Employed At-will: The Basics & the Fashion Spin



This is a real ad that American Apparel ran. I did not photoshop this at all.

This is a real ad that American Apparel ran. I did not photoshop this at all.

By now you’ve heard that CEO Dov Charney was ousted by American Apparel’s board for cause. While I’m not sure if the video of him dancing naked (probably NSFW unless your boss has a normal sense of humor) was what did him in, I wouldn’t say the video helped his cause (pun intended). While I don’t see any legal implications for the rest of the industry here, I thought this would be a great segway to talking about employment agreements. Off-topic: Learn more about our lawyer

Gawker is reporting and people are confirming that this is in fact Dov Charney dancing naked in front of employees

Gawker is reporting and people are confirming that this is in fact Dov Charney dancing naked in front of employees

Employees: At-will or under contract?

At-will employment is a fundamental concept in U.S. labor law. Almost every employee in the country is working “at-will” in most respects. At-will employees can generally be fired for any reason or no reason at all (of course, it’s not that simple… some discriminatory practices are prohibited by federal law, state laws prevent certain terminations, etc.), while employees who have a true “employment contract” are generally only terminable “for cause” or else the company typically has to pay some kind of penalty. And on the other hand, at-will employees can leave at any time for any reason (I can’t think of any exceptions to this, although sometimes there might be a period of non-competition or something similar as a penalty) while contracted employees can only leave “for cause.” Of course, companies can’t force people to work–that would be slavery–but they can prevent them from engaging in anti-competitive behavior and sue for damages.

Under most circumstances, in order to be NOT employed at-will, you have to have a contract with your employer that says so. The general presumption is that all employees are employed at-will. The public policy basis for this is that society wants to enable job mobility (and social mobility), and so people should be able to leave their jobs if they so desire. The same sort of mentality goes for the employers–it’s classic capitalist thinking that allowing employers the most flexibility to fire will improve bottom lines and eventually make more opportunities for everyone because employers are incentived to fire less profitable employees and hire the employees that make the employer the most money, money which employers will theoretically invest in growing the business and hiring more employees.

In the Fashion Industry

So back to Dov. Dov was the CEO and “creative genius” behind American Apparel. He apparently became obsessed by the simple t-shirt–something he thought was an American Icon and that Canada just couldn’t do right. He built his brand and his company, and today it’s a publicly traded company with a market cap of $121 million. Dov owns just under 30% of the company’s stock, and the board figured he was pretty important, so they wanted him under contract so that he didn’t just abandon ship whenever his whimsy so desired. And now, the board’s fired him for cause. Why? We don’t know exactly, but Dov reportedly has a history of erratic and sexually-charged behavior. And then there’s the video.

So what’s the cause? I keep mentioning “cause” but what is it??! Cause, dear reader, is whatever the contract says it is and whatever a judge might determine it is if the the issue is litigated. It’s just a construct, a made-up idea that has as many variations as there are contracts and judges in the world.

And one of the typical definitions of cause (of which there are usually numerous in any employment contract) is “misconduct” that is usually narrowed down to “willful” or something similar that “injures” (usually limited to materiality of some sort) the company.  What any of that means is pretty hazy, but sometimes dancing around naked in front of employees makes the answer a bit more clear. This definition is what’s referred to as a “catch-all” because it’s intentionally vague–it’s supposed to “catch” anything that may not have been specifically defined elsewhere in the agreement but that someone really probably should be fired for.

And that’s what ol’ Dov had in his definition of cause: “any willful misconduct by the Executive that is materially injurious to the financial condition or business reputation of the Company.” Things can get even more hazy in the fashion industry, because like the old “beauty is in the eye of the beholder,” real success in the branded apparel industry typically has little relation to any scientifically-proven business strategy (okok, cost structure aside). What makes a brand great is sometimes the quirky founder or the bizarre stories the brand’s representatives create. And this is, arguably, what Dov did.

What looks like willful misconduct in other industries could, maybe, be considered intentional strategic conduct in the fashion industry. Obviously, there are limits–and it’s never okay to sexually harass your employees–but evaluating the conduct of a creative genius in the fashion industry is no simple task. And who the hell knows what will hurt the financial condition of the company? The other old adage “no press is bad press” definitely holds true in the fashion design world.

In sum, we have a tricky little issue in the design world as it relates to employment agreements. Most employment agreements also contain a “violation of law” definition of cause (typically limited, of course, in many ways). And while don’t know specific cause the board of AA wants to hang its hat on, and we probably won’t know unless details come out in a lawsuit (the likelihood of which, I will go out on a limb to say, is little to none), employers (and more specifically, their lawyers) might want to think carefully about cause in the design world.

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