In my Employment Law class today, I am covering intentional interference with the employment relationship, for which the students are reading Judge Frank Easterbrook’s opinion in Kumpf v. Steinhaus, 779 F.2d 1323 (7th Cir. 1985). The opinion is noteworthy, not so much for its treatment of the intentional tort issue, as for the tortured logic of Judge Easterbrook’s opinion.

In Kumpf, the former President and CEO of an insurance agency (who also owned 20% of the agency’s shares) sued after his job was eliminated in the course of a corporate merger. The merger was engineered by Steinhaus, the Executive Vice-President of the agency’s parent corporation, who became President of the post-merger agency. Kumpf contended that the merger was motivated, at least in part, by Steinhaus’s self-interest and that Kumpf’s resulting loss of employment was thus subject to legal challenge despite his “at-will” status.

Judge Easterbrook flatly rejects Kumpf’s theory, contending that, as an at-will employee, he enjoyed no protection from even bad-faith termination. Along the way, he offers a paean to the virtues of greed (which, as the casebook editors note,¹ echoes the famous “Greed is good” declaration in the movie Wall Street). He also makes the following observation about the value of at-will employment:

The privilege to manage corporate affairs is reinforced by the rationale of employment at will. Kumpf had no tenure of office. The lack of job security gave him a keen motive to do well. Security of position may diminish that incentive.

In support of that proposition, Easterbrook cites, not Wisconsin law, but his former University of Chicago Law School colleague Richard Epstein’s article, In Defense of Contract at Will, 51 U. Chi. L. Rev. 947 (1984).² Curiously, Easterbrook (like Epstein before him) fails to address whether the same incentives apply to life-tenured federal judges or tenured law professors.

In further defense of Steinhaus’s self-interested motives, Easterbrook offers the following observation (again unsupported by any authority under Wisconsin law):

Often corporations choose to align the interests of investors and managers by giving the managers a share of the firm’s revenue or profits. Commissions, the ownership of stock options, and bonuses all make managers and investors do well or poorly together.

Re-reading that passage this morning, I couldn’t help but wonder whether the investors in AIG (a.k.a. We the People of the United States) would agree with Judge Easterbrook’s certitude on the magical powers of bonuses to align executive and investor interests.

¹Timothy Glynn & Charles Sullivan from Seton Hall, and Rachel Arnow-Richman from University of Denver.

²The casebook editors rightly question whether Easterbrook’s application of “Chicago school” law & economics, in a case goverened by Wisconsin common law, is faithful to the Erie doctrine. They further note that Easterbrook’s analogy to the “business-judgment rule” is entirely misplaced under the circumstances of the case, both because the rule (a staple of corporate law) applies to corporate directors, not corporate managers more generally, and because the rule specifically does not apply where the decision in question involves a self-interested transaction as was alleged to be the case in Kumpf.