cost effective for both sides.

As to the second premise — that the clauses are presented in circumstances that are “coercive” — I suppose that is up for debate. But it depends on your definition of “coercion”.  The legal definition of coercion typically means through “force” or “duress”.  The classic law school example of being forced to sign a contract at gunpoint is clearly “coercion.”  But an employee who wants a job and signs an agreement if he wants the job? In my view (and many courts), that is not “coercion.”

But let’s agree to disagree on this point and move on.

Despite the significance of an employee signing away a legal right that lies at the very base of our civil justice system, there is almost never any effort to explain to the employee what the waiver or arbitration agreement means or even that they are giving up any right at all. In fact, quite the reverse is the rule.

“Almost never”?  That statement barely deserves any credence.  There is no evidence to support this statement.  And additionally, what does it mean to “explain to the employee what the waiver” means? Typically, the provisions state that any claim out of an employee’s employment must be submitted to arbitration instead of the courts. Isn’t that enough? (Yes, say the courts.)

Regardless, employers have been advised to make sure that arbitration agreements are highlighted and not merely stuck in page 32 of a handbook.

And the editorial seems to ignore the positive attributes that alternative dispute resolution can bring to the employee as well.  Arbitration has a place in our “civil justice system” too.  (Indeed, in a 2012 editorial, the Law Tribune voiced its support for passage of the Uniform Arbitration Act. The drafters of that act noted that “the enforceability of arbitration agreements cannot be treated any differently from the enforcement of contracts generally under state contract law” and avoided specific references to employment agreements.)


Continue Reading Law Tribune’s Editorial on “Downright Coercive” Employment Arbitration Clauses Is Off-Base

Today, I’m pleased to share a guest post from Kenneth A. Adams, the author of the terrific book, “A Manual of Style for Contract Drafting.” After I submitted a guest post on his site last week, I asked Ken to share his thoughts on one area of contract drafting. It is particularly relevant for companies that use employment agreements. I’ll share some of my own thoughts on the subject and on Ken’s book in some followup posts.  My thanks to Ken for sharing his wisdom on this notable subject.

When drafting a contract, it’s good to be precise. But it might be that for purposes of a given provision, it wouldn’t work to precise, so instead you make use of vagueness and its uncertain boundaries—you use words such as reasonable. Or promptly. Or material. Although vagueness entails risk of dispute, it’s an essential tool of the contract drafter.

But some vague words offer nothing but risk. That’s because once you lose the reasonableness standard inherent in, for example, promptly, the uncertainty become unmanageable.

A good example of this is the phrase moral turpitude, a fixture of old-school contract drafting. A dictionary will tell you that turpitude means “depravity.” That doesn’t suggest a workable legal standard, and moral turpitude is no better, with one legal authority saying that it means “shameful wickedness.”

The problem with moral turpitude is that once you switch from a reasonableness standard to one geared to probity, it’s utterly subjective where on the spectrum from saint to sinner a given action falls.

My favorite bit of evidence on that score is the court’s opinion in Marmolejo-Campos v. Gonzales, 503 F.3d 922 (9th Cir. 2007). The court concluded that driving drunk isn’t an act of moral turpitude, but driving drunk without a license is. Go figure!

Despite its shortcomings, moral turpitude is often used in contract provisions that aim to give one party an out if the other party acts badly. In particular, it routinely appears in employment agreements as one of the grounds for termination for cause:

the Executive’s admission or conviction of, or plea of nolo contendere to, a felony or of any crime involving moral turpitude, fraud, embezzlement, theft or misrepresentation; . . .

Coming up with an alternative to moral turpitude for purposes of termination provisions requires that one consider more generally termination provisions that feature moral turpitude. I refer to such provisions as “termination-for-crime provisions.”
Continue Reading Guest Post: “Moral Turpitude” Is Drafting Turpitude

Suppose your company just purchased another small company.  As is typical in such deals, you have hired the owners under a three year employment contract because the professional services and expertise of the owners is important to the deal’s success. In that arrangement, you have a restrictive covenant that says that if and when the

Suppose you’ve drafted a fairly lengthy agreement entitled "Employment, Non-Solicitation, and Confidentiality Agreement" for an employee to sign. And suppose that among the provisions is a paragraph entitled "Agreement Not to Solicit". And now suppose that the language details various items that the employee is prohibited from doing.

What’s the issue, you may ask? Well