Wrinkle in Employment at Will Foils Employer’s Summary Judgment

Last week, a unanimous Franklin County Court of Appeals reversed summary judgment previously entered in favor of an employer on a breach of written bonus agreement brought by a terminated executive. Pate v. Quick Solutions, Inc. No. 2011-Ohio-3925. In that case, the employer had entered into a written agreement with the executive specifying, among other things, his salary, stock and cash bonus and employment at will. The terms of the stock bonus were to be subject to the terms of the employer’s attorney, but were never attached as specified within 90 or more days. The employer later modified the executive’s salary (by increasing it) and discussed making the bonus discretionary, but there was a factual dispute as to whether the terms of the discretionary bonus were ever reached or mutually agreed to. The employer initially contended that the bonus had been modified to be discretionary, but conceded upon cross examination that the prior bonus formula had largely been followed. The employer’s attorney argued that the stock bonus had to be returned upon termination, but the court eventually rejected that argument for lack of a written agreement and when it was disputed by the executive. Finally, the employer argued that the executive had not lost any money because the amount of his raise was larger than the amount of the allegedly unpaid bonus. Therefore, the employer argued that the executive should be stopped from contending that the employer breached the bonus agreement. This argument was also rejected.

The executive had been terminated for unprofessional conduct involving female employees. He then sued and lost for age discrimination and also contended that his bonus agreement had been breached when the employer only paid part of the bonus due each year and failed to transfer any stock. The executive contended that he had not pushed the bonus issue earlier because he saw how the CEO retaliated against employees who complained about their compensation. The employer pointed out that the executive was employed at will and the terms of his compensation had been unilaterally modified after his first year of employment, resulting in a raise in salary and conversion of the bonus formula to a discretionary bonus. Because the executive acquiesced and continued to work under the terms of the new compensation arrangement, he could not later challenge it. The trial court agreed with the employment at will theory and granted summary judgment for the employer.

On appeal, the court found that there was a factual dispute as to whether the terms of the executive’s cash bonus had been modified. While the parties agreed that the executive had been given a raise in salary, salary is different from a bonus. The discussion about the bonus continued over several years and was never reduced to writing. While the CEO contended that an agreement had been reached when the executive was given a raise to convert the bonus formula to a discretionary bonus, he conceded on cross examination that he still followed the old formula (for the most part) because “that was the plan that was in place.” Therefore, when the executive denied that a meeting of the minds had been reached to change the bonus formula and the employer had not acted consistently with a discretionary bonus agreement, there was a factual dispute. While employment at will provides that the employer may unilaterally change the terms of employment, the employee still has the option to quit or to continue working under the new terms. Without evidence that the new terms have been communicated to and accepted by the employee, there can be no binding modification from the mere fact that the executive continued to work. In other words, there was no clear evidence of acquiescence by the executive because there was no clear evidence of modified terms. “Importantly, continuation of employment after a modification only constitutes assent if the employer notifies the employee of the modification or the employee otherwise knows of it.”

The employer also attempted to argue that the executive’s acceptance of the reduced cash bonuses constituted knowledge of and acceptance of the new bonus plan. However, the court found the evidence was not strong enough to show knowledge or consent under the circumstances. Nonetheless, if a jury found that the executive had knowledge that the terms has changed and he continued to accept the reduced cash bonus with that knowledge, then the executive would lose.

The court rejected the employer’s estoppels argument, which was based on the fact that the amount of salary exceeded the amount in dispute with the bonus. The employer pointed out that the amount of the executive’s raise in salary more than offset the amount of allegedly unpaid bonus. However, again, the court found these to be two separate issues. An employer’s compliance with one component of compensation (i.e., salary) does not excuse the breach of a different component (i.e., bonus). Further, the executive’s receipt of the cash bonus and raise in salary did not estop him from arguing a breach of his written agreement because there was insufficient evidence that his acceptance was inconsistent with his claims.

