Former CBS President Les Moonves may get a multi-million dollar severance payout following his dismissal after a number of women publicly accused him of inappropriate behavior.
In his “Common Sense” column published in The New York Times on Sept. 21 headlined “How Moonves May Yet Get $120 Million From CBS,” lawyer-journalist James Stewart wrote: “Mr. Moonves’s most recent contract, which he signed last year, stipulated that cause for being fired includes a felony conviction, fraud, failing to cooperate fully in a company investigation and violation of any company policies, including those concerning sexual harassment.”
If investigators conclude Moonves engaged in sexual harassment at CBS or that he failed to cooperate in the investigation of the allegations that he did, the company’s board may decide Moonves was fired for cause. Under his employment agreement, that would deprive Moonves of his right to severance pay. If the evidence is inconclusive, Moonves would be entitled to his severance payment. As Stewart correctly observed in his column, “Mere allegations of sexual misconduct . . . do not constitute cause.”
Top corporate executives often have written employment agreements. Those agreements commonly give the executives the right to severance pay if their employment is terminated without good cause. The definition of cause in Moonves’s contract is typical.
That Moonves even potentially has the contractual right to severance pay makes him better off than the vast majority of employees. Non-union employees generally are employed at-will and without a formal agreement, meaning the employee may be dismissed for good cause, no cause, or any reason that does not violate fundamental public policy, such as unlawful discrimination. At termination, an at-will employee is entitled to all wages, including the value of earned but unused vacation at the employee’s final rate of pay. But an at-will employee has no right to severance pay.
Yet at-will employees sometimes receive money from the employer they are leaving beyond their unpaid earned compensation. As part of a significant layoff, a large company may incur substantial severance-related costs. On September 20, for example, sportswear giant Under Armour announced that a corporate restructuring would result in “approximately $10 million of cash severance charges related to an approximate 3 percent reduction in its global workforce.” Why would an employer make a severance payment required neither by law nor the terns of employment?
The most common reason employees in an individual or mass termination receive such payments is because they have signed a release of claims against the employer. The amount an employer pays to secure a release may turn on the degree of legal exposure the employer perceives the termination poses. By non-binding custom, an employer also may pay more in severance to a longer serving employee who is being terminated as a matter of fairness. In any event, employers should treat the of past severance deals as a guide, not binding precedent.
Sometimes an employer will refuse to pay severance to a terminated employee where severance is not contractually compelled and risk a later lawsuit claiming the termination was unlawfully motivated, especially where the employee was employed at will. There is additional risk where, as in CBS’s contract with Moonves, the employer must establish good cause to terminate the employee to avoid paying severance. The employer may take that risk as a stand against misconduct that offends stated company values rather than risk charges of hypocrisy in the court of public opinion. That is the ultimate question the CBS board of directors may confront when the investigators submit their report.
Whether an employee may be terminated at will or only for good cause, sometimes more than money is at stake in deciding to pay a terminated employee severance – or not.
Dan Eaton is a partner with the San Diego law firm of Seltzer Caplan McMahon Vitek where his practice focuses on defending and advising employers. He also is an instructor at the San Diego State University Fowler College of Business where he teaches classes in business ethics and employment law. He may be reached at [email protected]. His Twitter handle is @DanEatonlaw.
