DeutscheTech signed an employment agreement with Niels, a prominent European IT executive, to relocate to San Francisco and serve as Vice President of Business Development. Although California is an "at will" employment law state, when an employer and an employee sign an employment contract covering California employment, the contract controls. Niels did a good job for a while, but gradually the Board of Directors and corporate officers began having problems with him. The company believed that Niels breached his fiduciary duty to the company. Niels felt that the company breached its employment agreement and defamed him. DeutscheTech was represented by a large, national law firm for employment law, but had used Olender for immigration matters for 15 years.

DeutscheTech's employment agreement had complex compensation provisions including stock options with varied vesting rules, performance bonus compensation rules, a termination for cause requirement, and an arbitration clause that required the company to pay all arbitration fees. Niels brought an arbitration claim for breach of the employment agreement and defamation. DeutschTech management had aleady paid about $20,000 in legal fees to its employment law firm and the arbitration had not yet progressed to discovery.

While it is rare for a company to have insurance for employment law claims, it is common for companies funded by venture capital to have such insurance. DeutscheTech had closed Series B funding a year earlier and had comprehensive employment claims insurance. DeutscheTech's law firm had not yet notified the insurance carrier, nor did it advise the company to notify the carrier.

Management asked Sean Olender if he would take a look at the dispute and write an opinion letter that would provide a starting point for the company's officers and the Board of Directors to consider whether the claim was covered by insurance, whether to tender the claim to the insurer, what was a reasonable value for Niels's claims, possible strategies to achieve settlement, and also if the company's current employment law firm drafted a good employment contract. The company essentially wanted a second opinion.

Sean interviewed a few employees who witnessed some of the events leading to the dispute, reviewed the employment agreement and the insurance policy and performed some research. Sean issued an opinion letter noting that the arbitration clause invited frivolous claims because it shifted the entire cost of arbitration to DeutscheTech and that in the future, the company should apportion some reasonable part of arbitration costs to the employee, but not more than half and not for claims covered by FEHA.

Sean also noted that a section of the insurance policy required the company to promptly notify the insurer in writing of even a potential claim regardless of whether the company intended to tender the claim for coverage. And the policy covered the cost of legal defense, but only defense costs incurred after the company notified the insurer of the claim. The DeutscheTech's current employment law firm had generated $20,000 in legal fees that would not be covered by insurance because the company hadn't yet notified the insurer of the claim.

Niels seemed to really want a $17,500 performance bonus and his attorney specifically asked for only that in the arbitration demand. But the attorneys representing DeutscheTech had not clarified whether they were negotiating the compensation claims, the defamation claim, or both. A question remained whether Niels would arbitrate the employment agreement dispute and then after settling that matter file a civil lawsuit for defamation and argue that the defamation claim was not within the scope of the arbitration agreement. DeutscheTech's employment law firm was charging fees and expending hours as if the dispute was worth $200,000 or more. Sean didn't think it was.

Sean suggested that DeutscheTech file a counterclaim in arbitration for breach of fiduciary duty and then offer a global settlement of $30,000 to $40,000. Niels didn't have sufficient evidence to support a defamation claim and he had to know that his chance of prevailing on defamation was low. For this to work, the terms had to include both parties signing a release of all claims and specifically that Niels had to sign a release that waived defamation claims against the company and its officers and directors as individuals. Sean also suggested that DeutscheTech request that its current law firm reduce its $20,000 legal fee by half because the firm failed to notice that the claim could have been tendered to the insurer and had the company done this, the insurer would have paid the legal fees.

The company settled the dispute and was pleased with Sean's second opinion because it gave the company leverage in its negotiations with both Niels and the company's own employment law firm.