The role of counsel in executive terminations

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By Carey DeWitt

Say a client informs you that an executive may be discharged, and asks for advice. The executive’s high salary and superior communication skills would make this a relatively dangerous termination.

How to approach this?

• Determine the objective

At the outset, assess the client’s objectives and risk tolerance. If the client is aware of the risks (suit, cost, stress, lost managerial time, bad publicity), determine whether the client’s primary objective is reduction of risk and cost or is instead simply the immediate removal of the executive regardless of risk/cost.

In this way, you may evaluate the evidence and later advise the client with the stated objectives in mind.

If you hear, “We may pay a substantial sum and people will complain, but we just can’t stand the way Joe is treating our people,” you will know that the client is willing to take substantial risk to accomplish the objective.

But if you hear, “I want him gone, but not if we have any substantial risk,” the stated objective will allow you to consider the evidence in this light.

• Assess the contractual status of the executive

Is there a signed at-will disclaimer, or is the executive entitled by contract to termination only for cause for a period of years? If there is a “cause” contract, there will be special emphasis on the facts.

• Assess discrimination/retaliation

Determine whether there is discrimination or retaliation risk by asking about demographics, complaints by the executive, whistleblowing, FMLA history, disabled status, etc. (Remind all managers involved to make no statements suggesting improper motive.) Even with an at-will disclaimer, the employer must ensure that any termination is not illegally motivated.

• Investigation

Termination typically requires an investigation of the facts. (The investigation is best spearheaded by experienced human resources management, as this normally provides more assurance of objectivity and care with the facts, documents, and any written findings.)

The investigation should include:

1. Evaluation of any objective facts (sales figures, photos, written proof of misconduct, emails, or texts). In case of possible “spoliation” of evidence, a separate copy of hard drives or discs should be prepared, carefully, by experienced computer experts.

2. Evaluation of the reports of all witnesses and their credibility.

3. Comparison of the executive’s unsatisfactory behavior or division results with those of others terminated — and not terminated — for similar failings.

4. Evaluation of the magnitude of the offense.

5. Where the offense is not extreme, was any warning or counseling given?

6. The investigator should conduct a meeting with the executive to hear her or his side of the story. Present the executive with the concerns possibly leading to termination and ask him to state his knowledge of such matters. Outside the room, decide whether to suspend the executive at the conclusion of this interview. Warn the executive not to retaliate against witnesses.

7. Evaluation of the executive’s side of the story should occur before decision.

8. Consider alternatives to discharge such as demotion or reassignment so that, at a minimum, decision-makers can testify reasonably as to why they rejected (or selected) this alternative.

9. Prepare a written summary of the findings. Counsel should review the findings in a privileged draft before they are official.

Items 3, 5, 8, and 9 are typically considered, initially, in counsel’s privileged assessments, sometimes later to be made part of the official record.

Items 1, 2, 4, 6, and 7 are often from the beginning recorded as a part of an official set of investigation notes.

Moreover, where the investigation itself may unleash misbehavior by the executive in question, a privileged, discreet pre-investigation inquiry by counsel as to the likely quality of the evidence may be conducted.

• Termination decision

Of course, a termination decision may be unwise or uncertain after investigation. For example, the client may fear that the risks outweigh the benefits or that the facts are not easily provable. With the advantage of the attorney/client privilege, counsel may help decision-makers to consider the risks in their proper context.

The risks of not terminating (e.g., continued poor business results, unpleasant or harassing behavior) and the risks of termination (potential costs, publicity, weak evidence, poor witnesses) may thus be compared.

If termination is found necessary:

1. Counsel may draft a termination “script.” Many company presidents and board chairs are uncomfortable with terminations. A “script” document can calm the president’s nerves and help to disprove claims of discriminatory remarks made at the termination. (A script also may be used at the investigatory meeting for similar reasons.)

The script should state the termination, the reason for termination, and any continuing contractual (e.g., noncompete or trade secret) obligations, and should inform the executive whether he must immediately leave the premises. The executive should ordinarily be given an opportunity to resign (and if so a copy of a statement to employees to which he or she might agree should be presented, such as “Effective immediately, Joe Smith has resigned to pursue other interests.”).

All keys, PDAs, laptops, etc., should be requested and retrieved at the time of termination.

2. Counsel should draft a termination letter to be presented at the termination, stating the reason for termination (again to help disprove improper motivation).

3. Counsel should draft any release and severance agreement, if one is offered. (Termination for serious misconduct typically does not involve severance pay.) Any release should be presented at termination. Observe the context specific release requirements of the Older Workers Benefit Protection Act.

4. In some cases, the option of having security nearby (e.g., within earshot) should be raised by counsel.

5. Counsel should assist with any media relations issues, to avoid defamation and protect the company’s reputation, as well as internal communication protocols.

6. Counsel should advise that access to computer systems and the premises should be cut.

7. Of course, counsel must deal with any wrongful discharge claim stemming from complaint or contact from counsel for the executive. Counsel also may, of course, negotiate any pre-suit resolution with counsel for the executive.

Carey DeWitt is a shareholder and member of the board of directors at Butzel Long in Detroit, where he advises and defends employers in executive termination cases. Contact him at 313-225-7056 or [email protected].