In Online Resources Group v. Lawlor, the Virginia Supreme Court held that, under Delaware law, an employer was required to pay the attorneys’ fees incurred by its former employee in litigation filed by the employee after he was terminated.  The plaintiff in the case founded the employer in 1998, and served as its CEO and Chairman for over twenty years.  Shortly after the company went public, the Board of Directors voted to remove him as CEO and also forced his resignation as Chairman of the Board and as an employee.  After the company refused to pay him the amount he claimed to be owed under the terms of his severance agreement and two separate stock option plans, he filed suit in Circuit Court in Fairfax County asserting various causes of action, including breach of the severance agreement, breach of the two stock option plans, unjust enrichment, and wrongful termination, as well as declarative and injunctive relief. 

The jury found for plaintiff on all of his causes of action except for wrongful termination, and awarded him compensatory damages of over five million dollars.  Based on the attorney fee provision in the severance agreement, the jury also awarded him over two million dollars in attorneys’ fees incurred in litigating all of his causes of action. 

On appeal, the employer contended that the express language of the severance agreement only permitted plaintiff to recover attorneys’ fees for breach of the severance agreement, not for his other causes of action.  The Virginia Supreme Court agreed.  The severance agreement provided that, if plaintiff filed suit “to enforce any obligations of the Company under this Agreement and it is ultimately determined that [plaintiff] is entitled to any payments or benefits under this Agreement,” the company would be required to pay “all reasonable expenses (including reasonable attorneys’ fees and legal expenses) incurred by plaintiff “with respect to such action.”

Applying Delaware law, which was the law chosen by the parties to govern the severance agreement, the Virginia Supreme Court held that this language only permitted plaintiff to recover attorneys’ fees incurred in connection with his breach of severance claim, and not his claims for unjust enrichment, wrongful termination, and breach of the two stock option claims, which “were separate from the claim to enforce [the employer’s] obligations under the Severance Agreement.”  The court reversed the trial court’s attorney fee award and remanded the matter for a “determination of the amount of attorneys' fees and expenses plaintiff incurred as a result of enforcing [the employer’s] obligations under the Severance Agreement.”  The court noted, however, that it was “mindful that such a determination will require careful consideration of overlapping issues.”

Online Resources Group teaches that, in the event companies wish to include attorney fee provisions in employment agreements, they should be careful to expressly limit any potential exposure in the event of litigation.  To limit the ability of a former employee to collect attorneys’ fees for claims beyond those for breach of an employment or severance agreement, companies should consider including a cap on the amount of fees that can be collected as well as provisions requiring, as a condition precedent to collecting any fees, a breakout of the amount fees specifically incurred in connection with the breach of contract claim.  This could be accomplished by, among other things, including language that requires plaintiff’s attorneys to enter time spent on the severance agreement claim separate from time spent on any other claim.  Conversely, to the extent that an employee wants to obtain recovery of all litigation fees incurred as a result of a breach of contract as well as other actions by the employer, she should be mindful to negotiate more expansive terms, unlike the employee in  Online Resources Group.