2004 Law Journal.

• Author: Kinney, David

Law is order," Aristotle wrote, "and good law is good order." That's one reason American business is built on a strong legal framework--without it would be the chaos that accompanied capitalism's return to countries that communism had so long ruled. But the laws of man, unlike those of nature, are no more permanent than their makers. Change they must--to reflect different times, different conditions and commerce's shifting ways and means, which can seem different from day to day. The wise business executive can no more ignore changes in the law than he can changes in the market. To keep our readers abreast of the changes and trends reshaping business' legal framework, BUSINESS NORTH CAROLINA once again presents its annual Law Journal. These dozen articles, prepared by some of the top practitioners in their fields, cover a wide range of business topics. But each shares a theme: Ignore this information at your own risk. We thank the firms whose underwriting made this project possible.

Legal protections for the executive in peril

Executives are accustomed to being in control of the workplace and of their careers. But a shift in circumstances can threaten an executive's position and financial security. Suddenly, an executive may hear that there are questions about an employment contract, hints that there may be need for a change or concerns expressed over one's ability to lead. What protections are provided for the executive? Here are three common factual patterns, based on actual cases, illustrating the interplay of laws that may provide protection to the imperiled executive.

The compensation contract

A corporate officer is a securities trader whose compensation agreement is oral and consists of a salary, plus benefits and bonus. The bonus amount is objectively determined (10% of the annual net income earned for the company by the officer's trades). For five years, the company paid a bonus based on this agreement. At the end of last year, without notice, the company reduced the rate to 5%, contending that the amount of the bonus is discretionary. Since the officer had an extraordinary year, the company's unilateral decision has cost her a substantial portion of her compensation.

The starting point is the officer's compensation agreement. Like most other contracts, compensation agreements may be oral or written. If the contract is in writing, and the terms are not ambiguous, then the written document governs. If the contract terms are ambiguous, evidence as to the intent of the parties may be presented. In oral agreements, the intent of the parties is discerned from the parties' words and actions. In employment contracts, an agreement to pay certain compensation is enforceable for the duration of the contract, as long as the amount of the compensation or the formula for deriving it is clearly specified. While a contract may be modifiable, any modification is generally prospective. It will not affect the employee's right to compensation earned under the original contract.

An executive's pay also is protected by the state's Wage and Hour Act. This law is particularly advantageous. First, it requires that prior to any modifications of the promised compensation, the company must notify the employee "in writing or through a posted notice maintained in a place accessible to its employees, of any changes ... prior to the time of such changes." Second, it provides enhanced remedies to the employee, namely double damages for unpaid compensation and reasonable attorneys' fees.

The officer in this example would have claims for breach of contract and for a violation of the Wage and Hour Act. She would attempt to prove the terms of her oral agreement based on her own testimony, the testimony of any witnesses, documents and written communications between the parties in implementing the agreement, the company's history of paying the 10% bonus and the failure of the company to provide written notice of change. Upon proof of the agreement, the officer would be entitled to her unpaid compensation and possibly double damages and attorneys' fees.

Age discrimination

A 59-year-old regional manager of a large corporation is told that the company is reorganizing and that his position has been eliminated as part of a reduction in force. He is assured that he will receive an adequate severance package. He then learns that his 43-year-old assistant regional manager will assume most of the manager's duties. He also discovers that the company's severance plan is grossly inadequate.

Assuming the manager does not have a contract for a specific time period, his status as an at-will employee will limit his rights and potential remedies. The manager is protected by federal and state laws that prohibit discrimination based on age, race, gender, disability, national origin, color and religion. To prove age discrimination, the manager must show, through direct or circumstantial evidence, that the company's decision was substantially motivated by his age. Direct evidence would include statements revealing that a decision maker was biased against older employees and that the manager was selected for termination because of his age. Circumstantial evidence includes evidence that at the time of the discharge the manager was performing satisfactorily, that the manager was replaced by a considerably younger employee and that the company had fired other older employees or there was other evidence indicating that the company was motivated by age. To seek protection under federal laws, an employee must file a discrimination charge with the Equal Employment Opportunity Commission within 180 days. If the EEOC can't resolve the claim and does not bring legal action on the manager's behalf, it will issue a notice of right to sue, which gives the manager 90 days to file a lawsuit.

In addition, North Carolina courts have recognized an action for wrongful discharge in violation of the state's public policy against discrimination. The manager has three years to bring this claim. If the manager prevails, he would be entitled to reinstatement, lost income and benefits, potential double damages, attorneys' fees and other damages.

The manager's bargaining position in negotiating better severance largely depends on the strength of his claims. If he can demonstrate that he was performing well, that he was replaced by his younger assistant and if he can disprove any nondiscriminatory reasons advanced by the company, then he can bargain from a position of strength. If he is still unable to negotiate a satisfactory agreement, litigation could be explored.

Disability

An executive vice president, known for long hours of hard work, is diagnosed with of rectal cancer. Her doctor tells her that emergency surgery--a colostomy--is required. The vice president, 55, is out of work for six weeks but then returns to full duty. Her long-term prognosis is questionable, but she should have several years of good work ahead. Shortly after her return, she is terminated for poor performance

An executive whose employment is threatened because of a serious disability may seek protection in several alternative laws. If the executive is able to continue working and job security is the primary concern, she may be covered by the Americans with Disabilities Act. The ADA prohibits discrimination in employment against any "qualified individual with a disability." To be disabled, one must establish "a physical or mental impairment that substantially limits one or more ... major life activities." A person meets the definition of a "qualified individual with a disability" if she is disabled but able to perform the essential responsibilities of the position, either with or without some reasonable accommodations in physical facilities or job requirements. An employee seeking to protect her employment under the ADA must show either that she has an impairment or is wrongly perceived by her employer as having an impairment and that she is able to perform the essential responsibilities of her job.

If, on the other hand, the employee is not able to work, she may be entitled to short- or long-term disability benefits, if provided by the employer's benefit plan. To seek benefits, the employee must apply with the company and provide evidence that she is disabled from working, first in her own occupation and later in any occupation. The plan administrator will decide whether the employee is totally disabled. If so, the employee will receive benefits (usually 50% to 66% of her monthly earnings), reduced by any Social Security benefits. If the company denies disability, the employee may sue under the Employee Retirement Income Security Act.

This executive has two options. She can pursue her right to continue to work under the ADA, seeking reinstatement, lost income and benefits and other damages for emotional distress and loss of quality of life. Or she can accept the closure of her career and apply for disability benefits.

Conclusion

These cases represent a few of the common issues that affect executives. Space limitations prevent a comprehensive discussion of the issues or the applicable law. Nevertheless, the bottom line is that executives' knowledge of their rights and remedies under the law is essential in preserving their security for the future.

Robert "Hoppy" Elliot

J. Griffin Morgan

Robert "Hoppy" Elliot and J. Griffin Morgan are partners at Elliot Pishko Morgan PA in Winston-Salem. Both are listed in the Best Lawyers in America in employment law. Elliot practices in the areas of employment law, personal-injury law, civil-rights law and commercial litigation and was elected to BUSINESS NORTH CAROLINA's Legal Elite in 2004 in employment law. A graduate of UNC Chapel Hill, he received his law degree from Wake Forest University. Morgan practices in the areas of employment, labor, personal-injury and workers' compensation law. He received his undergraduate degree from Denison University and law...