Reminder To Carefully Draft Executive Agreements - Faigin v. Signature Group Holdings, Inc.

The judgment against the defendant for $1,347,000 in Faigin v. Signature Group Holdings, Inc. should be a good reminder for companies to have well drafted executive agreements. Faigin worked as General Counsel and Chief Legal Officer for Fremont General, a parent corporation. Defendant had various subsidiary companies that Faigin also worked for during his employment. Faigin entered into an employment contract with Fremont General. The agreement set forth that Faigin would be entitled to certain benefits if he was involved in an “involuntary termination.” If he was involuntarily terminated, as defined in the agreement, the company agreed to pay Faigin a lump sum equal to three years of his base salary.

After entering into the agreement with Fremont General, Faigin was appointed to interim President and Chief Executive Officer of FRC, a subsidiary of Fremont General. A short time after assuming these roles, Faigain was replaced at FRC. Faigin argued that his dismissal from his roles at FRC resulted in an involuntary termination under the term of his employment contract, entitling him to three years of his salary which exceeded $400,000 per year.

At trial, FRC argued that the employment agreement entered into with Fremont General did not apply to the situation arising out of Faigin’s employment with FRC because the agreement was only entered into with Fremont General, not FRC. The trial court agreed, and excluded any evidence of the employment agreement between Faigin and Fremont General. However, Faigin presented evidence that FRC created an implied-in-fact employment contract that he would only be terminated for good cause. As the court noted, an implied-in-fact employment contract can be established by showing the following:

The existence and content of such an agreement are determined from the totality of the circumstances, including the employer’s personnel policies and practices, the employee’s length of service, actions and communications by the employer reflecting assurances of continued employment, and practices in the relevant industry. The question whether such an implied-in-fact agreement exists is a factual question for the trier of fact unless the undisputed facts can support only one reasonable conclusion.

An implied-in-fact agreement to terminate only for good cause cannot arise if there is an express writing to the contrary, such as a written acknowledgement that employment is at will or an at-will provision in a written employment agreement. “There cannot be a valid express contract and an implied contract, each embracing the same subject, but requiring different results. [Citations.]”

(Citations omitted). The court stated that because the employment agreement with Fremont General fixed the term of employment at three years and did not provide that Faigin’s employment was at-will, this written agreement is not inconsistent with the jury’s finding of an implied-in-fact agreement existed.

The case shows how careful employers need to be in drafting executive compensation agreements, and especially if the executive is working for different subsidiaries of a parent company.

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