Last week, the Sixth Circuit Court of Appeals reversed an employer’s summary judgment on a breach of contract claim brought by its former CEO and award of prevailing party attorney’s fees on the grounds that it was ambiguous – and thus a jury question – whether the CEO’s comment that employees should not be the “last man standing” breached his employment agreement to not solicit employees to resign their employment. Slinger v. Pendaform Co., No. 18-6187 (7-11-19). The employer’s honest belief and reliance on a non-discriminatory reason for terminating the CEO is insufficient evidence to warrant summary judgment for breach of contract when the CEO plausibly proved that the employer’s explanation was simply pretext to avoid paying severance pay. When it comes to evaluating breach of contract claim, intent and good faith is generally irrelevant unless the contract contains a clause making it relevant. In other words, breaching a contract is a strict liability issue that cannot be avoiding by claiming a good reason or good faith.
According to the Court’s opinion, the defendant company was acquired by a company which was not a fan of the CEO’s performance. He was directed to simply respond to emails and to forward emails he received. Because he had an employment agreement that required severance pay if he was terminated without cause, the acquiring company intended to simply let his employment agreement expire naturally so that he would not be entitled to severance pay. However, the agreement did not require severance pay if he was fired for cause (which included gross misconduct, fraud, felony or insubordination). The agreement also contained a provision prohibiting him from soliciting employees to resign their employment. As sometimes happens, the acquiring company began laying off employees. During this period, the CEO visited one of the Ohio plants to retrieve the personal items he had left there and chatted with some employees about the future of the company. Apparently, he said something to the effect that they should not be the last man standing. Some employees did not think much of his comments, but others were alarmed and reported the comment to new management. Within two minutes of learning of the comments, the new company president emailed that the CEO should be fired. The CEO was then quickly fired for “gross misconduct” by soliciting employees to resign in violation of his employment agreement. When he brought suit for his severance pay, the trial court granted summary judgment to the employer and awarded it over $188K in attorney’s fees as the prevailing party under the agreement. The CEO appealed and the Sixth Circuit reversed.
The Court criticized the trial court’s weighing of the evidence at the summary judgment stage of the litigation. The trial court seemed to be relying on the honest belief rule and reliance on a legitimate business reason instead of construing the evidence in favor of the party opposing summary judgment as required by the rules of civil procedure. The Court found that Wisconsin law – which governed the agreement –and the employment agreement do not recognize a good faith defense to breach of contract. While the contract could have created a good faith belief defense for the employer (and some contracts do), this one did not. Therefore, the employer’s subjective belief as to whether the CEO had engaged in gross misconduct was insufficient evidence to avoid a jury question on a material dispute of fact as to whether the CEO’s comment breached the agreement.
While the parties did not materially dispute what the CEO said, they disputed what he meant and was understood by his comment:
What his words meant is disputed. The gloss that one puts on the interaction is the nub of this case. In the company’s telling of the tale, Slinger deliberately approached every employee to deliver the same missive of impending doom, disrupting the workplace by soliciting employees to leave. In Slinger’s version, he was approached by employees nervous about their job security after the merger and told them kindly to look after themselves. And indeed, some employees took his comments as a friendly goodbye, while others feared for their jobs. The District Court ignored these differences in simply stating that “five employees stated Plaintiff’s comment concerned them and believed they should find other employment.” 2018 WL 3708023, at *7. That statement fails to summarize all of the evidence. “A study of the record in this light leads us to believe that inferences contrary to those drawn by the trial court might be permissible.”
In contrast, the CEO asserted that the company’s explanation was simply pretext to terminate him without severance pay. He put forward a compelling case: The purchase agreement noted next to his name “no severance.” The decision to terminate him was made within two minutes. In addition, the Company suggested that it fired him for gross misconduct and then changed it to breach of the non-solicitation clause. Moreover, the employment agreement did not define “solicit.”
What Slinger said is not disputed, but the import and meaning of his words in context is disputed. Each party’s characterization of the same events is plausible and is linked to specific evidentiary support. Given that the term “solicit” is susceptible to two reasonable, competing interpretations, summary judgment here was improper.
Because there could be different inferences drawn from the evidence whether the CEO was fired for cause or simply to avoid paying severance pay, the jury was entitled to hear the evidence and decide whether the agreement had been breached. Accordingly, the attorney’s fee award was also vacated. One can wonder if there is too much water under the bridge for the parties to settle in light of the expense of this litigation.
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.
