Monster Worldwide, Inc., the parent company of the internet-based job search service Monster.com, filed a breach of contract suit against its former executive vice president, Darko Dejanovic, in the U.S. District Court for the Southern District of New York on December 16, 2011. The suit alleges that Dejanovic violated nonsoliciation agreements he had entered into with Monster by hiring two of Monster’s top technology executives within a year of leaving the company.
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Dejanovic began working for Monster as its senior vice president and global chief information officer in 2007 and was promoted to executive vice president in 2008. According to the complaint, Dejanovic signed nonsolicitation agreements when he joined the company and another when he was promoted in exchange for $1.2 million in stock options.
In August 2011 Dejanovic left his position at Monster for a new job with The Active Network, Inc. After his move, Dejanovic obtained Monster’s permission to solicit one Monster employee but, according to the complaint, then solicited two other employees who left monster in October 2011 without disclosing their future plans. These two employees are currently alleged to work for The Active Network.
The lawsuit seeks an injunction permanently barring Dejanovic from making further solicitations of Monster employees until August 2012, an order forcing Dejanovic to return his stock options, and attorney fees.
Corporate Counselor published an article written by R. Scott Oswald, Managing Principal at The Employment Law Group ® law firm, titled “Common Mistakes That Encourage Employees to Seek Legal Advice.” The article describes the nine “most common, yet avoidable, mistakes that can leave a company’s current and former employees disillusioned and cause them to seek out outside legal advice.”
Here are the common but avoidable mistakes:
- Failing To Provide COBRA Notices: The Consolidated Omnibus Budge Reconciliation Act of 1985 (COBRA) requires covered employers to permit qualified employees to purchase health care coverage at group rates temporarily. Covered employers must provide notice to qualified beneficiaries of their right to purchase COBRA coverage within 30 days of the occurrence of a qualifying event. . . . When employers fail to provide their employees with a COBRA notice in a timely fashion, employees become concerned and seek legal assistance in obtaining the continuation of their benefits.
- Failing To Compensate Employee Wage Due: An employer’s failure to pay the employee’s outstanding wages and/or vacation time, to the extent required, in a prompt manner often prompts an employee to seek legal assistance in obtaining the compensation owed to them.
- Ignoring Employee Complaints: If an employer establishes a protocol for handling its employee complaints and follows its protocol, an employer is more likely to avoid a finding of discrimination and to avoid the imposition of punitive damages. Frequently, employees simply wish to have their complaints acknowledged.
- Disregarding Employee Discipline Protocols: Employees feel wronged when employers do not follow their own written protocols relating to discipline of employees. Employers could even revitalize problem employees by issuing detailed PIPs that clearly lay out their expectations for their employees’ conduct and the specific actions that employees may take to meet those expectations.
- Delaying Response To Accommodation Request: Once an employer learns that an employee requires an accommodation to continue performing his or her job, the employer must engage in “an interactive process with the employee to identify and implement appropriate reasonable accommodations.”
- Terminating An Employee On FMLA Leave: An employer’s termination of an employee who is currently using FMLA leave can be direct evidence of FMLA retaliation…. If an employer finds that it must terminate an employee who is out on FMLA leave, it should ensure that it has an independently confirmable legitimate business reason for terminating that employee. Further, the employer should be able to demonstrate that its legitimate business reason does not in any way relate to the employee’s use of FMLA leave, or the circumstances surrounding that employee’s use of FMLA leave.
- Providing Inadequate Notice of Terminations: If an employee learns of his termination through a third party or though the employer’s work schedule (i.e., the employee is not scheduled to work), an employee is more likely to seek legal advice regarding his employment rights. When an employer decides to terminate an employee, it should provide a terminated employee with a written notice of termination as soon as is practicable.
- Escorting Employee Off Employer’s Premises: Employees are also likely to contact an employment attorney after suffering the indignity of being escorted from their employers’ premises by security or management. . . . The employer should avoid making a spectacle of the employee’s termination.
- Giving Negative References: Employers can push their former employees to seek legal advice if they provide negative references to potential employers. . . . Negative references may unfairly portray the employee in a negative light and later subject the employer to claims of defamation. Instead, the employer should confirm nothing more than the employee’s position, employment status and/or title, dates of employment, and salary.
The list, although not comprehensive, provides employers with suggestions that could prevent some of the lawsuits brought by current and former employees.
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R. Scott Oswald, Managing Principal of The Employment Law Group® law firm, was quoted by Talking Point Memo (TPM) on the $10 million deferred compensation package of Wisconsin Republican Senator Ron Johnson. Some election lawyers believe that the compensation will raise red flags for the IRS and that the sum might instead constitute an illegal campaign contribution by his former employer. Sen. Johnson stated that he, by himself, selected the amount of his deferred compensation before leaving his employer and running for Senate.
Mr. Oswald made the following observations for Talking Points Memo:
- “A prudent lawyer structuring this transaction would want to confirm the contours of the package at the time it was committed, otherwise, the IRS could tax it differently than the parties determined at the time.”
- “Deferred compensation needs to be structured in such a way that there isn’t even an inference of impropriety because of the executive’s duty of loyalty to the company.”
- Johnson’s interest rate of .69 percent “certainly would have to be lower than any definition of what the market rate would be – it would raise significant red flags.”
- Even though Johnson owned the company and controlled its decisions and finances, that’s no excuse for failing to document loans or deferred compensation agreements.
