A $35M payout, 5% of company shares, and contract clauses that spooked the board
A Delaware court ruled that a CEO's employment agreement was really a corporate governance tool – and that changes everything about where the fight plays out.
On April 21, 2026, the Delaware Court of Chancery dismissed Masimo Corporation's lawsuit against its founder and former chief executive, Joe E. Kiani, after finding that his employment agreement was not simply an employment contract. Vice Chancellor Cook held that the agreement functioned as a governance instrument, one that a California court – not Delaware – had jurisdiction to adjudicate.
The case raises uncomfortable questions for HR leaders and compensation committees tasked with overseeing executive employment arrangements. When does an employment agreement cross the line from a standard contract into something that reshapes the balance of power between a board and its CEO?
Kiani founded Masimo, a Delaware corporation, in 1989 and led it as Chairman and CEO until September 2024. Over that time, the company alleged, Kiani stacked the board with hand-picked directors and wielded near-total control over the organization. At the center of the dispute was a 2015 employment agreement – and two subsequent amendments – that the company itself described as functioning like a poison pill.
The agreement entitled Kiani to a severance package upon certain triggering events, including restricted stock units equivalent to five percent of the company's outstanding shares and $35 million in cash. The triggers were sweeping. If Kiani was removed as Chairman, if a lead independent director was appointed, if more than a third of the board changed composition over a 24-month window, or if the company simply issued a notice of non-renewal, Kiani could resign and claim the full payout.
Terminating Kiani for cause required a supermajority vote of 75 percent of the entire board – not just those present at a meeting. A 2017 amendment removed a provision that would have reduced the payout by ten percent each year, effectively locking in the full amount indefinitely. That same amendment doubled the change-in-control look-back period and extended the window for Kiani to resign for Good Reason from 90 days to two years.
Things came to a head when activist hedge fund Politan Capital Management acquired a stake in Masimo and pushed for board representation. After two proxy contests, stockholders replaced enough directors to give the board an independent majority for the first time in the company's history. On the day of the 2024 annual meeting, Kiani resigned, claiming the vote that removed him from the board triggered his right to the full severance package. He promptly filed suit in California.
Masimo responded by filing its own case in Delaware, alleging that the employment agreement was the product of fiduciary duty breaches and seeking to have key provisions declared unenforceable. Kiani moved to dismiss on the grounds that the agreement's forum selection clause required all related disputes to be heard in California.
The court agreed. It found that the agreement's terms went far beyond standard employment provisions. The supermajority termination threshold, the dead hand restrictions on the board, the change-in-control triggers tied to director elections – all of these, the court concluded, carried governance characteristics that went well beyond typical employment terms. Applying factors from an earlier decision in the Moelis case, the court held that the agreement qualified as a stockholder agreement under a recently enacted Delaware statute, Section 122(18) of the Delaware General Corporation Law, while recognizing it also retained its character as an employment contract.
That statute, which took effect in August 2024, allows corporations to enter governance contracts with stockholders that can route disputes – including fiduciary duty claims – to courts outside Delaware. The court found this new law effectively overrode decades of precedent that had kept such claims in Delaware courts.
The court also noted that Masimo's own filings repeatedly characterized the agreement as a defensive mechanism designed to entrench Kiani's control. The company could not, the court reasoned, turn around and argue the agreement was merely an employment contract when it suited a different legal strategy.
For HR professionals, the decision is a signal worth paying attention to. Executive employment agreements that contain board-level governance provisions – supermajority voting thresholds, change-in-control triggers, restrictions on director authority – may not be treated as ordinary employment contracts by courts. How those agreements are structured, and where disputes about them will be heard, are questions that compensation committees and HR leaders need to consider well before a crisis arrives.
The ruling dismissed all four of Masimo's claims and sent the dispute to California, where Kiani's own lawsuit over his severance entitlement is already underway.
