Can an Executive Employment Agreement Excuse Bad Behavior?

Employers still must address workplace discrimination claims

Can an Executive Employment Agreement Excuse Bad Behavior?

As sexual harassment allegations against top business executives make headlines, so do reports of multimillion-dollar severance payments to the accused executives and potential breach-of-contract claims. This may leave HR professionals asking what can be included in an executive employment agreement and how far those agreements can go to protect an executive's job.

"Executive employment agreements often have provisions saying that the executive gets severance if fired, unless the executive was fired for x, y or z reasons, one of which often is criminal misconduct," explained Douglas Brayley, an attorney with Ropes & Gray in Boston.

These agreements will typically include a broader list of prohibited conduct to give employers more latitude to end the employment, said Shafeeqa Giarratani and Derek Rollins, attorneys with Ogletree Deakins in Austin, Texas, in an e-mail to SHRM Online. "This is particularly important as a practical matter, as employers want to avoid the time and uncertainty required to reach a criminal conviction or a civil judgment."

A contract may also allow the company to fire the executive without cause in exchange for a certain severance payment. Therefore, some companies elect to make a multimillion-dollar severance payment to avoid a lawsuit about whether a specific reason for termination was permissible under the agreement.

However, illegal conduct can't be condoned or encouraged in an executive agreement. Therefore, companies can't simply agree to look the other way when an executive is accused of unlawful behavior in the workplace, such as sexual harassment or assault.

Investigating Harassment Claims

Title VII of the Civil Rights Act of 1964 applies to businesses with 15 or more employees and prohibits employment discrimination based on sex—which includes sexual harassment.

[SHRM Online HR Q&A: What are the different types of sexual harassment?]

There are generally two types of unlawful harassment. "Quid pro quo" or "this for that" harassment happens when a manager or other person in a position of power offers a job or an employment benefit (like a raise or promotion) in exchange for sexual favors.

Hostile environment sexual harassment claims involve severe or pervasive conduct that creates a work environment that a reasonable person would consider intimidating, hostile or abusive, according to the Equal Employment Opportunity Commission.

Employers should note that state laws may provide more expansive anti-harassment protection to workers than federal law and may cover businesses with fewer employees.

"Employers should always investigate and attempt to remedy sexual harassment by supervisors," Brayley said, noting that employers are liable for sexual harassment committed by supervisors.

Employers must take action to address all known civil rights violations in the workplace, not just sexual harassment claims. For example, employers should promptly and thoroughly investigate any claim that an employee was discriminated against based on age, color, disability, national origin, race, religion, sex and other categories that are protected under federal and state law.

Failure to do so is one of the quickest ways to expose the company to liability, Giarratani and Rollins said.

Breach-of-Contract Claims

Despite potential liability for alleged civil rights violations, employers may still find themselves on the hook for a breach-of-contract claim if they don't discharge an executive in accordance with the employment agreement's terms.

Employers need to be very careful when drafting executive agreements, as executives can and do sue—and win—on breach-of-contract claims when their employment was terminated for reasons other than those enumerated in their agreement, Giarratani and Rollins said.

Similarly, employers that are trying to enforce the termination provision on the basis of alleged criminal behavior need to be mindful of the distinction between accusations—which often will not justify the termination—and convictions, which are typically sufficient, they added.

The remedy for a breach-of-contract claim would probably be payment of any lost wages to the executive, though a court could theoretically order re-instatement, Brayley noted.


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