Quirky Question # 167; Who Has the Burden of Proof When Terminating an Executive For Cause?
Our company is considering terminating a C-level executive for cause pursuant to a provision in his employment agreement. I mentioned this to a friend of mine who is an attorney and she said the company will be obligated to prove our actions were justified. This does not make sense to me. I thought that, like nearly all plaintiffs, if our executive sued, he would have to prove his claims. Can you enlighten me?
Your friend has given you some good advice. In most civil litigation, plaintiffs have the burden of proof. In other words, plaintiffs typically must prove, by a preponderance of the evidence, that they have been wronged and are entitled to damages. “Preponderance of the evidence” simply means “more likely than not,” a 51 percent to 49 percent calculus that the evidence and argument advanced by the plaintiff is more credible than that advanced by the defendant. (This is a much less onerous burden than the “proof beyond a reasonable doubt” standard applicable in criminal cases.)
In cases involving a company’s termination of an employee “for cause” pursuant to an employment contract, however, that standard burden of proof allocation is reversed. The company, not the employee, has the burden to establish that its termination of the executive was justified. The company has the burden of proof.
Numerous courts have reached this conclusion. See, for example, Ross v. Garner Printing Co., 285 F.3d 1106, 1113 (8th Cir. 2002) (“[I]n a case arising under a ‘for cause’ employment contract, it is generally held that the employer has the burden of proving cause for termination.”); Lucas v. Whittaker Corp., 470 F.2d 326, 328 (10th Cir. 1972); Rosecrans v. Intermountain Soap & Chem. Co., 605 P.2d 963, 965 (Idaho 1980)(“When the employee establishes that he has been terminated in violation of the employment contract, the employer has the burden of proving the existence of good cause for the termination.”)
The cases cited above, and the numerous additional cases relied upon and cited by the courts in the decisions referenced above, are based upon the logical conclusion that an employer’s argument that an employee was discharged “for cause” pursuant to an employment contract constitutes an affirmative defense. As with other affirmative defenses, the burden of proof lies with the defendant. Moreover, this conclusion comports with common sense. If a company is contending that it terminated an employee whose contract restricted the grounds for the discharge to delineated “good cause” reasons, presumably the evidence supporting and justifying the company’s decision is within its control.
In most situations, however, the burden of proof allocation is not likely to affect the outcome. Unless the defendant planned to do nothing and argue only that the plaintiff failed to prove his/her case – an imprudent way to defend a case persuasively and potentially fatal to the defense in this context – the factfinder (whether judge or jury) will be evaluating the persuasiveness of the evidence each side presents. In short, the defendant will be attempting to explain to the factfinder why its decision was justified. In turn, the plaintiff will be attempting to explain to the factfinder either why the reasons advanced by the defendant lacked credibility or, even if believable, simply fail to meet the cause definition set forth in the contract.
In cases where we have defended an employer’s decision to discharge an employee (whether in the context of a contract requiring “good cause” or in any other termination setting), we would never rely merely on the argument that the plaintiff had failed to meet his/her burden of proof. First, this sounds “defensive” and suggests that our client had nothing to say. Second, it is unconvincing and would likely leave the jury wondering about the legitimacy of the company’s reasons for the discharge decision. Third, we want to tell my client’s story, as persuasively as we can. Ignoring the reasons – i.e., the explanation – for why the client acted as it did would be foolhardy. Once the story has been told, by both the plaintiff and the defendant, the factfinder will be evaluating whose evidence was most convincing, without regard to which side had the “burden of persuasion.” While there will be some instructions from the court on this issue, and while there may be some comments during closing about whether the defendant met its burden of proof, in our view the judge or jury ultimately will be deciding the case on the basis of which side advanced the more compelling factual and legal arguments.
Finally, when considering whether to exercise the company’s right to discharge an employee “for cause,” think strategically. Carefully evaluate the contractual language to ensure that the legal standards set forth in the agreement between your company and the employee have been clearly satisfied. If not, do not manufacture “for cause” reasons. In the long run, you will regret this approach.
Even if your company believes that “good cause” exists, assess the various grounds on which you are planning to base the discharge. Do let allege every conceivable basis for terminating your employee, including reasons that are obviously flimsy or suffer from factual or legal defects. Doing so will deservedly undermine your credibility. Do not offer reasons from the distant past, particularly if your company was fully cognizant of those reasons and took no action for a prolonged period. Again, such an approach is a credibility killer and may implicate the legal defense of waiver. Do not offer reasons that would apply with equal force to other current employees against whom no adverse action is being taken or against former employees who were not discharged for cause despite engaging in near-identical or even similar conduct. Here, too, advancing these types of justifications will undermine your company’s credibility and will substantially weaken your case.