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"Just Cause" under Employment-related Agreements

      >>>  CFO Magazine: pitfalls to avoid in negotiation.  See Severance Litigation.


2014.12.29  Maryland Supreme Court Enforces the Contractual Process for Cause Termination.  See the discussion in this blog re Spacesaver Systems v. Adam. 

2014.04.14  The Cause And Effect Of 'For Cause' Employment Clauses. This article includes discussion of a sampling of cases in which former employees disputed their terminations for cause.

2013.May  Seven Steps to Consider When Proceeding with "Cause" Terminations. This alert draws from long established union-based employment principles to suggest 7 steps employers should consider taking in order to best position to defend their terminations for just cause.

2010.Nov.  Private Equity Fund Terms.  The following bullets quote from this ABA Business Law Article in which the Institutional Limited Partners Association (ILPA) recommended best practices for structuring private equity funds (ILPA Principles): 

  • No-Fault Divorce Terminations. Many fund agreements permit termination of a manager "for cause" only by some extremely high majority (e.g., 85-95 percent) following a nonappealable judicial decision. This is often unworkable. It may be difficult to prove cause even where the manager's conduct is egregious; and it may be impossible to assemble a required majority of outraged limited partners.
  • The ILPA Principles recommend that the limited partners, by simple majority (and not by the super majority, which is the current market standard), should have the right to suspend or terminate the commitment period. Two-thirds majority in interest of limited partners should have the right to remove the general partner or terminate the fund under the "no fault divorce" provisions of the limited partnership agreement without cause; for example, if they do not see the returns they expected.

​2015.02.15  The Perils of For-Cause Expulsion Provisions in LLC Agreements.  This article discusses litigation involving a two-member Delaware LLC in which the NY-based members disputed the reduced profits interest of the minority member that resulted from the majority member's determination to expel him under a "cause" definition that "included conviction for felony or violation of securities laws, fraud, or 'a material breach of this Agreement.' ” 

2014.02.19  LLC "Cause" Finding Upheld (NY).  The alleged violation involved a conflict of interest created by the member's creation of a competing company.  See Mayers v. Stone Castle, decided by the NY Supreme Court, NY Co. See below for the applicable Cause definition.


SAMPLE "CAUSE" AND "JUST CAUSE DEFINITIONS 

From Employment Agreements:


From LLC Agreements:

  • The LLC defined "Cause" to mean "any of: (1) [Mayers'] fraud or willful or gross misconduct with respect to the business affairs of the Company; (2) [Mayers'] willful and material breach of any of the covenants and obligations in this Agreement, including the covenants set forth in Article 15; or (3) [a criminal fraud conviction]." Mayers v. Stone Castle (discussed above).
  • ​“Cause” means, with respect to the Independent Manager, (i) acts or omissions by such Independent Manager constituting fraud, dishonesty, negligence, misconduct or other deliberate action which causes injury to the Company or an act by such Independent Manager involving moral turpitude or a serious crime or (ii) that the Independent Manager no longer meets the definition of “Independent Manager” set forth in this Agreement. Greenpac Holding LLC (2010).