California Labor and Employment Defense Blog

Employees Who Wear "Two Hats" Can Have Two Separate Employment Contracts -- Faigin v. Signature Group Holdings

For various legal and financial reasons large corporations frequently do business through an array of interrelated parent, subsidiary and sibling entities.  Executives and other employees are frequently shifted back and forth or end up working for two different entities at the same tme.  (I have been involved in several cases in which highly placed executives literally did not know which corporate entity employed them.) 

The holding in Faigin v. Signature Group Holdings, Inc. illustrates that one consequence of this scenario is that an employee who works for two different entities may have two different contracts.  The employee may have an integrated, written employment contract with a parent company that is terminable at-will.  But unless the contract is specifically worded to govern all employment with related entities there is no reason that a "dual employee" cannot also have a separate implied agreement with a subsidiary company that requires a higher standard for termination.   As the Faigin Court explains:


A subsidiary employing an individual who has a written employment contract with the parent conceivably could agree to continue to employ the individual unless there is good cause to terminate the employment even if the parent, for whatever reason, terminates the individual's employment with the parent.


Thus, the Court upheld a $1.37 million wrongful termination award against a subsidiary company despite the fact that the executive's written contract with the parent company stated that his employment was terminable at-will.

Employers who wish to avoid this problem might draft their an at-will termination provision to specifically govern any potential employment relationships with related companies.  But  having one corporation control the labor policies of another in this manner naturally tends to erode any claim that they are entirely separate entities and thus open the possibility of alter ego claims and the like.         


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