Was My Termination as CXO Without Cause Legal, and Can My ESOPs Be Canceled?

Hello Esteemed HR Professionals,

I was a CXO in my previous company. My employment was terminated after 4.1 years, and no reason was given for the termination. The employment letter says that "either party (employee or employer) can give 2 months' notice to terminate employment." The termination letter said that my services are no longer required.

I later learned that the company had hired another CXO and assigned my work to him. It was clear that the company required the services I was providing. The company was and is doing financially very well. There were no layoffs. They pressed me really hard to resign, but I refused to do so. I asked them to send me a termination letter so that I can challenge my termination in court. I wrote to my boss to investigate the matter, but he did not respond. My boss had previously asked me not to leave (I had a good job offer from another company) and said that they would give me ESOPs. So ESOPs were given, but they became nullified because of the termination. There were some serious irregularities I found that I pointed out to my boss. He said he could not do anything about them!

Validity of Termination Clauses and ESOP Cancellation

From your experience and if you have knowledge of court rulings, is such a clause valid in the contract? If yes, then what is the need for termination with cause? Every company can just ask people to go, saying their services are no longer needed. Can ESOPs be canceled for termination without cause? This seems rather bizarre. The ESOP agreement says that ESOPs can be canceled if termination is for misconduct, etc. (meaning for a reason) or for "any other reason." But termination without cause is not a reason.

Kindly share your opinion from experience. I would be quite obliged.

Cheers

Dear member,

What happened to you is unfortunate. Your termination shows how management does not differentiate between a CXO level and an ordinary employee. We, the members of this forum, understand the pain of an unceremonious exit that you are required to endure. We empathize with you.

Anyway, now your separation is over. Since you have received a letter stating "your services are no longer required," you can send the letter to the MD asking for payment in place of the notice. In your letter, please quote the exact clause of the appointment letter that states "either party can give 2 months' notice to terminate employment." Send the hard copy of the letter by Speed Post. Preserve the receipt from the post office. Upon delivery of the letter, download its receipt and preserve the hard copy.

If the reply from the previous company is not received, or if the reply is not satisfactory, then send a reminder but follow the same procedure as followed earlier.

Please note that hereafter all the correspondence should be done in hard copy only. This is because generating the material evidence is of utmost importance. However, after dispatching the letter, you may scan your file copy along with the receipt from the post office and send it by email. The email communication could be supplementary.

Please keep the tone of the letter polite. Whatever injustice you might have suffered, do not vent your frustration in the letter. Expressing frustration is inconsequential now, and it will divert attention from the objective of sending the letter.

By chance, if the management responds but wishes to reduce the notice period payment, then it is your call to accept the proposal or not. My personal opinion is to accept it and close the matter.

If the management remains impervious to your pleas, then you are free to send the lawyer's notice. From there, a course of litigation will start. The lawyer will guide you further anyway.

The appointment letter is a contract between an employer and an employee. Therefore, more than choosing a lawyer who handles labor law cases, please choose someone who has handled cases under the provisions of the Indian Contract Act, 1872.

Please keep the draft of the letter ready. In the meantime, wait for the other senior members of this forum for their opinions.

Thanks,

Dinesh Divekar

Dear Dinesh ji, Thanks for the response. I want to mention that I have received the salary during the notice period and the bonus for the previous year.

Bad Faith Termination

My question is around the bad faith in which the employment was terminated. The employer followed a bait and switch strategy to keep me on board until its DRHP was approved. The employer did not investigate my complaint against the CFO. They lied to SEBI, stating that I had resigned, whereas I did not.

Litigation Concerns

I am going for litigation and I want to know if a no-cause clause will hold if the employer has acted deceitfully and lied to SEBI in DRHP. Also, when it did not investigate a complaint against the CFO and his team. Will the court consider it unethical and professionally immoral to terminate employment, especially when I have been employed for 4 years and where my services are still needed? Is it okay to first give ESOPs and then take them away for no cause?

I am suing them for the financial damage that they have caused me.

Dear member,

Your issue is the sudden discontinuation of your services. You attribute the cause of your termination to the CFO's financial irregularities you brought to the notice of the management. Rather than investigating the irregularities, they chose to discontinue your services.

However, the question is, do you have incontrovertible material evidence that the CFO did commit irregularities? Now, you are out of a job. Even if the irregularities did take place, then how will you prove it?

Importance of a Domestic Enquiry

Before terminating the services of an employee, it is important to conduct a domestic enquiry. If not a domestic enquiry, then at least a show-cause notice should be served to the defaulting employee. But for the C-suite employees, this procedure may not be followed. However, if you are aggrieved, then you can very well challenge the termination. Since you were a very senior employee, you cannot approach the labour court. The case will have to be filed in the civil court. The case could drag on for years or even decades. Do you have the patience to make court visits for a long time? Even if the verdict is in your favour, there is no guarantee for the restoration of your employment by the court. If you can prove that you were unemployed because of the sudden discontinuation of employment, the court may agree to the payment of back wages.

Alternative Remedy: Reporting to SEBI

One more remedy is to write a letter to SEBI, bringing to their notice financial irregularities. While SEBI may investigate them and take suitable action against the company, there is no guarantee that they will ask the company to restore your employment.

