WRONGFUL TERMINATION ARBITRATION AWARD

I recently secured a substantial award for a wrongfully discharged employee who also was a minority shareholder in her employer's company. She had entered into a shareholders agreement that provided for how she would be compensated for her shares in the event she was terminated from her employment.

The arbitration involved a variety of issues but two that stood out were 1) the huge difference a single word can make when determining the value of shares; and 2) the impact that an employee's termination without cause can have on a covenant restricting the employee from competing with her former employer.

FAIR MARKET VALUE V. FAIR VALUE

The shareholder agreement provided for a buy out of my client's minority shareholder's position at "fair market value". While one might think that the terms "fair market value" and "fair value" can be used inter-changeably, the fact is that the use of one or the other term can have a dramatic impact on how shares are valued.

Which term should be used? The simple answer is that it depends on whether you are the employer or the employee. It is preferable for an employee/minority shareholder to use "fair value" in calculating shares while an employer/majority shareholder would likely opt for "fair market value". The simple reason is that "fair value" will provide a greater valuation than "fair market value" because "fair value" is calculated without discounting the minority shareholder's shares for the "lack of control" the minority shareholder has in company decisions. This could literally mean hundreds of thousand of dollars in valuation.

THE RESTRICTIVE COVENANT

The other issue of interest was the effect of the restrictive covenant. Restrictive covenants are designed to limit an employee's ability to compete after the employment terminates. Employees use them to protect their investment in the employee, to safeguard trade secrets and basically to prevent a discharged employee from attempting to steal the employer's client base.

The interesting question is whether the employee is bound by such a covenant when the employer terminates the employee without cause.

While this is a grey area of the law, the trend in New York is to prevent an employer from enforcing any restrictive covenants where the employer terminates the former employee without cause. The reasoning behind this is that it would be unfair to allow an employer to unilaterally destroy an employment contract while at the same time preventing an employee from engaging in his or her chosen livelihood. If the employee is terminated for cause or quits, however, the covenant will be enforced subject to the reasonableness of how long the restriction is for, the geographical area the restriction covers as well as the reasonableness of other aspects of the covenant.

As always, feel free to contact me with any legal concerns you might have as if you had a lawyer in the family.

Sincerely,

Mario Biaggi Jr.

A BATTLE OVER ROBIN WILLIAMS' WILL?

“It was the tragic news that stunned the world. Legendary actor Robin Williams, 63, had hanged himself inside his Tiburon, California, home on August 11, 2014. The whole world seemed to stop and mourn, reflecting on the legacy he left behind. He also left behind a fortune that’s been estimated up to $130 million and a long list of people who may try to lay claim to part of his estate”. Life and Style Magazine, September 2014.

Dealing with the impact objections to a will can have on a decedent’s estate – large or small – starts with the fundamental questions of what were the circumstances surrounding the drafting of the decedent’s will and what were the contents of the will itself. The extent to which a claimant may successfully lay claim to all or a portion of Robin Williams’ estate will depend on how those questions are answered.

A will is in its simplest terms a written document whose contents are intended to provide direction as to the disposition of a decedent’s estate assets that the decedent a/k/a testator, has accumulated as part of his estate during his or her lifetime. Before those directions are given their intended effect, however, the will must be submitted to the Surrogate’s Court with a petition requesting the Surrogate’s Court to issue letters testamentary to those who the will has named as executors or executrixes of the estate. The executor or executrix is a fiduciary responsbile for seeing that the decedent’s intentions expressed in the will are carried out. After the will is offered for probate to the Surrogate’s Court, the legal challenges and objections to the will can begin.

Typically, challenges to the validity of a will include allegations that the will 1) was not duly or properly executed; 2) was induced by fraud; 3) the testator was the subject of undue influence such that his true intentions were not properly reflected in the will; and/or 4) the testator was not mentally competent when he executed the will.

Each of these involve their own legal precedent, and will be discussed in greater detail in upcoming newsletters. Given Robin Williams’ apparent struggles with substance abuse, depression and the onset of Parkinson's, however, it would appear that objections to his will based on his mental competency would at least initially require the most attention. Those objecting to his will would want to establish that his mental competency at the time he executed the will interfered with his ability to understand the “nature and objects of his bounty”.

In further follow-ups, I will more specifically examine what has to be shown to successfully object to a will’s probate. One thing is for certain, a successful challenge can dramatically change the distribution of a decedent’s estate. The law that controls who receives what portion of a decedent’s estate when there is no will, can direct distribution of estate assets in far different ways then what a decedent may express in his will. And depending upon the size of the estate, the stakes can be quite high.

Sincerely,

Mario Biaggi Jr.

Welcome

Welcome to the blog of Mario Biaggi, Jr.