That one-man legal-research machine Steven Sholk informed me of the California Court of Appeal’s decision in Vespremi v. Tesla Motors, Inc. (go here for a PDF copy).
The part that caught Steven’s eye was the court’s discussion of the following provision in the employment agreement of one of the plaintiffs (the employment agreement of the other plaintiff contained the same language, but referred to 100,000 shares):
Subject to the approval of Tesla’s Board of Directors, you will be granted a stock option to purchase an aggregate of 40,000 shares of Tesla’s Common Stock pursuant to Tesla’s Equity Incentive Plan then in effect. Your stock options will vest commencing upon your first day of employment (1/4 of the shares vest one year after the Vesting Commencement Date, and 1/48th of the shares vest monthly thereafter over the next three years.)
Each plaintiff was terminated in his first year of employment. In their lawsuit against Tesla, the plaintiffs claimed, among other things, that they hadn’t been given the Tesla shares to which they were entitled.
The lower court found for Tesla, but the Court of Appeal disagreed, noting the conspicuous inconsistency in the quoted language: the first part of the second sentence says options vest starting the first day of employment, whereas the language in parentheses that follows says that vesting starts one year after the “Vesting Commencement Date.” (The Court of Appeal understood that defined term as meaning the first day of employment.)
Here’s what I think happened: In revising a template that provided that shares would vest beginning the first day of employment, Tesla added language but forgot to strike the original, inconsistent language.
And in the new language they used the defined term “Vesting Commencement Date” to convey its original meaning—the first day of employment—even though that defined term was entirely inconsistent with the revision.
So this part of the dispute would seem to represent the fruit of a botched bit of drafting. But this sort of glitch can be expected when you’re creating routine paperwork by revising Word documents. (A benefit of document assembly is that it precludes such mistakes.)
5 thoughts on “The Perils of Revising Word Templates: An Example from a Recent Lawsuit”
…not to mention, as a practicing attorney, this is the sort of thing that can keep you up at night.
Drafts produced by document assembly will generally need further amendment to fit to the precise deal, so you can never eliminate the risk of manual incompetence. Of course, I agree document assembly reduces that risk by reducing the number of amendments made manually.
Still, I think that any lawyer as incompetent as the one that drafted this could find a way to get himself sued in any scenario. Some people just need their drafting license revoked.
W: Yes, document assembly often represents a first step. But I assumed that alternative vesting schedules would have been a rational component of any document-assembly questionnaire devised to create the employment agreements at issue in this dispute.
I suspect that the person at fault in this case was some low-level functionary. One benefit of document assembly is that it can be used to take discretion away from people who aren’t equipped to handle it.
Westmorlandia: Although this mistake could not have occurred without incompetence, it indicates a quality control problem, also. The quality control system of the firm that produced the document either broke down or, more likely, was ineffective generally or non-existent.
In his book The Checklist Manifesto Atul Gawande demonstres the effectiveness of a quality control tool as simple as a checklist to avoid mistakes resulting from our own incompetence. It’s not necessarily that we don’t know what we’re doing, but that we can’t think of everything every time. As long as every contract is drafted and reviewed on an ad hoc basis without external quality control tools, unnecessary mistakes will be made by otherwise competent attorneys.
I agree with Ken that this is one of the benefits of technologies like document automation applications. Besides leaving less of the drafting to the mind of the drafter (and thus reducing the likelihood of mistakes of inattention), the document templates themselves can be improved as issues are identified through the repeated use of the templates.