Severance Plan Runs Out of Gas?
November 7, 2012As AutoGas Systems saw that its future prospects looked bleak, one of its executives, John Cullen (its president and COO), circulated to certain employees a severance plan, which included incentives for employees to remain with the company as it wound up its affairs. Dana Kelman was one of the employees who received the severance plan. When his time with AutoGas ended, he sued to obtain the funds he was due under the agreement. The only problem was that AutoGas’s CEO and Chairman, G. Randolph Nicholson, denied that Cullen ever had authority to enter into those severance agreements on behalf of the company. Kelman moved for summary judgement, insisting that he conclusively established that Cullen’s authority to enter into the severance plan stemmed from his position as president and member of the board. The trial court agreed and awarded Kelman $93,000 in damages.
The Court of Appeals reversed and remanded. It found that, although a senior executive like Cullen had authority to bind the company on routine matters arising in the ordinary course of business, the parties advanced conflicting evidence on whether the purported severance agreement qualified as a “routine matter.” The Court went further, however, and rejected as a matter of law that “a severance agreement developed in anticipation of the winding up of the corporation’s business and resulting in payments substantially higher than the employee’s annual salary of $70,000 is a routine matter.” The Court also rejected Kelman’s claim that Cullen had apparent authority to bind the company to the severance plan because the parties has presented conflicting evidence of that authority.
