The legal developments regarding dismissal of tenured faculty members because of financial exigency are considered. Attention is directed to, the ability of the public or private institution to dismiss and the constitution of a state of financial exigency and a bona fide dismissal. A standard for claiming financial exigency that was suggested by the American Association of University Professors (AAUP) in 1976 was that the institution would have to close if tenured faculty were not dismissed, and that other remedial measures must be instituted prior to dismissing tenured faculty. The courts have not adopted this AAUP "survival standard," rejecting the contention that capital assets need to be invaded to alleviate existing financial problems. The judicial definition allows an institution to take necessary measures to reduce financial hardship before the situation becomes irreversible. The financial hardship may be limited to a single department or a college of the institution. Once a governing body has declared that a state of financial exigency exists, the court will allow much deference to that discretionary decision in the absence of facts indicating a totally unreasonable or capricious decision. The courts have accepted the AAUP position that dismissals of tenured faculty due to financial exigency must be demonstrably bona fide. It is suggested that administrators need to have a working knowledge of the case law in this area; examples are cited. (SW)