The executive also pointed out that he had never received any of the stock bonus he had been promised in his agreement. The stock bonus was subject to terms to be developed by the employer’s attorney within 60 days, but were never developed or attached to the agreement. The attorney contended that it was to be the same as the stock purchase plan already in place (requiring a return of the stock upon termination), but the executive disagreed and pointed out that a grant of stock is different from a stock purchase. The trial court sided with the employer, but the Court of Appeals reversed on the grounds that no meeting of the minds had been reached.

In short, the employer suffered from attempting to make an oral modification of a written agreement. The lesson to be learned is to always confirm modifications of the terms of employment in writing, particularly if the modifications are to a written agreement so as to prevent any confusion or later dispute between the parties after memories have faded and biases are formed.

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.

Sixth Circuit Denies Qualified Immunity for Allegedly Discriminating Against Married Employees

This morning, the Sixth Circuit affirmed the denial of qualified immunity to employees of the Ohio Department of Youth Services in connection with alleged discrimination against two married employees in violation of their First Amendment right to associate with each other. Gasper v. Ohio Dep’t of Youth Services, No. 09-3829 (6th Cir. 8/5/2011). A new chain of command was created when the wife was promoted so that she would not be responsible for supervising her husband. However, the union and other employees continued to object to the appearance of impropriety. The husband had been threatened with termination for an unrelated incident (involving inadvertently bringing a gun onto state property) unless he agreed to transfer to a different facility. It was only through a union arbitration decision that he ultimately kept his job. The wife was then demoted and transferred despite her stellar work record and the poor work records of her replacements.

The married plaintiffs brought an action under 42 U.S.C. §1983 alleging violation of their First Amendment right which protects their freedom of association. The district court granted summary judgment on the claim for damages against the state agencies and against the individual defendants in their official capacities because of their Eleventh Amendment immunity. The district court also granted summary judgment on all claims against two individual defendants in their individual capacities, but denied qualified immunity to the four remaining individual defendants based on the treatment of the husband and wife’s demotion and transfer. This appeal followed.

“Government officials who perform discretionary functions are generally protected from liability for civil damages as long as their conduct does not violate ‘clearly established statutory or constitutional rights of which a reasonable person would have known.’” The Sixth Circuit follows a three-step analysis to analyze qualified immunity:

First, we evaluate whether the facts demonstrate that a constitutional violation has occurred. . . . Second, we determine whether the violation involved a clearly-established constitutional right of which a reasonable person would have known. Id. Third, we consider “whether the plaintiff has offered sufficient evidence ‘to indicate that what the official allegedly did was objectively unreasonable in light of the clearly established constitutional rights.’”
. . . .
A plaintiff alleging First Amendment retaliation under 42 U.S.C. § 1983 must prove that (1) she “engaged in protected conduct; (2) the defendants took an adverse action that would deter a person of ordinary firmness from continuing to engage in that conduct; and (3) the adverse action was taken at least in part because of the exercise of the protected conduct.

The Court’s analysis is dependent on context. With respect to First Amendment marriage discrimination claims, “cases based on a challenge to a rule or decision based on marriage per se, such as an anti-nepotism policy, are different from cases challenging purported acts of retaliation that affect the right of marriage” because policies are subject only to a rational basis test, whereas the lack of a legitimate government policy to justify government interference in a marital relationship subjects the government interference to a higher level of scrutiny.

In this case, the husband was able to establish a material factual dispute regarding causation because – despite his culpability in a dischargeable offense – the defendants had been willing to save his job if he would transfer to another location – away from his wife. The court was also influenced that not every employee who engaged in similar misconduct was terminated; that one defendant accurately predicted that his wife would be transferred if he were reinstated by arbitration, that the defendants rejected the unpaid suspension recommended by the mediator and that every individual defendant had expressed dissatisfaction with the plaintiffs working together in the same facility even though the husband did not report to his wife and “the couple was not violating any [agency] anti-nepotism policy.”

