Recently ousted American Apparel founder Dov Charney is not going down without a fight. According to the Financial Times, Charney, who currently holds a 27 percent stake in Los Angeles-based American Apparel (the largest of any individual shareholder), filed a complaint with the Securities and Exchange Commission early this week contesting his dismissal, which allegedly resulted from his refusal to accept a reduced “creative” role at the company, other sources suggest it came on the heels of an ” investigation into alleged misconduct.”
In addition to the SEC filing, Charney is reportedly ready to file a wrongful termination suit (a la John Galliano v. Dior), seeking between $23 million and $25 million in severance pay if he is not reinstated. Because Charney, unlike roughly 70% of the American population, is employed by way of a contract, the situation at hand varies from the classic “at will” employment scenario, in which an employee may be fired at any time for any reason or no reason at all (as long as the reason is not illegal, obviously). As a result, Charney may only be dismissed for “just cause” and in accordance with the specifications laid out in this contract. Read on …
Charney, who launched the company known for its “Made in Los Angeles” labels and its controversial ad campaigns in 1991, was suspended last Wednesday, after the company’s annual meeting. In a 5-0 vote, the American Apparel board decided to replace Charney as chairman and terminate him as chief executive. The vote immediately suspended Charney, but under the terms of his contract with the company, a 30-day period is required before termination.
According to Charney’s attorney, Patricia Glaser, who calls the charges against Charney “baseless”, the American Apparel board gave Charney the option to resign following Wednesday’s meeting. If he had resigned, Charney would have been retained as a consultant for four years, at $1 million a year, and given a multimillion-dollar severance package.
As we now know, Charney has not only refused to resign but is fighting his dismissal. Consequently, Charney denies many of the allegations in the Notice of Termination letter (think: He sexually harassed employees and “refused to participate in mandatory sexual harassment training”; he gave “significant” severance packages to former employees to help conceal wrongdoing; and was “aware of, but took no steps to prevent an employee under [his] direct supervision and control from creating and maintaining false, defamatory and impersonating blog posts about former American Apparel employees.”
He also authorized salary increases and bonuses for employees to get them to sign releases aimed at protecting him from personal liability, and sought company reimbursement for “personal services such as legal consultation”).
Glaser further stated in a letter to the board that American Apparel “violated its legal and contractual obligations to Mr. Charney in numerous respects,” and that he has suffered “substantial professional, reputational and financial injuries” as a result.
According to the Los Angeles Times, some analysts say that Charney, who is said to be giving the American Apparel board until Monday to set up a meeting to discuss reinstating him, could try to take over the company with the backing of a private equity firm. If he can’t regain control, analysts have guessed that he would sell his 27% stake to another shareholder interested in taking over.