Make Sure Your Executives Know The Ramifications of Asking Employees to Provide Services Beyond Their Standard Job

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Companies often use written Employment Agreements to set out the duties/responsibilities of, and the compensation/benefits to, some or all of their employees. The most obvious reasons for doing so are to ensure clarity and limit the chance that either might misunderstand the other’s expectations. While using such documents is all well and good, what happens when an employee takes on responsibilities that go beyond the scope of what is covered by a written agreement? As one Massachusetts company recently learned, the answer to this question can be unpredictable and expensive.

In 1988, Ronald Nardone began working for LVI Services, and he eventually rose to become corporate vice-president of business development. At various times from 1997-2005 LVI was searching for investors, and Nardone became part of the “roadshow presentation” team that sought such investments. In that regard, LVI’s one-time President, Burton Fried, testified:

I asked [Nardone] if he wanted to appear and give the presentation on behalf of the business development aspect of the business and he said yes. … I didn’t require him, he just accepted the invitation.

After one of the roadshows in 2005, Nardone learned that a large investment was going to be made, and all of the management stockholders would receive valuable stock options – all, that is, except for Nardone, who was not entitled to any additional remuneration. When Nardone learned that he was excluded, he complained to Fried and said that if Fried did not do something about the situation, “I’m not going to continue with the roadshow; … I’m done.” In response, Fried said that he would “make it right,” and one week later, he told Nardone that while it was impossible to provide him with any options, Nardone could be compensated out of a cash bonus that was extremely likely to be paid to LVI as part of the transaction.

After the deal closed, however, Fried told Nardone that there was no cash bonus, and the best Fried was able to do was secure $50,000 for Nardone. Nevertheless, Nardone learned over two years later that, in fact, a cash bonus of $7.95 Million had been paid to LVI. After Nardone brought this to the attention of the new LVI President, and no additional compensation was paid to Nardone, he sued.

While Nardone prevailed on his claims for promissory estoppel and quantum meruit in front of a jury, the trial judge overturned that decision on a motion for judgment notwithstanding the verdict. Nardone appealed, and Nardone v. LVI Services eventually was decided by the Supreme Judicial Court of Massachusetts. In reaching that decision, the SJC focused on four key issues: whether there evidence from which the jury could have found that (i) participating in the roadshows was not part of Nardone’s job; (ii) Nardone suffered a detriment; (iii) Nardone conferred a benefit on LVI; and (iv) LVI knew that Nardone expected to be paid additional compensation for continuing to participate in the roadshows after the compensation dispute initially arose.

The SJC resolved all four of these issues in favor of Nardone, essentially finding that there was evidence that (i) Nardone’s job did not require him to participate in the roadshows; (ii) agreeing to participate in the roadshows when he did not have to do so was a detriment to Nardone and benefited LVI; and (iii) LVI knew Nardone expected to get paid in light of Nardone’s demand for payment and his threat to discontinue participating if he was not paid additional compensation.

While a cynical takeaway from Nardone might be laying out a roadmap as to how companies can dupe employees into doing things that they don’t have do for no additional compensation, I certainly am not advocating that. What I do think is important, however, is for in-house counsel to ensure that their companies’ business people understand that if they ask employees to do things that could be beyond the scope of their employment, the company could have to pay additional compensation. Further, if no agreement is reached as to what that additional compensation should be, a jury might end up deciding that amount, and in the case of Nardone, the jury awarded $1 Million….

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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