CLAUSE AND EFFECT

Following is the for-cause termination clause from the Hoffman v. Harmony Pictures case:

'Cause. Company may terminate Employee's employment hereunder at any time 'for cause,' which shall mean (i) fraud or embezzlement or indictment of Employee of any felony or crime involving moral turpitude or larceny; (ii) the commission by Employee of an act of dishonesty constituting a crime; (iii) intentional or negligent dereliction in the performance of Employee's duties or responsibilities; (iv) the failure to carry out the reasonable directives of the President of Company or its Board of Directors relating to the conduct of Company's business; (v) willful breach of duty by Employee within the course of Employee's employment hereunder; (vi) engaging in any business for profit in violation of the Standard Terms and Conditions of this Agreement; or (vii) knowingly imparting confidential information relating to the business of Company or its personnel. In the case of an event described in clauses (iii), (iv), or (v) above, Company may terminate Employee's employment hereunder only by giving Employee thirty (30) days prior written notice, during which period Employee shall have the opportunity to cure any breach, in which case such notice shall be deemed rescinded.'

Stan Soocher is the Editor-in-Chief of Entertainment Law & Finance. He is also an entertainment attorney, chair of Music & Entertainment Industry Studies at the University of Colorado at Denver, and author of the book 'They Fought the Law: Rock Music Goes to Court.' Web site: www.theyfoughtthelaw.com.

For-cause termination clauses, often used by corporations ' including entertainment and media companies ' in employment contracts with corporate executives, typically give an executive a period of time to cure after he or she receives notice from the employer of an alleged contract breach. At-will contracts may simply provide for advance notice before an employee can be discharged. In California, the measure of damages for termination without notice in employment-at-will contracts is income the discharged executive lost during the length of the notice period (eg, 30 days). However, the Court of Appeal of California, Second Appellate Division, recently held in an unpublished opinion addressing a lack of notice required under a for-cause termination clause that the measure of damages should be based on the length of the notice period only if the executive was discharged for grounds specified in the for-cause clause. Hoffman v. Harmony Pictures Inc., B152774 (Dec. 4).

In the case, Ron Hoffman had entered into an agreement in 1993 to work as executive vice-president and head of sales at Harmony Pictures. The employment agreement contained a for-cause termination provision. In 1994, Hoffman orally agreed to continue in the executive position under the terms of the written contract. Harmony Pictures later drafted an at-will employee handbook that it claimed also covered Hoffman. Hoffman filed a breach-of-contract suit after Harmony Pictures fired him in 1997. The production company ceased business operations the following year.

Harmony Pictures claimed that it had fired Hoffman for disrupting relationships with directors. Hoffman disputed the characterization and claimed that he was fired without notice or cause. The trial court found, among other things, that Harmony Pictures had breached the oral employment agreement, which incorporated the terms of the written employment agreement. Hoffman had been promised a minimum of $180,000 per year, plus commissions, but Harmony Pictures argued that Hoffman was only entitled to lost-income during the 30-day notice period provided in the for-cause clause. The trial court awarded Hoffman damages for both 1997 and for 1998 ' the year the employment contract term would have expired. The award for 1997 was based on the difference between what Hoffman actually earned that year and what he estimated he could have earned. The appeals court affirmed, but reduced Hoffman's award for 1998 by $123,000, the amount he had earned during that year for providing similar services to directors as he did while employed by Harmony Pictures.

Following is the for-cause termination clause from the Hoffman v. Harmony Pictures case:

'Cause. Company may terminate Employee's employment hereunder at any time 'for cause,' which shall mean (i) fraud or embezzlement or indictment of Employee of any felony or crime involving moral turpitude or larceny; (ii) the commission by Employee of an act of dishonesty constituting a crime; (iii) intentional or negligent dereliction in the performance of Employee's duties or responsibilities; (iv) the failure to carry out the reasonable directives of the President of Company or its Board of Directors relating to the conduct of Company's business; (v) willful breach of duty by Employee within the course of Employee's employment hereunder; (vi) engaging in any business for profit in violation of the Standard Terms and Conditions of this Agreement; or (vii) knowingly imparting confidential information relating to the business of Company or its personnel. In the case of an event described in clauses (iii), (iv), or (v) above, Company may terminate Employee's employment hereunder only by giving Employee thirty (30) days prior written notice, during which period Employee shall have the opportunity to cure any breach, in which case such notice shall be deemed rescinded.'

Stan Soocher is the Editor-in-Chief of Entertainment Law & Finance. He is also an entertainment attorney, chair of Music & Entertainment Industry Studies at the University of Colorado at Denver, and author of the book 'They Fought the Law: Rock Music Goes to Court.' Web site: www.theyfoughtthelaw.com.