A MANAGER\'s DILEMMA: PUTTING IT INTO PRACTICE MAKING EMPLOYMENT DECISIONS IN DI
ID: 431457 • Letter: A
Question
A MANAGER's DILEMMA: PUTTING IT INTO PRACTICE MAKING EMPLOYMENT DECISIONS IN DIFFICULT TIMES Gita Bhandari joined your social networking start-up in 2013, immediately after graduating from Carnegie Mellon University. She turned down better-paying con- sulting and investment banking opportunities to get in on the ground floor of a young, fast-growing company. As compensation, Bhanda and stock options. Because the company's product will require three years to bring to market, the options do not vest for three years. This means that Bhandari for- feits all of the stock options if she leaves the company before 2016 You are considering firing Bhandari. Although she has performed well, Bhandari was the person most recently hired. She is an at-will employee, but, considering that she has less than one year to go until she can exercise her stock options, you fear a lawsuit, especially given the company's close-knit character. At this critical stage, the legal fees alone from a wrongful termination lawsuit could bankrupt ri receives a nominal salary the company Should you fire Bhandari to reduce operating expenses? Can you threaten to fire her if she does not agree to sur- render some of her options? If Bhandari is terminated, on In 2015, the company began having serious problems. what basis could she sue the Even though the project is on schedule and is anticipated to How could you have structured the relationship to avoid this be a huge success, costs are skyrocketing, and your inves-potential lawsuit? tors demand a significant reduction in operating expenses company? Would she prevail?Explanation / Answer
No Bhandari should not be fired in order to reduce operating expenses. As Bhandari has been performing well firing her would be a decision taken from a short term perspective. Bhandari, in the long run, can prove to be a valuable asset to the company. Besides Bhandari is being paid a nominal salary and hence firing her will not work in the favor of the company as it will have to hire a new employee, when required, at a higher pay scale.
No, you cannot threaten to fire her is she does not surrender some of her options. On the contrary you can request Bhandari to surrender some of her options. The company can cite its current problems due to which it is requesting Bhandari to surrender her options. Bhandari can be promised a much better pay and a much higher options once the product is ready and is successfully launched in the market.
If Bhandari is terminated then she could sue the company on the basis of fraudulent inducement. Bhandari is an at-will employee and hence, on a usual basis, the fraudulent inducement claim is not available to her. What Bhandari could instead do is that she can prove that her injury is separate and distinct from termination of her employment and that she would not have taken the job in the first place if the actual and true facts were not hidden from her. Yes, she would prevail as the fact that in case of problems she would be asked to surrender her options was hidden from her by the company.
To avoid the potential lawsuit the relationship should have been structured in a manner in which the following words are part of the employment contract – “I comprehend that my employment contract can be terminated at any time by my employer, even if there is no sufficient cause for my employer to do so. Even I will have similar powers and rights to terminate the employment contract”.
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