First Circuit Holds that Employee's Termination Not Violative of Implied Covenant of Good Faith and Fair Dealing

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In the recent case of Suzuki v. Abiomed, Inc., the First Circuit Court of Appeals affirmed a U.S. District Court order granting summary judgment to the defendant employer, holding that the company's termination of an employee approximately fifteen months prior to the achievement of an important milestone, which would have entitled the employee to a large equity grant, did not violate the implied covenant of good faith and fair dealing in his employment contract. 

Abiomed, a medical device company, hired Keisuke Suzuki in connection with the company's efforts to obtain Japanese regulatory approval for its Impella devices. The conditions of Suzuki's employment were set forth in an offer letter that, in addition to a salary, bonus and commission opportunities, detailed additional potential compensation in the form of three equity awards to be paid at certain milestones on the path to the desired regulatory approval: 10,000 shares upon submission of an application, 20,000 shares when the Impella devices were approved for general use by the Japanese Ministry of Health, Labour and Welfare (the "MHLW"), and an additional 15,000 shares when the company obtained approval for a targeted reimbursement level for its Impella devices.

The offer letter included a provision expressly stating that, in order to receive the equity awards, Suzuki must be actively employed at the time when the relevant milestone was achieved and further, that Abiomed "reserve[d] the right on a prospective basis to modify, change or eliminate its [c]ompensation, [b]onus or [b]enefit programs," and providing that the employment was at-will and not for a specified set term. Suzuki made certain requests for modifications to the offer letter but, after Abiomed rejected his requests, Suzuki signed the offer letter containing these terms in 2010.

The Impella application was submitted to the Japanese MHLW in March 2011, and Suzuki was in turn issued 10,000 shares of Abiomed stock by the company in accordance with the offer letter. Though Suzuki had initially estimated in the summer of 2010 that approval of the Impella devices would take approximately two years, the regulatory approval process proceeded much more slowly and was consumed with delays. Abiomed produced evidence that during the period from 2011 to 2015, Suzuki had written abrasive e-mails to other Abiomed executives, stormed out of meetings, and at least one Japanese regulator alleged that Suzuki was telling a "biased story" about the Impella devices and blaming regulators for the delays.

In May 2015, Abiomed executives informed Suzuki that the company intended to change his duties and compensation structure, given the failure to secure Japanese regulatory approval of the Impella devices over the previous five years. The new compensation structure offered to Suzuki included no annual bonus, issuance of 10,000 restricted stock units upon approval of the Impella devices for general use in Japan and 5,000 restricted stock units upon approval at the targeted reimbursement level. Suzuki rejected the new proposal from Abiomed, claiming that he had vested rights in the 20,000 shares set forth in the 2010 offer letter to be paid at the time of approval of the Impella devices for general use by the Japanese MHLW because he had "executed substantial performance" toward obtaining approval of the devices. In turn, Abiomed terminated Suzuki in June 2015.

The Impella devices were ultimately approved for several uses by the MHLW in September 2016 and there was undisputed evidence that Abiomed conducted new tests, submitted supplemental data and answered questions from regulators during the fifteen months between Suzuki's firing and the regulatory approval.

The First Circuit, in reviewing the U.S. District Court's summary judgment to Abiomed de novo, noted that Massachusetts state law applied to the dispute founded on diversity jurisdiction, and summarized the relevant Massachusetts Supreme Judicial Court precedent, which provides that an employer may be found liable for a breach of the implied covenant of good faith and fair dealing when the "employer seeks to avoid the payment of earned compensation by discharging an employee who 'is on the brink of successfully completing' a sale or some other milestone that will trigger entitlement to the disputed compensation."

The First Circuit carefully applied the facts of the dispute to the law and concluded that, though Suzuki "helped lay some of the groundwork for eventual approval of the Impella devices" during his employment, under the terms of the offer letter, he "was not entitled to the second equity incentive until regulatory approval actually occurred." At the time of Suzuki's discharge, "it was uncertain . . . whether [regulatory approval] would be achieved - and, in fact, it was only achieved after fifteen months of substantial additional work. Consequently, there is no principled way in which we can say that Abiomed deprived Suzuki of 'compensation clearly connected to work already performed.'" Thus, the First Circuit held that no reasonable factfinder could conclude that Abiomed breached the implied covenant of good faith and fair dealing, and affirmed the order of summary judgment in favor of Abiomed.

Suzuki v. Abiomed, Inc. illustrates the strict limitations under which employees may recover for a breach of the implied covenant of good faith and fair dealing following the termination of an at-will employment.

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