Vilified AIG Employees Have Rights Too ““ A Deal is a Deal

Outten & Golden LLP Wayne N. Outten
March 23, 2009

Amidst the public outcry over compensation for AIG employees, some key facts have been obscured or overlooked. And the perspective of employees, including the AIG employees, seems to be missing from the discussion.

Americans have good reason to be angry about the failures of their government that contributed to our current predicament, about the greedy and risky behavior of financial institutions, about excessive compensation of executives and bankers, and about taxpayer money being used to pay these people. Not surprisingly, our nation is upset that some high-income earners are being bailed out and rewarded, while low-income and middle-income people struggle to put food on the table, to keep their homes, and to send their kids to school, and while workers cope with being terminated without severance pay or benefits and are being forced to work long hours without overtime pay.

Nonetheless, the AIG employees who are being vilified by Congress and others should not be scapegoated. Congress is considering laws aimed specifically at revoking or recouping the retention payments. Federal and state officials have threatened to publicize their names. Some have received death threats. Their homes have been monitored. Their children are afraid to go to school.

Most of the AIG employees did not receive the million-dollar payments featured in news coverage. Most are hard-working middle-income employees who undertook ““ on the terms set before the bailouts ““ to help AIG survive through 2008. And most of them were not personally responsible for taking unreasonable risks, making bad deals, or causing huge losses; they were not the decision-makers. Yet, they are all being painted with the same brush. And even those who might bear responsibility for AIG’s problems or who received huge payments should not be subjected to vilification, invasions of privacy, confiscatory taxation, and threats of violence.

The key point is that AIG contractually committed itself a year ago to make these retention payments in March 2009 to induce select employees at various levels to keep working for the rest of 2008 (despite uncertainties in the company and opportunities elsewhere), because the company considered them essential to helping solve its financial mess. And it worked ““ as AIG requested, most of them stayed for the retention period, serving their company through 2008, despite the tumult all around them. Notably, these were not discretionary or performance-based payments.

AIG’s retention arrangement is not unusual. Employers enter into such arrangements all the time, especially in times of uncertainty, such as when the company may be sold or is in financial trouble. In fact, in such circumstances, a company might be negligent if it did not make arrangements to retain key employees.

In any event, such arrangements are lawful and enforceable as a matter of basic contract law. This is true even though some of the payment amounts are very high ““ higher than most people can imagine earning. Although contracts can be voidable under certain circumstances, no responsible commentator has suggested that these particular contracts contain any legal defect that would allow AIG to walk away from its obligations to these employees. In fact, numerous government and private lawyers who scrutinized these contracts concluded that they were legitimate, enforceable obligations of AIG to its employees. Neither governmental ire nor public furor should override the terms of a lawful contract to compensate an employee for services rendered ““ whether or not the employee contributed to the employer’s problems or got high compensation ““ because a deal is a deal.

No one disputes that AIG and other Wall Street companies deserve intense scrutiny and criticism for taking unreasonable risks and losing many billions of dollars. Nearly everyone concedes that the risks these companies took could have been mitigated with better regulations, which our government should have strengthened but instead weakened.

We should ask more of our elected officials who passed laws deregulating financial institutions and of the regulators who let those institutions run amok. We should ask more of those who failed to do their homework before investing taxpayers’ money in AIG and other failing companies. And we still have tremendous challenges ahead in figuring out how to get out of this mess. But we should not allow legitimate anger over these past blunders and present challenges to be misdirected ““ perhaps intentionally by some in the government and the news media ““ by making scapegoats of the AIG employees who received retention payments to which they were entitled under arrangements entered into before the tumult of the past six months. They kept their end of the bargain.

As Americans, we must uphold the rule of law even when ““ and especially when ““ it challenges our sense of fairness. We are justifiably proud of our Constitution, which protects individuals against abuses of power by the government. Our Constitution prohibits Congress and the states from passing “bills of attainder” (laws that aim to punish a single person or specific group of people) and from enacting ex post facto laws (laws that criminalize conduct retroactively); the latter prohibition recognizes the fundamental unfairness of punishing someone for doing something that was lawful when they did it.

Our confidence in our system will be diminished if we stand idly by while Congress punishes a class of individuals to appease public anger. To compromise our laws for that reason would put each of us, and our coworkers and neighbors, at risk during the next crisis, real or imagined. What then would stop employers and others from citing the AIG example as precedent for changing contracts with unions and individuals to satisfy public opinion?

Throwing away the rule of law, especially on a 24-hour news cycle, would be a mistake. Let’s calm down and remember who we are.

Wayne N. Outten  is the founding and managing partner of  Outten & Golden LLP  in New York and Connecticut. The law firm focuses exclusively on representing individuals in all areas of employment law. The firm represents some AIG employees.