Employee Titles and Their Implications

If you are a fan of the TV show “The Office” you will remember how Dwight Schrute would call himself “Assistant Regional Manager” when he really was just an “Assistant to the Regional Manager” – a title position only.

It’s not uncommon in the business world for a company to give the title of Vice President to an employee but not give that person true authority as an officer or manager of the company. One industry where this is practiced is the Financial Services Industry.

The Goldman Sachs Group recently lost a court case where they were required to pay certain legal fees for a former employee of theirs who had one of these Vice President titles but was not a true officer of the company.

On October 16, 2013, the Honorable Kevin McNutly of the United States District Court for the District of New Jersey rendered his decision to have Goldman Sachs pay for the legal fees of former employee Sergy Aleynikov for his defense against state criminal charges alleging that he stole computer code while working at Goldman Sachs.

Mr. Aleynikov was one of many Vice Presidents who worked for Goldman Sachs and his argument to the court was that he was entitled to have his legal fees paid because he was considered an officer of Goldman Sachs as per their By-Laws.

The court rejected Goldman Sachs’ arguments that Mr. Aleynikov was given an “Inflated Title” and that the company has discretionary authority as to whom they can reimburse regardless of what corporate By-Laws say.

Here is the heart of the court’s decision:

“It may be the case that Goldman (or the industry of which is a part) has been profligate in conferring the title of Vice President. If so, Goldman must bear the consequences of that profligacy. Goldman might easily have chosen to be more sparing with job titles, or to confer them in some other way. It might easily have drafted its By-Laws to restrict indemnification to a well-defined class. It did not.”

The court stated that the By-Laws should be interpreted to mean what they mean. If you say someone is a Vice President, they are a Vice President. A company has the freedom to restrict their By-Laws if they so choose.

Any business owner should take in consideration the court’s opinion on this matter. If you are allowing certain employees to have the title of Vice President you should look closely as to what implications this has to your company and discuss with your legal counsel if you should change your By-Laws or not.

From an insurance standpoint it’s usually against public policy to insure for criminal acts. However, some Directors & Officers Insurance Policies will allow coverage for defense costs for criminal allegations against individual directors and officers in certain circumstances. But usually there is a payback provision for those legal fees if the director or officer is found guilty or pleads No Contest.

If you would like to discuss this further with us, feel free to give us a call or drop us a line here.


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