A case decided last month in federal court in North Carolina, Yarber v. Capital Bank Corporation, involved a factual situation that many private company executives and companies find themselves in from time to time. Mr. Yarber worked for Capital Bank as its President and Chief Executive Officer. Yarber had an employment agreement with Capital Bank, which provided for severance payments equal to a multiple of his salary in the event of his employment termination following a change in control. So far so good.
Another financial institution offered to purchase a controlling interest in Capital Bank in 2010. During negotiations, all parties agreed that Yarber would remain the president of Capital Bank after the purchase, according to the court's opinion. However, the acquirer threatened to withdraw its offer to purchase Capital Bank unless Yarber and other bank executives signed amendments to their employment agreements relinquishing their right to the change in control severance payments.
The chairman of the board of Capital Bank told Yarber that he "had no option but to give up any payments due under his employment contract," and that the board of directors could and would terminate Yarber for cause if he refused to give up his right to change in control severance payments. According to the opinion, the chairman also told Yarber that Capital Bank's shareholders could sue Yarber for breach of fiduciary duty if he refused to amend his employment contract and his refusal caused the acquirer to withdraw its offer. Yarber signed an amendment to his employment contract (the "2011 Amendment") that effectively eliminated his right to severance payments and created a term of employment that expired on November 4, 2011.
I am sure you know where this is headed. The acquirer closed the deal to purchase Capital Bank. It then removed Yarber from his position as president and chief executive officer, and terminated his employment ten days after the term of his contract expired. Yarber received no change in control severance payments.
Yarber sued, claiming, among other things, that (i) Capital Bank violated ERISA by refusing to pay his change in control severance payments, and by terminating his employment upon false grounds with the intent of denying his right to severance benefits, and (ii) the 2011 Amendment was void for lack of consideration.
Unfortunately for Mr. Yarber, the court saw this as an open and shut case. The employment agreement and the 2011 Amendment were crystal clear on Yarber's rights. The 2011 Amendment had deleted the language providing for change in control severance payments, and created a term of employment ending on November 4, 2011. After November 4, 2011, Yarber became an at-will employee with no employment contract. Because ERISA allows employers to amend or eliminate employee welfare benefit plans, such as a severance plan, and preempts any state law contract claims and principles the court also dismissed his claim that the 2011 Amendment was void for lack of consideration.
Mr. Yarber relinquished his contractual right to severance, then lost his job, lost his lawsuit, and got nothing. (I realize that Tuesday's Blog also involved an acquirer's efforts to screw executives. I hope that this does not signal a trend.)