Thanks,

Dinesh Divekar

Added to the valid points of our Senior Member Mr. Dinesh Divekar, I just want to highlight the following:

Separation Clause in Employment Contracts

In any contract of employment, there will be a separation clause. In your employment contract, your employer clearly mentioned "either party (employee or employer) can give 2 months' notice to terminate employment," which means that either party has the right to cancel the contract at any point without assigning any reasons. The only requirement is to fulfill the notice period clause, which is 2 months in your case. This is not termination on the grounds of misconduct; hence, the question of a domestic inquiry does not arise here. Your rights in this case are limited to whether the employer gave you a 2 months' notice period or salary in lieu of the notice period. If the 2 months' notice period or 2 months' salary in lieu of the same is not paid, then you can challenge the decision of your employer in a civil court. As you know, such civil proceedings will be a time-consuming process wherein you will be expected to spend money for an advocate. Even if you succeed, the court will direct your employer to pay you two months' salary (or notice) maybe with interest. Obviously, when you challenge your employer legally, they will defend their side through their legal cell. So personally, I won't suggest this option.

Cancellation of ESOPs

With regard to the cancellation of ESOPs, it depends on the employment terms. As it is mentioned in your employment contract that "ESOPs can be canceled if termination is for misconduct or for 'any other reason,'" the employer reserves their right to cancel the ESOP upon termination of the contract for whatsoever reason it may be.

I think the issue here is not of bad faith termination of employment, but of violation of SEBI regulations, corporate governance, and fraud in a company going public.

Reporting Mechanisms for SEBI Violations

I think SEBI has a grievance process in which you can report your findings. MCA and ROC also have such mechanisms that are now very active. You need to look into those. Also, you may choose to report it officially to the Merchant Banker handling the IPO/FPO if you think they are reputable enough to take the right steps after that.

Considerations Before Reporting

But you need to speak to your lawyers and think carefully. Once this matter of dispute comes out into the public, you will find it difficult to get another job because promoters and boards will not trust you not to go against them.

Legal Obligations

On the other hand, it may be a legal requirement for you to report the fraud in a public company to the Finance Ministry. Please speak to anyone you know in the top accounting firms to know more about this matter.

Thank you, experts, for taking the time to look into my situation!

If the matter of dispute becomes public, the company should also be concerned. Its reputation is at risk, and its stock may be impacted by news of the lawsuit regarding unfair termination and financial irregularities. For this reason, I am hoping an out-of-court settlement can be reached.

Is the contract the final say?

Will the authorities find the company's actions suspicious? Does it not matter that the employer made false promises resulting in serious financial losses? Does it not matter that my termination is the result of my whistleblowing activity? I believe the court will view this as unethical and illegal practice and may not uphold the "no-cause clause" as valid.

A no-cause clause would be valid if everything else is normal, but in my case, many things were not normal and are enough to raise eyebrows.

Understanding "no-cause termination"

I am still not clear whether "no-cause termination" means "any other reason." No cause should mean no reason. If yes, then my ESOPs cannot be taken away.

I am not looking to get reinstated. I have another job (and I have informed my boss about the actions I plan to take), but I had to take a significant salary cut (and no ESOPs). I want TBO to pay for the financial losses, and for that, I am challenging the termination.

In the absence of full information, it is difficult to give correct suggestions. You have been vague in all your posts. I can understand that since it involves confidential matters, but it impacts the judgment of an external person. So I suggest you take the help of the right professional to whom you can disclose all the facts.

Company Reputation and Legal Concerns

"If the matter of dispute comes out in public, then the company should also worry about it. Its reputation is also at risk, and its stock may also be impacted by the news of the lawsuit around unfair termination and financial irregularities. For this reason, I am hoping an out-of-court settlement can be arrived at."

The company will probably not care. Even ones like Wipro and Infosys have had cases filed against them. If your entire intent is to make money from an out-of-court settlement, I cannot comment on how successful you will be.

Contractual Terms and Authority Intervention

"Is the contract the final say in my case, or will the authorities find the company's action suspicious?"

If you file a complaint with the relevant authorities, they will be interested, provided you have evidence. Otherwise, they don't care why you were fired as long as it was not affecting any activities they were supervising or responsible for.

False Promises and Financial Losses

"Does it not matter that the employer made false promises resulting in serious financial losses?"

It matters to no one, even if it was in writing. They asked you to stay, and you were unwise enough to do so. Now they no longer want you. They can claim your work quality is not up to the mark now and there are better-suited persons. The court will not force them to keep employed a CXO whom the company does not trust or believe is right for them.

Whistleblowing and Legal Protection

"Does it not matter that my termination is the result of my whistleblowing activity? I believe the court will view this as an unethical and illegal practice and may not hold the 'no-cause clause' valid."

Whistleblower protection is an American/European concept. If your company is American or European, their laws will protect you. Here in India, you can always go to the authorities, but they will not protect your job for it.

Understanding 'No-Cause Termination'

"A no-cause clause would be valid if everything else is normal, but in my case, a lot of things were not normal and more than enough to raise eyebrows. I am still not clear whether 'no-cause termination' means 'any other reason.' No cause should mean no reason. If yes, then my ESOPs cannot be taken away."

The company does not need a cause to remove someone they do not trust is right for them. That is enough. You are not at the worker level where you will be protected by the labor laws. ESOP is driven by the ESOP Terms. If that provides for it being taken away on termination, the clause will apply. For you, when they asked you to resign, you should have done that and negotiated to keep your ESOP and dignity. Your allegations against the company will be taken up by a different forum which will rarely involve protecting your employment.

You would be looking for a 10-15 year court battle. I hope you provided funds for it. And I am surprised your new employer is okay with your case against the previous employer. If so, you have found a very good employer indeed (or you have exceptional skills that are in demand).