Earlier this month the Montgomery County Court of Appeals
affirmed a $655,733.44 jury verdict (in addition to$262, 227 in costs, interest and attorney fees) in favor of an executive who it found was
terminated in violation of his employment agreement and in bad faith. Becker
v. Direct Energy, LP, 2018-Ohio-4134. The Court concluded that the trial court’s jury
instruction explaining when the defendant company could terminate “for cause”
the executive was correct and that there was sufficient evidence to show that
the company acted in bad faith. Thus,
when the employment agreement provided that the executive could only be
terminated “for cause” if the company “in good faith” believed that he had “engaged
in acts of fraud, material dishonesty, or other acts of willful misconduct in
the course of his duties hereunder,” the “other acts of willful misconduct”
referred to conduct which was similar to “fraud” and “material dishonesty.” Therefore, the jury could conclude that the
plaintiff’s behavior did not constitute willful misconduct that the employer
acted in bad faith in terminating him for yelling at and poking a subordinate
employee who twice in three weeks had violated significant safety rules when the
plaintiff had a long history of excellent performance and no prior disciplinary
infractions, when other employees had received far less severe sanctions and when
circumstantial evidence showed that his potential severance pay could have been
a motivating factor for his termination.
According to the Court’s opinion, the plaintiff’s employment
agreement provided that the executive could be terminated for cause or without
cause. However, if he was terminated
without cause, he would be entitled to severance pay (including 24 months of
salary and 18 months of COBRA payments), or he could resign with three months’
notice (entitling him up to 3 months of pay if the company opted for an earlier
separation). The executive had worked
for many years for the company and its predecessors and his performance reviews
reflected that his division was one of the most profitable. The company had also been more focused on
employee safety.
The plaintiff was responsible for conducting random surprise
inspections of employees and found an employee, who had been suspended during
the prior year for safety issues, engaged in a number of unsafe practices and
serious quality issues. After discussing
the issues with the employee, the plaintiff spoke with the employee’s
supervisor about taking disciplinary action, but the supervisor never spoke to
or terminated the employee. Two weeks
later, the plaintiff spoke with the supervisor about whether that employee was
even teachable because the supervisor had not properly handled the
situation. He then decided to inspect
that employee’s work again on his way to another meeting and found some of the
same safety violations he had previously noted just two weeks earlier. Stressed
because he was running late, the plaintiff lost his temper with the
employee. He poked the employee (who was
much larger than him) in the chest and yelled at him in a very unprofessional
manner. Although he apologized, he also
believed that the employee should be fired because of his unsafe practices.
The employee called his wife, who worked in HR for another
company and told her that he thought that he was going to lose his job. The next day, he filed several internal
complaints about the executive’s unprofessional treatment of him the prior
day. The executive admitted that much of
the complaint was true. While he denied
harassing the employee, he was embarrassed by his behavior. Up to this point, there was no allegation
about violence, pushing or physical harm.
HR conducted an investigation and the current and former manager both
recommended that the executive receive no more than a written reprimand or
warning based on his prior record and level of the offense. After a conference call with senior
management, HR forwarded a copy of the executive’s employment agreement to legal
counsel. During the next conference call,
the decision was made to terminate the executive for willful misconduct under
his employment agreement.
The executive was informed of his termination and asked to
remain until the end of the month. The script prepared for his termination
indicated that he was not to be permitted to resign (even though the company’s
practice had always been to permit employees to resign at any time for any
reason) and that the remaining employees would be told that he was passing the
torch, instead of being terminated. The
plaintiff filed suit for breach of contract, breach of the duty of good faith
and fair dealing, and defamation.
On appeal, the Court rejected the employer’s arguments that
the court should have ruled in its favor as a matter of law on the grounds that
the plaintiff materially breached the employment agreement. The court found this to involve an issue of
fact, which was resolved against the employer at trial.
