This past summer, home furnishings retailer Tuesday Morning Corporation abruptly fired their CEO Kathleen Mason after a new but activist shareholder filed a letter with the SEC that was highly critical of the company’s performance under her 12 years at the helm. And while a CEO being fired for performance thanks to an activist shareholder might still be an unusual incident, what makes this case even more unique is that Mason has since filed a discrimination suit against her former employer alleging that she was fired not for poor performance but because she was being treated for breast cancer.

Tuesday Morning Corporation Fires Their CEO

Trouble for Mason apparently began when Tuesday Morning Corporation reported a wider than expected third-quarter loss along with a fourth consecutive sales decline in April. Then on June 6, Becker Drapkin Management L.P., a Dallas based hedge fund that owns a 5.7% stake in Tuesday Morning Corporation, filed a letter with the SEC to disclose their stake in the company. They took the filing as an opportunity to give a scathing review of Mason’s performance as CEO. She was fired the same day. Becker Drapkin then gained control of four board seats and signaled that more changes would be coming in how the company is run.

Was Mason Fired for Performance or For Having Breast Cancer?

However, the story does not end there. According to BusinessWeek, Kathleen Mason (aged 63) says she was diagnosed with breast cancer in the summer of 2011 and then quietly underwent three surgeries during the months of October and November using her vacation time for post-operative visits. She would also schedule doctor appointments for early in the morning and then work in her office until 7 or 8 pm in the evening.

In January and February, Mason decided to inform two Board members of her medical condition in order to stem office gossip over weight loss and the loss of her hair. In March about 60 days before the firing, Mason said that she had received a $500,000 bonus and an amended employment contract.

However three weeks before being fired, Mason claims she was given an ultimatum to either resign or retire and that three of the five board members wanted to fire her because they feared she would be too distracted by medical treatments to turn around the company’s flagging sales. Mason did say that Tuesday Morning Corporation’s severance package included 10% of her $1.3 million compensation package if she would agree to stay on as a company consultant for 10 years and this period would then be followed by an 18- month non-compete period. She would also keep her medical benefits.

Questions or Lessons for CEOs and Corporate Boards

Obviously this could turn into a lengthy and ugly case that won’t benefit any of the parties involved (including shareholders) yet it raises a few important questions for other CEOs or executives and corporate boards faced with similar situations.

For starters, when are CEOs (or senior executives) obligated to inform their Board of a medical condition that could impact their performance in the job and hence, the company’s performance? Moreover, when and after what steps or protocols can the Board fire an executive over performance when they know the person also has a potentially serious illness that could be impacting his or her performance?

In this particular case, Mason has defended her performance by pointing out that at least half-dozen competing retail chains (e.g. Linen ‘N Things, Bombay & Co. Inc. and Filene’s Basement) had filed for bankruptcy during her 12 year tenure as CEO.

Mason’s attorney has also stated that Tuesday Morning Corporation did not follow proper procedures or protocols to warn her about any perceived problems regarding her performance. If that’s the case, one also has to wonder whether the Board consulted with an attorney or expert in such matters before making a decision to fire her as no doubt they would have been advised to proceed more carefully given her known illness.

At this point in time, there is not enough information publicly available to determine how this case would be decided if it came to trial. However there are lessons to be learned from this story on all sides of the equation. And one final thought, the last thing Tuesday Morning Corporation needs is to have its customers, most of whom are probably female, thinking that they fired their CEO because she had breast cancer.