Executive Wrongful Termination: 5 Steps to Take Before It Happens

As reported by CNBC, a former senior vice president of finance at e-cigarette maker Juul recently filed a wrongful termination lawsuit alleging he was fired in retaliation for raising various product safety issues at the company.

While Juul has denied the allegations of the complaint, the lawsuit is a good reminder of some of the specific issues that can arise when an executive is terminated or facing likely termination.

Here are five issues you should consider and review if you believe your executive employment may be ending or you might be wrongfully terminated:

  1. Review your employment agreement. Many executives or senior sales personnel have an employment agreement that sets out terms and conditions of their employment.  Reviewing that agreement can provide important information, such as:
  • Can your employment only be terminated “for cause” (meaning for certain, specified reasons), or are you employed “at will,” meaning that you and the company can both terminate your employment for any reason whatsoever (absent an illegal reason, such as a wrongful termination)?
  • Must your claims be arbitrated, or can you proceed directly to court?
  • Are there any “cure” provisions, whereby the company has to provide you notice of alleged deficient performance and give you an opportunity to fix the problem?
  • Is there an internal appeal to the Board or senior HR officials that you could use?
  • What other terms and conditions apply to your termination or potential termination?
  1. Get it in writing. You may have heard the expression, “If it’s not in writing, it didn’t happen.”  While that’s not 100% legally accurate, most people would agree that information in writing is usually clearer and easier to prove.  A few areas where a writing can be especially helpful are:
  • If you are terminated, ask the company for the reason for your termination in writing. If you are concerned you are being wrongfully terminated, having the company’s reasons in writing may prevent the company from claiming your termination was for a different reason at a later time.
  • Any notices or requirements under your employment agreement or executive agreement should be in writing to ensure that there is no question that you followed all procedures and requirements.
  • If you are offered a severance agreement, all terms of that should be in a comprehensive writing that spells out all rights and responsibilities of you and the company.
  1. Review any non-competes. Do you have a stand-alone non-competition, non-solicitation, or non-piracy agreement?  Or are there non-competition clauses in your employment agreement?  Those can affect your future employment opportunities and abilities, so you want to review them and consider both if they are enforceable and the exact scope of any lawful restrictions.
  1. Consider preservation of evidence. This one can be tricky and should likely be discussed with legal counsel.  Under the correct circumstances, however, it can be helpful and important to preserve any evidence—such as documents, audio recordings, emails, or text messages—that might be important to your case.  Many companies have policies that allow or require deletion of data or information after certain time periods.  Ensuring that important evidence is available for your case can therefore be critical.
  1. Review your compensation and benefits. This can be one of the most critical steps you can take if you are about to be terminated or have recently been terminated.  Not only do you want to know what you have earned up to the point of termination, but also you want to determine what resources you may have as you transition to your next job or venture.  Moreover, some of your executive compensation may be affected by how and under what circumstances you cease employment.  Some examples include:
  • If you believe you are about to be terminated, should you quit or retire? By doing so, does that help preserve—or perhaps cost you—executive compensation such as stock options, (incentive, statutory, or non-qualified), RSUs, a SERP, or other compensation?
  • Would your cessation of work—whether by retirement, involuntary termination, or without cause—affect the vesting of any of your compensation (including restricted stock)?
  • Should you, and can you, take a distribution/payment from any of your plans prior to termination to avoid losing the compensation?
  • How will your termination affect health insurance, life insurance, and disability insurance?

As is clear, an executive wrongful termination raises a substantial number of questions and issues that need to be considered in deciding the best way to proceed.  Reviewing these five steps can be a good start in working through those issues and preparing both for your exit as well as your future.