AIG – Between Scylla and Charybdis

The current hullabaloo over the AIG bonuses is a good example of the old adage that bad facts make bad law, and is especially puzzling to employment lawyers, who understand that employment agreements are usually sacrosanct. While it is hard to muster any sympathy for AIG, the proposed political machinations to make AIG executives give back their bonuses have broad implications that should be of concern to all clear-thinking citizens. AIG

Congress imposed strings on the bailout money after it had already been accepted by AIG and many other companies, which itself is a bit questionable. But when Congress proscribed companies that accepted the bailout money from paying bonuses, it made an exception for bonuses that were “required to be paid pursuant to a written employment contract executed on or before February 11, 2009.” To pillory AIG for paying out bonuses in accordance with the language chosen by the very politicians who are now screaming loudly about the greedy company seems a mite disingenuous.

Talk about a Hobson’s Choice! If AIG had refused to pay the money, it would have faced a flurry of lawsuits either by individuals or a class of people with very strong legal claims. And for those whose employment agreements called for them to remain with AIG in return for the bonuses, the so-called retainer bonuses, the refusal to pay the bonuses would likely have triggered wholesale departures from the company at a time when it needed them to stay afloat. Indeed, before the current uproar gathered steam, members of the administration opined that AIG had to honor these contracts and pay the bonuses.

Of even broader concern is the effort to get the bonus money back by imposing a 100% tax on it, or by trying to indirectly recover the money from AIG. Since the federal government’s original goal was to assist AIG in avoiding bankruptcy and eventually be repaid by AIG, the government’s current maneuvers could easily end up accomplishing the purpose it has been trying to avoid, a bankrupt AIG and a federal government that is unable to recoup any of the bailout money.

Even more dangerous are the potential long-term impacts. If these schemes are implemented, the resulting precedent would give the federal government carte blanche to violate the Contract Clause of the U.S. Constitution or, if nothing else, result in expensive lawsuits that would probably end with the legislation being overturned. While it may feel good, and win political points, to inveigh against the avaricious company, the truly responsible politicians and other citizens must focus dispassionately on the long term consequences of these actions.


2 responses to “AIG – Between Scylla and Charybdis”

  1. Jay Geary says:

    Great post. While it’s now popular to villify the AIG executives, I can’t imagine any court forcing AIG or the executives involved to disgorge money that came without conditions in the absence of some form of fraud to get the money in the first place. What I DON’T understand is how these people can claim bonuses at all after they ran the company into the ground and brought about this calamity. Sounds like more of the “heckuva job Brownie” logic we’ve come to know.

  2. Nick Fishman says:

    Great post. While it would be hard to identify anyone who approves of these bonuses, it is equally hard to find politician willing to accept accountability for this oversight and journalists that will report the truth. Unfortunately, in this day and age, you can’t trust the folks on Wall St., you can’t trust the politicians and you can’t trust the media. Where does that leave us?

Contact Information