Sixth Circuit Examines The Last Man Standing

 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.

When Willful Misconduct Is not Necessarily All Other Intentional Misbehavior

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. 

No Breach of Settlement Agreement by Employer When Employee Failed to Properly Direct References to Specified Individual

The Trumball County Court of Appeals this month affirmed summary judgment in favor of an employer on a claim by a former employee that the employer breached their settlement agreement concerning job references.   Baumgartner v. AIM Leasing, 2013-Ohio-883.   In that case, the parties’ settlement agreement – as many do --  provided for a certain job reference (which omitted certain driving accidents by the employee in the course of his employment) if he directed his future employers to contact a particular Human Resources employee.   When applying for jobs with other trucking and delivery companies, the plaintiff-employee failed to specify on his job applications (or on the job reference waiver forms) who the potential employer should contact at his former employer.   Consequently, these prospective employers did not receive the agreed-upon job reference information pursuant to the settlement agreement.  One of these employers hired the plaintiff-employee anyway, but fired him after receiving reference information (which disclosed his preventable and unpreventable traffic accidents) that was inconsistent with the information he provided on his job application.  The Court found that the defendant-employer was not required to provide the agreed-upon reference information unless the prospective employer contacted the particular HR employee as agreed in the settlement agreement.   Therefore, there was no breach of the settlement agreement. 

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 change or be 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.

Ohio Appeals Court Awards Employee Damages When Employer Violated Written Contract By Decreasing His Pay Rate.

Last month, the Trumbull County Court of Appeals affirmed an award of $42,116.38 in damages plus interest to a former employee who sued for breach of a written contract when, upon the advice of its accountant and based on poor economic conditions, his former employer decreased the plaintiff’s salary below $75,000/year in breach of his employment agreement. Sloan v. Shafer Commercial & Indus. Servs. Inc., 2008-Ohio-4765. The employer had also decreased the salaries of the other officers and laid off employees at the same time. Although the plaintiff objected to the wage cut, he continued to work for the employer for another 33 months. The court rejected the employer’s various arguments that, among other things, the plaintiff waived his contractual rights by continuing to work at the reduced pay, that he was guilty of laches for waiting three years to file his claim, and that he should be estopped from challenging the wage cut three years later. In particular, the court found the employee did not waive his contractual rights by continuing to work after the pay cut. While the employer might have had a good argument that the contract had been mutually modified by the parties, the court refused to consider this argument on appeal because the employer failed to raise that argument before the trial court.


Insomniacs can read the full decision at http://www.sconet.state.oh.us/rod/docs/pdf/11/2008/2008-ohio-4765.pdf.

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 change or be 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.