The Court also agreed that “willful misconduct” under the employment
agreement was ambiguous. Under the doctrine
of ejusdem generis, because “the
agreement used the term “or other acts of willful misconduct,” it can be read, under an established principle of
construction, to indicate that willful misconduct was intended to relate back
and be confined to the same general nature as the previous, more specific
terms, which were fraud and material dishonesty.” Indeed, the former executive who had hired the
plaintiff testified (without objection) that this is what he meant when that
term was inserted into the employment agreement. In addition, “[t]here is no dispute about the fact that [the defendant’s] legal counsel
prepared the agreement, and Ohio law is settled that ambiguities in contracts are construed
strictly against the drafter.” The
employer could have avoided the ambiguity by defining the term “other acts of
willful misconduct” or deleted “other,”
which had referred back to the earlier specific acts.
The Court also rejected the employer’s argument that there
was no evidence (i.e., admissions) that the plaintiff had been fired in order
to avoid paying his severance pay because circumstantial evidence may support a
verdict as well as direct evidence. The
jury had ample circumstantial evidence that the employer had acted in bad
faith. The HR employees had not initially
recommended more than a written warning for the plaintiff’s misconduct. After this, she then learned that the
plaintiff’s most recent performance evaluation had been “exceeds expectations,” and she provided his employment agreement to
counsel. Consideration of the employment
agreement could support a plausible inference that the severance pay factored
into the decision, particularly because none of the witnesses recalled any
discussion as to whether violation of the harassment/workplace violence
policies would similarly constitute willful misconduct under the agreement or
whether there were any grounds to terminate him for cause under the
agreement. The employer also prepared a
script for the termination meeting which did not permit the plaintiff to
voluntarily retire and which gave a false reason for his separation. The actual decisionmaker was not called to
testify as to the basis for their decisions. There was also testimony that the employer did
not have a zero tolerance workplace violence policy and comparisons to other
similar situations show that the plaintiff was treated much more harshly
for a first time disciplinary infraction.
As for the jury instructions, the Court found that the trial
court’s instruction were proper: “the
terms fraud or material dishonesty may be instructive regarding the seriousness
required for behavior * * * to
constitute an other act of willful misconduct.”
Moreover,
As indicated above, the agreement provides that the
termination must be made in, quote, “good faith.” Thus, a second issue is whether [the
defendant’s] termination of [the plaintiff] on the basis that his conduct was an
act of willful misconduct, breached [its] obligation to exercise good faith and
fair dealing in interpreting the agreement to justify terminating [his]
employment.
The jury was also instructed that “it could not find for [the
plaintiff] regarding a breach of good faith and fair dealing unless it found
that [the employer’s] action in terminating [him] from his position for cause
“was not an act of honesty in interpreting and applying the language
in the Employment Agreement, but was instead an act of dishonesty in applying the
definition of cause for an ulterior purpose or motive, and not a truthful
interpretation or application of the definition of “cause” as contemplated by
the parties.
As for the award of attorney’s fees, they generally are not
awarded in the absence of punitive damages or statute. However, the Court recognized an exception
for when “a prevailing party may be awarded attorney fees after demonstrating
the unsuccessful litigant’s bad faith.”
In this case, “[b]ad faith can involve conduct during litigation, but
can also involve conduct giving rise to a party’s claim.” “The jury did not just find that [the
employer] had breached the duty of good faith and fair dealing; it specifically
found that [it] had acted to take advantage of [the plaintiff].” The jury unanimously agreed that the employer
had acted in bad faith when responding to one of the jury interrogatories:
Do you find that Plaintiff proved by the preponderance of the
evidence that Defendant’s decision to terminate him “for cause” was made in bad
faith to take advantage of Plaintiff and improperly deny him the benefits he
would have received if he had been terminated “without cause” under the
contract?
NOTICE: This summary is designed merely to inform and alert you of recent
legal developments. It does not constitute legal advice and does not apply to
any particular situation because different facts could lead to different
results. Information here can be changed or amended without notice.
Readers should not act upon this information without legal advice. If you have
any questions about anything you have read, you should consult with or retain
an employment attorney. 