Recently, the president and CEO of the entity responsible for operating much of Texas’s electricity grid was fired as part of the fallout of the power outrages caused by the devastating winter storm back in February. Bill Magness, the president and CEO of the Electric Reliability Council of Texas (ERCOT), was terminated without cause, but he told ERCOT’s board of directors that he is refusing to accept $800,000 severance payment. This is just the latest example of business leaders disputing the terms of their separation. Chief executive officers at Crossfit, Parler, and Credit Suisse have recently resigned or been fired amid controversy. Businesses of every size should be familiar with a few key legal concepts at issue when separating an important employee or officer.
- Identify any contractual obligations. Oftentimes an employment agreement, restrictive
covenant agreement, or confidentiality agreement was signed at time of hiring or after a promotion.
These types of contracts often include key provisions on whether notice and an opportunity to cure
is required before termination and whether separation compensation is required. If the executive
has an ownership interest in the business, the transaction and formation documents should be
reviewed by legal counsel to determine if buy-out terms or procedures are already in place.
- Ensure the termination decision meets the applicable standard. Florida is an “at will”
employment state, meaning employers can terminate employees (and employees can resign)
without any reason or notice. However, executive employees often have termination “for cause”
definitions that must be met within their agreements. Depending on the circumstances, judges and
juries may also expect to see written documentation supporting the critical decision that results in
someone losing their job. Therefore, businesses must first identify the standard for the decision,
and then ensure that any required performance plans, corrective action notices, or final warnings
have been communicated to the employee.
- Consider severance. Even if a severance payment is not contractually required, offering some
severance in exchange for a release of any potential claims eliminates risk of an unexpected postemployment claim by the employee. Moreover, a negotiated severance agreement can add other
protections for the business, such as confidentiality or non-disparagement provisions. Even if a
strong employment agreement is not already in place, a severance agreement can provide a “second
chance” at establishing some reasonable terms that provide the company certainty and peace of
Roger Feicht is a litigator who focuses his practice defending and prosecuting employment related lawsuits. Roger represents employers and employees in litigation relating to allegations of discrimination and harassment, and disputes over non-competition or non-solicitation agreements. Roger regularly assists businesses with hiring and firing of employees, and drafting and enforcing employment agreements and policies.