“For Cause” – How Two Words Could Cost Twelve Million Dollars

November 12, 2015

On February 1, 2006, Wallace Leyshon was in his office at Diehl Controls North America, Inc. (DCNA), when the CFO and the new chairman of DCNA, Dr. Weigand, unexpectedly entered and fired him. However, Leyshon was under contract and asked for a reason for his termination. Weigand initially refused to tell him, so Leyshon went to Weigand a second time, with a witness to verify his termination. During this second meeting, Weigand told Leyshon that he was fired “for cause.” From there, things quickly spiraled out of control.

Within Leyshon’s contract, “for cause” had a very specific definition. In particular, the term “cause” constituted gross negligence, gross neglect of duties, gross insubordination and willful violation of any law applicable to the conduct of the company’s business and affairs. In fact, Leyshon specifically asked, “You are telling me that you are firing me for gross insubordination, for gross misconduct, for gross negligence and willful violation of the law?” Weigand responded, “Yes.” Leyshon was extremely upset as people in the office began to avoid him. Despite an otherwise exemplary business record, Leyshon subsequently was unable to obtain comparable new employment for 2 ½ years and close business contacts refused his calls as a result of his “for cause” termination.

Leyshon then filed suit for defamation per se against his former employer and Weigand. The court noted that termination for cause of a company president often carries a connotation of significant financial malfeasance, sexual harassment, or drug use on the job. An expert witness further testified that a person fired “for cause” would never be recommended for a job. The defendants argued that Leyshon was properly fired due to a lack of profits, but the jury rejected that argument. Instead, the jury returned a $12 million verdict to Leyshon for the actions of DCNA and Weigand, consisting of $2 million for damages and $10 million for punitive damages. The trial court reduced the punitive damages to $6 million for a final judgment of $8 million.

On appeal, the appellate court affirmed the jury’s decision. DCNA argued that “for cause” could have been innocently construed within the context of the conversation. In a similar case, one court had found that “for cause” could have an innocent construction. That court noted that in the savings and loan industry, “for cause” meant misconduct. However, the court noted that, in this case, Leyshon had specifically asked if “for cause” was referring to gross insubordination, gross misconduct, gross negligence and willful violation of the law. This context did not allow for innocent construction as the causes were clearly defined.

Firing Leyshon and asserting it was “for cause,” as outlined in his contract, cost DCNA $8 million. Firing anyone “for cause” requires certainty that the termination is warranted. If not, a company runs the risk of hefty penalties and costly litigation. The attorneys at Rock Fusco & Connelly, LLC can help you to better understand your employment contracts and how to properly navigate within their boundaries.