Law for Business 10th Edition by James Barnes,Terry Dworkin,Eric Richards

Exercise 10

The president and CEO of Cleo sent a letter of employment to Guiliano in 1992, promoting him to Vice President of Marketing for a three-year term. It spelled out several terms of employment including the following paragraph: In the event the Company terminates this Agreement and your employment without cause, you shall continue to be paid your current salary from the date of termination through October 31, 1995. In 1994 Cleo had several changes in upper management, and Guiliano's new boss found his work to be unsatisfactory. He eventually was relieved of all duties, told to stay home, all phone calls were screened, and those that were work related were handled by the new V.P, who had moved into Guiliano's old office. The company told Guiliano it would contact him when there was something he could do and it would continue to pay him. After three months without contact, Guiliano took a job elsewhere and sued Cleo for constructive firing without cause, seeking his salary through October 31, 1995. Guiliano's new salary was $7,000 more than his salary at Cleo, and Cleo paid him until he obtained the new job. They therefore argued that the $90,124 due under the clause was a penalty since Guiliano suffered no monetary damages and should not be paid. Is this correct? Explain.