Follow-Up on Triggering a Good Reason Termination

Earlier this month, I wrote on some of the traps an executive may face when preparing to trigger termination for good reason, describing a recent case that highlighted a few of those traps. Several readers commented on another aspect of the case that bears mentioning. Briefly, under the facts of Barney v. Zimmer Biomet Holdings, Barney was a senior vice president for operations for Biomet, Inc. when it merged with Zimmer Holdings, Inc., to become Zimmer Biomet Holdings, Inc., in 2015. As a result of the merger, Barney became Zimmer’s senior vice president of global operations and logistics. She resigned in 2016 after two incidents, which she alleged together constituted intolerable conditions, and put her at risk for potential securities fraud (and following the suggestion she would be required to move to Switzerland).

Barney’s Employment Agreement provided enhanced payments if she terminated employment for “good reason” following a “change of control.” Following her resignation, Barney requested severance benefits in accordance with her Employment Agreement. Zimmer refused to pay severance (and also terminated her stock options) arguing that her resignation had been voluntary. Zimmer argued that Barney’s resignation did not fall under any of the “good reason” provisions of her Agreement, and that she never executed the form of release required by the Agreement. Barney sued.

My previous blog focused on the Court’s decision that no good reason had occurred and she had not, in any event, followed the procedures set forth in the agreement for a good reason termination. Today, I will discuss two other interesting aspects of the decision. 

Constructive Discharge

In addition to alleging a termination for good reason, Barney made a claim for wrongful constructive discharge. She alleged that she had no choice but to resign due to intolerable workplace conditions she experienced after refusing to mislead investors or to terminate employees under a false pretext. Barney also alleged that she had effectively been terminated when, after she refused to terminate employees, the CEO told her “he was not happy with her refusal to follow his instructions, and that they would talk further about it.”  As to this claim, the Court found the CEO’s “scant observations” insufficient to constitute an effective termination and stated that a constructive discharge only occurs when the plaintiff shows that he/she “was forced to resign because [her] working conditions, from the standpoint of the reasonable employee, had become unbearable.” The Court gave as examples recent cases with allegations of severe racial slurs and other incidents of harassment by coworkers, and “uniquely bad treatment” of an employee and her daughter based on their religion, including social shunning and being screamed at by co-workers.

Failure to Execute a Release

The Court was not impressed by the company’s claim that Barney was not entitled to severance because she never executed a form of release, as required by the Agreement. Apparently, the company never provided Barney with a release agreement. (sounds like the definition of chutzpah, right?) However, it was surprising, at least to me, that the Court even took this claim seriously, suggesting that it also might have ruled in favor of the company due to Barney’s failure to execute the required release form.

Who would execute a release in favor of the company when claims were outstanding and no cash was offered? On this point, long-time subscriber and friend Kevin Wiggins observed that at least one case has denied severance because the executive didn’t sign and return the lease when the time frame required. He also informs me that he had heard of arbitrators denying severance for the same reason. “The argument is the executive should sign the release and send it in even if the company is denying the payment. According to the arbitrator, that executive should have made his own release even if the company denied the claim and wouldn’t furnish him the release.” 

Lessons Learned

The legal standard for a constructive termination under most states’ laws is very high. A demotion or reduction in compensation generally would not be enough to trigger a constructive termination. Non-lawyers occasionally use the term “constructive termination” as a proxy for “good reason,” particularly where a severance plan or agreement does not include the concept or provide a clear definition of good reason (as in “I believe that I have been constructively terminated”). An employee must establish working conditions that are “even more egregious than the high standard for hostile work environment because, in the ordinary case, an employee is expected to remain employed while seeking redress.” Even if potential termination is a possible or likely outcome for an employee who does not accept a severance package, that situation does not create “intolerable conditions” equivalent to a constructive termination (Rowell v. BellSouth Corporation, 11th Cir. 2005).

This entry has been created for information and planning purposes. It is not intended to be, nor should it be substituted for, legal advice, which turns on specific facts.