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Commission structure in employment agreement results in $4.1 billion judgment for fired employee

In the recent Chester v. Freedom Communications case, a California state court confirmed an arbitrator’s award of $4.1 billion to a company’s former employee. See Chester v. Freedom Communications Inc., No. BC353567 (Cal. Super. Ct. May 28, 2009).

The award was made not just against the employer company, but also against the company’s owner, jointly and severally, meaning that the owner’s personal assets can be reached to satisfy the judgment.

It’s a strange case that illustrates a crucial contract-drafting decision that came back to haunt the employer: The employment agreement included a commission plan under which the employee was entitled to continue to be paid commissions, permanently, if he were terminated without cause. See id. at Attachment A, p. 7 (PDF p. 11).

Moreover, the employer demanded arbitration, but then refused to participate in the hearing. So the arbitrator accepted all of the fired employee’s testimony as true, and entered an award accordingly — a plaintiff lawyer’s dream come true. See id. at Attachment A, pp. 3-4 (PDF p. 11); see also Amanda Bronstad, Anatomy of an Arbitration Disaster, National Law Journal, June 17, 2009.

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