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Sign of the times: One of the hottest areas of new-economy law involves the rights of dot-com workers who want to extract some value from what were thought to be worthless stock options. On Oct. 5, a California Supreme Court decision came down unequivocally on the side of business when it ruled that the legal doctrine requiring parties to a contract to play fair does not protect at-will workers from termination. Or at least it seemed unequivocal — according to the ruling, bosses can let employees go without specific reason no matter how long they have worked or how well they have performed. But a little-known footnote in the case, Guz vs. Bechtel, might bring hope to many Internet-economy employees who say they were fired unfairly just before their stock options were about to vest. In Footnote 18 of the ruling, the judges added the following caveat: “We do not suggest the covenant of good faith and fair dealing has no function whatever in the interpretation and enforcement of employment contracts.” They wrote, “Thus, for example, the covenant might be violated if termination of an at-will employee was a mere pretext to cheat the worker out of another contract benefit to which the employee was clearly entitled, such as compensation already earned.” Some attorneys say the footnote holds great promise for workers who can show they got pink slips when company management wanted to reclaim their options before they cashed in — a type of complaint that is on the rise, according to the National Employment Lawyers Association, a group representing attorneys who work for plaintiffs. Silicon Valley employment-law specialist William Quackenbush, who won a similar case earlier this year, says the footnote affords all the wriggle room he needs. In one case, he says, one senior executive of a Silicon Valley dot-com was fired, and his options, worth more than $1 million, were repossessed just 24 hours before they were to vest. “The boss made up some phony story about taking more time off than allowed, but the timing gives us all we need to convince a jury it was a pretext. Footnote 18 gives us a lot of ammunition to take into a settlement conference.” Quackenbush is echoed by San Francisco lawyer Mark Rudy, a former editor of the authoritative handbook “Wrongful Employment Termination Practice.” Rudy calls Footnote 18 “very unusual,” because the justices did not have an obvious reason for including it, and “extremely important,” because it’s a crack in the stone wall protecting at-will terminations. Employees are heartened by the interpretation. “The anecdotal evidence is strong that more and more employees are losing jobs over stock options and taking legal action,” says Paula Brantner, senior staff attorney at NELA’s San Francisco headquarters. Defense lawyers aren’t prepared to throw in the towel, however, finding some comfort in a close scrutiny of the language in Footnote 18. Dov Grunschlag, a former law professor who now is a senior employment partner representing companies at the San Francisco law firm Steinhart & Falconer, points out that the text of the footnote speaks of compensation already earned. “I think the court is talking about vested options,” he says. “I would attack any suit on the basis that if the options haven’t vested, there’s no claim.” Copyright � 2000 The Industry Standard

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