- “Even when it’s a closely held corporation, it’s a separate entity” under the law, and the individuals who work for the corporation have a fiduciary obligation to meet their duty of loyalty to the company … to treat it like a separate entity when there’s this kind of [financial deals] involved.”
The Employment Law Group® is a law firm headquartered in Washington, D.C. and with locations in Los Angeles, San Francisco, and Largo, Maryland. Its practice focuses on negotiating executive compensation packages, representing whistleblowers, and handling many other employment matters.
On June 20, 2011, R. Scott Oswald, Managing Principal of The Employment Law Group® law firm, will serve as a panelist at a D.C. Bar CLE entitled “Drafting and Negotiating Executive Employment Agreements.” The Employment Law Group® has substantial experience advising corporate officers on their executive compensation packages. The panel will concentrate on D.C. law, but will also compare and contrast the law and practice in Maryland, Virginia, and Pennsylvania. Register for the event at this website.
The Employment Law Group® law firm negotiated a $1.1 million settlement for their client, an executive alleging his employer breached the employment contract. The client wrote, “… without [The Employment Law Group’s ®] assistance, I never would have gotten the outcome we have.” To learn more about our employment contract disputes practice, click here.
On June 14, 2010, Scott Oswald, Principal at The Employment Law Group® law firm, spoke at a D.C. Bar CLE event entitled “Fundamentals of Employment Law: Establishing the Employment Relationship.” For more information about upcoming speaking engagements featuring the employment attorneys of TELG, click here.
On December 19, 2009, the American Recovery and Reinvestment Act of 2009’s (ARRA) COBRA health insurance subsidy was expanded. Under ARRA, individuals involuntarily terminated from an employer covered under COBRA may be eligible to pay a reduced amount equal to 35% of their usual COBRA extended coverage premium. The extension, included in the Department of Defense Appropriations Act, 2010, increases the time that individuals may take advantage of the subsidies from nine to 15 months and extends the deadline to enter the program from December 31, 2009 to February 29, 2010. Additionally, the revision permits individuals to make retroactive premium payments to restore coverage and eligibility in the program.
For information on The Employment Law Group® law firm’s Executive Compensation Practice, click here.
On October 1, 2009, the Senate Finance Committee, by a vote of 14-8, approved an amendment proposed by Sen. Blanche Lincoln (D., Ark.) which would lower the current executive pay tax deduction from $1 million to $500,000. The amendment was made to the proposed America’s Healthy Future Act of 2009 and includes deferred remuneration and previous existing contracts.
Sen. Lincoln reasons that the proposed legislation will serve as a windfall to the insurance industry and therefore the deduction for executive compensation should be reduced to ensure that revenue stays within the company to lower premiums. For the reduction to apply to an insurer, the company must receive 25% of its gross premium income from plans that meet the minimum creditable coverage requirements in the proposed Act.
However, there is still ambiguity because the definition of minimum creditable coverage as defined by the Act does not apply to individual, small group and other group private health insurance. That is left to each state’s insurance commission.
This amendment is consistent with last year’s amendments to IRC § 162(m)(5) which lowered the tax deduction of executives of companies receiving T.A.R.P. monies from $1 million to $500,000. Perhaps we are seeing the start of a new trend.
For information on The Employment Law Group® law firm’s Executive Compensation practice, click here.
Today, the Obama administration is scheduled to announce proposals that would give shareholders more input on executive compensation and ensure that corporate compensation committees have more independence when determining executive pay. The first proposal, known as the “Say on Pay” proxy resolution would require all publicly traded companies to allow an annual, nonbinding vote for shareholders to decide on proposed executive compensation measures. Additionally, the “Say on Pay” program provides that shareholders maintain the right to vote on the compensation for the top five company executives. The second proposal which seeks legislation similar to the Sarbanes-Oxley Act, would give more authority and more exacting standards to corporate compensation committees, including the ability to hire independent compensation consultants and outside counsel.
For more information on executive compensation, visit The Employment Law Group® law firm’s Executive Counsel Practice at http://www.employmentlawgroup.net/PracticeAreas/Executive-Compensation.asp.
A California Court has recently confirmed an arbitration award of $4.1 Billion for a former executive in a suit against his former employer, iFreedom Communications, Inc. (iFreedom). The award, which is being touted as the largest damages award issued in an employment arbitration, stems from a dispute over a compensation agreement where iFreedom agreed to pay its former chief marketing officer a commission structure of five percent of gross sales, company stock, and other benefits in exchange for his experience in building marketing organizations. According to the former executive, the company failed to pay him according to the compensation agreement and terminated him without cause when he confronted the company about the unpaid wages. The arbitrator found in Chester’s favor, concluding that iFreedom and its founder were liable, among other things, for breach of contract, breach of the implied covenant of good faith and fair dealing, and failure to pay wages. The arbitrator also determined that Chester demonstrated by clear and convincing evidence that the defendants engaged in “a pattern of despicable conduct,” and thus, an award of punitive damages was appropriate.
The massive award of $4.1 billion in this case is significant because it highlights the fact that employers can face severe penalties for failing to satisfy contractual obligations owed to employees. The Employment Law Group® law firm has successfully represented and advised senior executives in employment-related contract disputes including breach of stock option agreements and compensation agreements. For more information about the firm’s Executive Counsel Practice, click here.