Executive Fired Without Cause Can Exercise Options

In Scribner v. WorldCom, Inc. (9th Cir., No. 99-35239), the U.S. 9th Circuit Court of Appeals ruled that Donald Scribner, am executive at WorldCom, could exercise the unvested options he was holding at the time of his termination because he was terminated without cause. Scribner was terminated in 1997 when the division he managed was sold. He attempted to exercise his 10,000 unvested options, but the company said he could not, arguing that he had been terminated with cause. Scribner's contract specified that if he were fired without cause, he could exercise his options. The contract gave the employer the right to determine what constituted "with cause."

Scribner sued, but a district court sided with the company. The appeals court reversed the ruling, saying that Washington state law, which governed the contract, interpreted termination with cause to mean "some shortcoming on the part of the employee." WorldCom conceded there was not such a shortcoming in Scribner's case. The court concluded that the company had a duty to interpret the terms in good faith, not to simply define the term as would be convenient for them.