The wife was able to establish a material factual dispute regarding causation because she received her first below-target performance evaluation two months after her husband was reinstated. The only “fault” attributed to her was an incident a couple of days earlier by subordinates which could not be ascribed to her. This evaluation was subsequently revised upward immediately before her transfer to a distant location that prevented her from living with her husband during the week. And, she was replaced by individuals with serious performance deficiencies.

As for the qualified immunity, the Court found the right of employees to marry was clearly established and that it had been similarly clearly established that an employee could not be terminated simply because the decisionmaker did not like the person’s spouse. Therefore, the individual defendants were not entitled to qualified immunity and the claims should proceed to trial on the merits.

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.

Sixth Circuit: Denial of LTD Benefits, Attorneys Fees and Remand

This morning, the Sixth Circuit Court of Appeals affirmed a trial court decision that the denial of LTD and 401(k) benefits were arbitrary and capricious and that the plaintiff was entitled to attorney fees as a prevailing party under ERISA. However, the remedy for the denial of benefits was not the award of benefits, but rather, remand to the plan administrator to re-evaluate its prior invalid decision. Burge v. Republic Engineered Products, Inc., No. 10-3124 (6th Cir. 8/3/11). The plaintiff injured her wrist in a fall, subsequently became depressed and left work in mid-January 2006. A variety of physicians and psychiatrists issued conflicting decisions about the existence, extent, and scope of her medical and emotional condition. There was some evidence of malingering and exaggeration of symptoms. The employer terminated receipt of LTD on the grounds that there was no evidence of “total disability.” Her position was then eliminated in August 2006. Problem was, the employer’s LTD plan did not require evidence of total disability and there was no discussion in the decision about the plaintiff’s ability to perform any work. Accordingly, the trial court concluded on appeal that even though the plan vested discretion in the plan administrator, the decision had been arbitrary and capricious for relying on requirements that were not contained in the LTD plan, by not following a methodical appeal process, by reverting between the LTD and STD plans, by refusing to consider all evidence of her wrist condition and by considering only her medical status without also considering her ability to perform any gainful employment. The court also awarded attorney fees to the plaintiff as a prevailing party. On appeal, the Sixth Circuit affirmed the trial court on the merits and award of attorney fees, but found that the proper remedy for the benefit claims was to remand to the employer to make a proper decision.

“Generally, when a plan administrator chooses to rely upon the medical opinion of one doctor over that of another in determining whether a claimant is entitled to ERISA benefits, the plan administrator’s decision cannot be said to have been arbitrary and capricious because it would be possible to offer a reasoned explanation, based upon the evidence, for the plan administrator’s decision.” The employer was not required to consider evidence of vocational experts and the plaintiff’s receipt of SSA benefits was only one factor to be considered.

Nonetheless, the employer made an arbitrary decision when it failed to follow a methodical appeal process:

Specifically, Republic (1) failed to follow a stated, methodical appeal process and inconsistently applied and reverted between the STD and LTD Plans; (2) applied a standard of “total disability” that did not appear in the Plan; and (3) failed to consider evidence of Burge’s actual wrist condition. . . . [The employer] never “reasoned from [the plaintiff’s] condition to her ability to perform her occupation. There is no statement or discussion of [plaintiff’s] occupational duties or her ability, or inability, to perform them.”

In Elliot, we held that “medical data, without reasoning, cannot produce a logical judgment about a claimant’s work ability.” Id. at 618. There, as here, we noted that the plan administrator’s two denial letters contained “mere recitation[s] of medical terminology employed by various physicians in their diagnoses of [the claimant’s] condition, without any reasoning as to why those diagnoses would permit her to function in the workplace. A court’s decision that merely said ‘affirmed’ or reversed’ could not be considered ‘reasoned.’ Similarly, [the plan administrator] cannot be said to have given a reasoned denial of the [claimant’s] claim . . . .” Id. at 619. Even assuming that the appropriate definition of disability is that used in the STD Plan, which requires the claimant to be unable to engage in her regular occupation, rather than the LTD Plan, which is broader, none of [the employer's] benefits denial letters analyzed whether [the employee] would be able to perform her regular occupation in light of the restrictions imposed on her by the physicians who examined or treated her and in view of her complaints that [the employer] did not accommodate these restrictions.

