Ms. Slick is a senior banking executive who was recruited to lead one of the nation’s top national banks. As CEO, Slick is responsible for growing revenues, increasing profits while complying with all laws. Slick was hired because she had successfully turned around another leading national bank and had a reputation for promoting innovative products and services.
As with all CEOs in the banking industry, Slick signed an employment contract that included a variety of provisions, including the following:
Term. This contract shall be enforceable for a period of 5 (five) years, beginning on March 1, 2012. This contract may be renewed for additional terms of 5 (five) years according to the mutual agreement of the parties hereto.
Compensation. Ms. Slick shall be paid an annual salary of $2,500,000, an annual bonus of $500,000 and stock options valued at $2,000,000 annually.
Termination. Ms. Slick’s employment contract may be terminated by Employer for:
(a) good reason, which shall include any reason other than for cause.
In such event, Ms. Slick shall be paid severance compensation, which shall consist of the amounts of annual salary, bonus and stock options that would be paid during the remaining years of the contract’s term.
(b) cause, which includes, but is not limited to, conviction of a felony, embezzlement, theft or gross misconduct connected with her work. If terminated for cause, Ms. Slick shall not be entitled to receive severance compensation, which is defined more specifically in (a) above.
Employer must provide 30 (thirty) days prior written notice of its intent to terminate this contract for cause and permit Ms. Slick thirty (30) days to cure the breach of this contract.
Dispute resolution. Any controversy or claim arising out of or relating to this employment contract shall be settled by arbitration administered by the American Arbitration Association under its Employment Arbitration Rules and Mediation Procedures and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.
CEO Slick was thrilled to be on board and her first charge to the Senior Vice Presidents was to identify new and profitable ways to serve customers. The Senior VPs quickly put their teams to work to develop new products, programs and services. Very little due diligence was done on the proposals. Within 2 months, the following new ones were proposed to the CEO and her Senior VPs:
Quick Start – New customers could open checking and savings accounts at bank branches without providing proof of identification or a minimum amount of monthly income. This was well-received and quickly implemented. More than 1M new accounts were opened the first year of this fantastic program. Employees who opened these accounts received a $100 bonus for each account. Branch managers were to report the number of new Quick Start accounts opened each week to the Senior VP, Operations and the CEO.
Date a Regulator – Given the tension between state and federal regulators and the bank (as it is with any national bank), bank finance and audit employees were encouraged to develop romantic relationships, and to a lesser degree, friendships, with state and federal regulators and their family members and friends. The idea was to gain leverage over regulators by having opportunities to interact with them on a personal, private basis to gain a better understanding of how they may perceive the banking sector and its players. Employees were to report their successes directly to the Senior VP of Audit and the CEO.
Welcome to the Dream – Branch employees were required to begin soliciting new mortgage customers in the community by attending area high school and college sporting events. Area real estate agents and brokers teamed up with branch employees to identify prospects. Prospects were encouraged to buy new homes without proving minimum monthly and annual incomes. Overall, the lending process was quite rushed. What prospects didn’t know was that many of the homes that were targeted began to have declining values because they were adjacent to a new county jail under construction. Area real estate agents and brokers did not disclose the construction project and, in fact, avoided questions on the topic. Rumor has it that mortgage officers and real estate agents outright lied when asked directly about surrounding development plans.
Profits grew and customers filled the branches in the first term of the CEO’s tenure. Her employment contract was renewed in 2017 for an additional 5 (five) years and her compensation package grew to an annual salary of $3,000,000, a bonus of $750,000 and stock options of $3,000,000 annually. Everyone was thrilled. Thrilled until 2019 when the cracks widened and sunshine poured in.
An employee in the finance department became quite concerned about these programs. The VP of Audit contacted federal regulators to report his concerns as specified by the whistle blower statutes. The audit department routinely accessed details of each of these programs to collect data for the bank’s annual report and the department employees have a detailed understanding of the programs. Employee turnover has increased in the last few years and many who departed were considered “disgruntled”.
Chaos ensues. Regulators inquire. The public is beginning to read about the bank’s business practices as information from audits is leaked to journalists with national publications and networks. The CEO is under extreme public pressure to respond to the allegations that the bank is ripping people off. The CEO is terminated for cause by the bank’s Board of Directors. Ms. Slick disagrees with the Board’s characterization and reasons for her termination and hires an attorney. The attorney demands that the Board reinstate his client for not giving her notice and an opportunity to correct matters or pay her severance. The bank refuses and initiates arbitration proceedings with the AAA.
You are the Senior Manager in the bank’s human resources department and are on the team handling Ms. Slick’s departure and resulting dispute. At this point, the Assistant General Counsel has asked you to investigate this matter and work with him to then develop a strategy to defend the termination in arbitration.
Given what you have read this week in the reading assignments and the materials, the case theory and the case theme you described in the week 4 quiz and the scenario above, address the following:
A. From the perspective of the senior manager of HR and then from the perspective of Ms. Slick’s counsel, create a Word document and
describe in 1-2 paragraphs what the senior manager of HR should do to properly submit a demand for arbitration to the AAA; and
describe in 1-2 paragraphs what counsel should do in response to receiving notice of the demand for arbitration.
B. In a separate Word document in a letter format, and from the perspective of the senior manager of HR, draft the language you would use that addresses fees, timing, and any other points that must be included in the demand to the AAA.
C. In a separate Word document in a letter format, and from the perspective of Ms. Slick’s counsel, draft the language counsel would use that addresses any topics that are timely, including a response to the bank’s letter you drafted for B. above, and a possible counter-claim and fees to the AAA.
Summary: You are writing a description of what happens at this stage of arbitration in your first Word document (see A.). You are writing a separate letter from the bank to the AAA in B. You are writing another separate letter from counsel to the AAA in C. You must submit 3 separate Word documents.