Employer regrets failure to include provision for misconduct-based termination in executive’s employment agreement

The ABA Journal’s E-Report has this story on a Third Circuit decision: “Conduct No Bar To Continued Pay; Employee Misdeeds Can’t Trump Contract, 3rd Circuit Says”

A broad contract guaranteeing pay and benefits to an employee must be honored, even if the worker commits misdeeds that warrant termination.

That is the lesson in a ruling by the 3rd U.S. Circuit . . . , which held that a . . . firm had to pay benefits to a former executive terminated for allegedly sexually harassing female co-workers. Fields v. Thompson Printing Co. Inc., Nos. 02-2763, 02-2764 (March 31).

[The] employment contract . . . contained the following nonforfeiture clause:

“This contract shall be nonterminable by [the employer]. In the event [the employer] shall terminate the employment . . . , all of the benefits as contained herein shall continue in accordance with the terms and provisions of the agreement.”. . .
[The employer] argued it would violate public policy to allow [the executive] to recover additional compensation under his contract when he engaged in sexual harassment. The 3rd Circuit disagreed.

“[Thompson Printing] asks us to save it from its own failure to include such a forfeiture clause,” the court wrote. “Doing so would essentially force us to read clauses thought desirable from a policy standpoint into every employment contract.” Read more

The court seems obviously correct here.

Most employees today have no legal protection against termination of employment. A frequent exception is highly paid executives, who often have the bargaining power to obtain significant protections in written employment agreements.

But clearly consideration should be given to the possibility of discharge for serious misconduct, and some language covering such a situation should be included.

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