A trial court is empowered to either award benefits or to remand to the plan administrator to make a proper determination following a flawed decisionmaking process. In light of the question in this case about the plaintiff’s malingering and exaggeration of symptoms, the Sixth Circuit found remand to be a more appropriate remedy than simply awarding the plaintiff LTD benefits.

Even though the plaintiff ultimately may not be entitled to LTD benefits, she would still be entitled to attorney fees as a prevailing party under ERISA. The trial court was not arbitrary in awarding her fees after ruling on the merits of her claim in that the employer’s underlying decision was flawed.

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.

Labor Law is Messy; Sixth Circuit Reinstates CFAA Claim Against Union, but Upholds Denial of Preliminary Injunction

This morning, the Sixth Circuit affirmed in part and reversed in part a decision involving a labor dispute where the union intentionally crashed the employer's telephone and computer system to protest the discharge of an employee. The Court held that the employer stated a valid claim against the Union under the federal Computer Fraud and Abuse Act, 18 U.S.C. § 1030 ("CFAA"), but upheld the denial of a preliminary injunction on the grounds that the employer failed to make all efforts to resolve the labor dispute before filing suit as required by the Norris LaGuardia Act. Pulte Homes, Inc. v. Laborers International Union of North America, No. 09-2245 (6^th Cir. 8/2/11).

According to the allegations in the employer's complaint, following the discharge of a construction employee, the Union began a corporate campaign to organize the employer's workforce and protest the discharge of the employee. The employer alleged that the Union utilized legal and illegal tactics to harm the employer's goodwill with its employees, vendors and customers. The Union filed a ULP with the NLRB alleging that the employee had been fired for wearing a LIUNA tshirt to work and the NLRB ultimately filed suit against the employer. However, the issue in this litigation involved the Union's "bombardment" of the employer's sales office and three of its executives with thousands of phone calls and emails. In particular,

[t]o generate a high volume of calls, LIUNA both hired an auto-dialing service and requested its members to call Pulte. It also encouraged its members, through postings on its website, to "fight back" by using LIUNA's server to send e-mails to specific Pulte executives. Most of the calls and e-mails concerned Pulte's purported unfair labor practices, though some communications included threats and obscene language.

The volume of the communications injured the employer's business by clogging the voicemail system, preventing customers from reaching the sales office, and forcing on employee to turn off her business cell phone. The emails overloaded the server and stalled business operations because the staff could not access business-related emails or send emails to customers or vendors. Four days after the Union's harassment began, the employer's attorney contacted the Union and requested it to stop employees from doing their jobs. When the calls and emails continued, the employer filed a lawsuit alleging violations of state law and the CFAA, which criminalizes certain computer fraud crimes and creates a civil cause of action. The trial court refused to issue a preliminary injunction on the grounds that it lacked jurisdiction under the NLGA to get involved in a labor dispute. It ultimately dismissed the lawsuit on the grounds that the employer failed to state a claim under the CFAA.

 

On appeal, the Sixth Circuit rejected the Union's argument that Garmon preemption deprived it of jurisdiction over the dispute. "An exception to [Garmon's] general rule—the independent-federal-remedy exception—nevertheless allows federal courts to "'decide labor law questions that emerge as collateral issues in suits brought under independent federal remedies.'" The CFAA prohibits conduct that is wholly independent of federal labor laws. "And neither the prospect of LIUNA defending itself here by arguing that its campaign qualifies as protected activity nor the possibility of either party filing prohibited-conduct charges with the NLRB—which LIUNA already has done—removes potential NLRA issues from the collateral-issue category."

