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The New Jersey Supreme Court on Thursday declined to send state law deeper into pro-employee terrain and established a business-friendly standard for firing workers protected by contracts. By a 5-2 vote, the court ruled that unless the employment agreement says otherwise, employers may use subjective standards to determine whether workers failed to fulfill contractual obligations to perform to the company’s satisfaction. The court reversed an appeals court that said firing decisions must meet objective standards. That would require a company sued for breach of contract to convince a jury — perhaps using expert evidence — that the worker’s performance was unsatisfactory. Under last week’s ruling, a good-faith judgment by the employer suffices to cut short litigation. Justice Jaynee LaVecchia wrote for the majority in Silvestri v. Optus Software, Inc., A-95, that “application of another’s notion of satisfactory performance would undermine recognized and accepted notions of business judgment and individualized competitive strategy, as well as principles of freedom of contract.” “The employer, not some hypothetical reasonable person, is best suited to determine if the employee’s performance is satisfactory,” she wrote. DRAFTSMEN, BEWARE Employment lawyers who sue and defend corporations say the chief audience for the opinion should be lawyers who write and review such contracts. If you represent a worker, the message is this: Try to include a clause requiring the company to use objective criteria — perhaps a statistical measurement of success or a third-party arbitrator — if disputes arise over whether the employee performed satisfactorily. “If employees, particularly for small companies, want their work to be subject to defined — that is, objective -� standards, those must be spelled out at the beginning of an employment relationship when hopes are high, not at the end when things have turned sour,” says T. Gary Mitchell, a Duane Morris partner in Princeton, N.J., who advises corporations. Plaintiff Michael Silvestri had 31 years as a computer engineer and account manager at IBM and Tiffany & Co. when Optus Software in Somerset, N.J., hired him in January 1999 as supervisor of technical support to customers. The two-year contract called for an annual salary of $70,000 and included a clause, common in such contracts, permitting termination upon “employee’s failure or refusal to faithfully, diligently, or completely perform his duties hereunder to the satisfaction of the company or to carry out any lawful instruction of the company.” Optus fired him nine months later and he sued for breach of contract, contending that the company’s dissatisfaction was objectively unreasonable, making his termination a breach of the contract. Company executives countered with evidence, including e-mails, which said customers were finding fault with the performance and attitude of Silvestri and his staff. By that reckoning, he had not performed satisfactorily and could be fired. Silvestri acknowledged that his boss was dissatisfied but he challenged the reasonableness of the dissatisfaction and argued that he had the right to present the question to a jury. The trial court did not agree, refused to substitute its judgment for the employer’s and dismissed the complainton summary judgment. Appellate Division Judges James Havey and Donald Coburn reversed, relying on Fitzmaurice v. Van Vlaanderen Machine Co., 57 N.J. 447 (1971), which held that an employer “must have a reasonable basis for his dissatisfaction.” That reliance was misplaced, the New Jersey Supreme Court found. The performance clause in the contract in Fitzmaurice included language that suggested some objective criteria would determine the employer’s satisfaction. Silvestri’s contract was devoid of such language. “Nothing in the text of the satisfaction clause suggests that dissatisfaction was to be measured by any standard other than the employer’s good faith, unilateral judgment,” the court concluded. Justice James Zazzali, in a dissent joined by Justice Virginia Long, said an objective standard would be better in interpreting contracts in cases, like this one, in which the preparation of the satisfaction clause is exclusively within the employer’s control. “By requiring an employer to be reasonable in its exercise of discretion under the satisfaction clause, an employee is better able to anticipate whether his or her performance will justify termination under the contract,” Zazzali said. Quoting Morin Bldg. Prods. Co., Inc. v. Baystone Constr., Inc., 717 F.2nd 413 (7th Cir. 1983), he said there’s a “presumption that the performing party would not have wanted to put himself at the mercy of the paying party’s whim.” Silvestri’s lawyer, Louis Granata of Matawan, N.J.’s Granata, Wernik & Zaccardi, did not return calls last week. Defense lawyer Julie Werner, counsel to Roseland, N.J.’s Lowenstein Sandler, says the case is important for senior-level employees for whom such contracts have become increasingly common — and for their lawyers as well. Her firm, for example, while it was not involved in drafting the contract, was called in by Optus before Silvestri was fired and advised the company that his dismissal was permissible. The decision does not give companies carte blanche permission to dismiss workers with satisfaction contracts, but it does give them the right to do so if their good faith is unassailable, she suggests. A TWIST OF ‘WOOLLEY’ Another lawyer for employers, Gary Lesneski, a partner at Haddonfield, N.J.’s Archer & Greiner, says the opinion is a traditional reading of well-developed law “and that is what might surprise some people who perceive our Supreme Court as having a pro-employee philosophy.” That perception, Lesneski says, dates back to Woolley v. Hoffman-La Roche Inc., 99 N.J. 284 (1995), which recognized the potential for contract claims arising from company handbooks. Lesneski says the dissenters seemed concerned that application of a subjective standard absent specific language would, in effect, make contract employees no better off than at-will employees. Plaintiffs’ lawyers say the dissenters and the Appellate Division were right on the law. “Employees start out in a disproportionate bargaining position. They should at least be given an opportunity to level the playing field by proving their case in court,” says Walter Lucas of West Orange, N.J.’s Green, Lucas, Savits & Marose. Maureen Binetti, a partner at Wilentz, Goldman & Spitzer in Woodbridge, N.J., says “the unlimited discretion vested in the employer’s subjective decision makes any assurance that an employee has any protection under a contract with this language totally illusory.” It’s not all bad for plaintiffs. “The decision makes clear that there are limits on an employer’s ability to terminate such employees since an employer must exercise its discretion in good faith, and the employer’s dissatisfaction must be honest and genuine,” says Patricia Barasch of Moorestown, N.J.’s Schall & Barasch. Bruce McMoran of Tinton Falls, N.J.’s McMoran & O’Connor says an employment contract that does not require objective criteria is really “an illusion.” “Any executive who is considering signing a contract should run it by a lawyer or he may find out he doesn’t have what he bargained for,” he says. Clark Alpert of West Orange’s Alpert Butler Sanders Norton & Bearg says Silvestri’s contract did protect him from dismissal for companywide financial distress or a pretext of dissatisfaction. In the end, “It’s a very narrow issue, because it can so easily be resolved by draftsmanship,” he says.

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