If you use employment contracts for key employees, and those contracts include a “for cause” discharge clause—essentially allowing you to terminate the contract (and employment) for specified reasons—include a paragraph that includes acts or omissions that occurred before the contract was signed.
Otherwise an employee could argue in court that anything the company didn’t know about before the contract was signed can’t be used as “cause” for termination.
Recent case: Charles Tisa worked for a radio station as a program director. He had an employment contract that specified that if he were terminated early without cause, he would receive six months’ pay as a severance payment.
Tisa was terminated when a new station manager arrived on the scene. Tisa immediately demanded the six-month severance payment. But the station manager then claimed Tisa was being terminated for cause. The contract said that a for-cause termination meant no severance.
Shortly after—and while the matter was being litigated—the station learned about an earlier sexual harassment complaint against Tisa. An intern said Tisa had propositioned her for sexual favors. Tisa said the alleged incident occurred before he signed the contract and therefore couldn’t be used against him. A jury agreed and awarded Tisa more than $150,000.
The station appealed, but the 3rd Circuit Court of Appeals refused to reverse the jury’s decision.
The court’s reasoning: The jury was free to interpret the employment contract as excluding wrongdoing that occurred before the contract was signed—as long as the contract was silent on whether such conduct was covered. (Tisa v. Beasley FM Acquisitions, No. 08-3168, 3rd Cir., 2009)
Final note: Drafting employment contracts is tricky. Always have an attorney review or draft such agreements so they comply with state contract laws.
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