Psychology

John and Bernie, partners at a recently formed software engineering company, are being sued by one of their junior associates for wrongful termination. The junior associate is alleging breach of contract and the implied duty of good faith and fair dealing. The partners insist that their decision was based on merit, but they agree with their attorney’s risk analysis that they stand at least a 60 percent chance of being found in breach of their contractual obligations. Comparable jobs in the area are scarce, and the plaintiff’s preexisting health condition renders her loss of health insurance particularly devastating. The combination of her lost future salary, inability to find comparable employment, and likely high costs of self-insuring could push her damages toward the $600,000 to $800,000 range.
In caucus, the partners tell you that they simply don’t have the money to pay anything close to the plaintiff’s initial demand of $500,000. They tell you that for the past few years, every dollar they made, they reinvested in the business to keep it afloat. Each partner brought a copy of last year’s taxes as well as a copy of his bank statements; one showed a balance of $50,000 and the other a balance of $20,000. You note on the W-2 that one partner appeared to have some significant investment income. When you point to that number and ask about the possibility of other accounts not yet disclosed, the partner reports that he did have another stock portfolio but that it was sold to plough more money into the business. You have questions about whether he is being completely honest about the extent of his assets.

What ethical issues present themselves in this scenario, and what could a mediator do to resolve them?

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