 

The Sixth Circuit also rejected Machinist pre-emption – which precludes both state law and NLRB interference of areas which Congress intended to unregulated because it should be decided by the free economic forces -- because it only applied to state law claims and not federal claims.

 

As for the CFAA claims, the Court found a transmission claim to be stated in the complaint, but not a claim for unauthorized access (in that sending emails or placing telephones cannot be unauthorized if there was no password, etc. required). On the other hand, "[t]o state a transmission claim, a plaintiff must allege that the defendant "knowingly cause[d] the transmission of a program, information, code, or command, and as a result of such conduct, intentionally cause[d] damage without authorization, to a protected computer." 18 U.S.C. § 1030(a)(5)(A)." The Sixth Circuit found the employer's inability to access emails and voicemails and to turn off a cell phone constituted sufficient "damage" to come within the statute. "Applying these ordinary usages, we conclude that a transmission that weakens a sound computer system—or, similarly, one that diminishes a plaintiff's ability to use data or a system—causes damage." Likewise, it found the Union's conduct to be "intentional" in that it intended the result which was obtained."

 

Nonetheless, the employer was not entitled to a preliminary injunction under federal labor law. The NLGA requires, among other things, that an employer prove that it made "every reasonable effort to settle [a labor] dispute . . . by negotiation" before filing suit. Sending one cease-and-desist letter to the Union before filing suit did not come close to meeting that standard. The employer's "settlement efforts—devoid of any attempt to confer with LIUNA's attorneys before filing suit—fail the everyreasonable- effort test and thus prevent resort to injunctive remedies." The employer merely

 

transmitted the cease-and-desist letter on a Sunday, did not specify a time to respond, did not offer LIUNA an opportunity to negotiate, and filed suit less than forty-eight hours after sending the letter without even confirming that LIUNA received the letter. This is not "every reasonable effort" to settle the dispute.

The employer attempted to avoid its obligations under the NLGA on the grounds that it was a non-union employer and LIUNA had never been certified as a representative of its employees. In addition, it pointed to the violent threats and damage sustained by its computer system as creating an exigency. The Court rejected these arguments on the grounds that negotiating with LIUNA under the circumstances would not violate the Wagner Act (since there was no other union to be offended by the employer's negotiations) and the threats were too vague to threaten imminent physical harm.

 

Thus, the case was remanded back to the trial court to determine the Union's liability and potential damages under the CFAA and pendent state law claims.

 

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.

Tough Day for Plaintiff Claims

Today, I learned about three different lawsuits, each of which were rejected by the courts on appeal. Tough day for plaintiffs; good day for employers. These courts rejected a claim by an employee who soiled herself after being denied a restroom break supported by medical documentation, by a police chief who was allegedly reported neglect of a mentally ill patient to his supervisor and by a medical resident who brought an ADA claim after a local hospital refused to reinstate him after he had been terminated for diverting controlled substances for his personal use even though he had completed a drug rehabilitation program.

This morning, the Sixth Circuit released two employment decisions. In the first, the plaintiff brought suit under Title VII for discrimination and for the intention infliction of emotional distress when her supervisor would not permit her to take a restroom break despite her medical condition. Worthy v. Materials Processing, Inc. No. 10-1138 (6th Cir. 7/27/11). The plaintiff had previously reported her medical condition to the HR Department, but it neglected to inform her supervisor that she would require restroom breaks. When the plaintiff told her supervisor that she needed the break because of a medical condition, he refused to relieve her on the production line. Accordingly, she ultimately soiled herself. A union grievance was filed, the HR Manager apologized for not passing on the information and the plaintiff was given two days of paid leave. Dissatisfied, she filed a Charge of Discrimination and, ultimately, a lawsuit. Oddly, there is no mention of the ADA in the Court’s decision. The Court concluded that Title VII only applied to material adverse employment actions, like promotions, hiring, demotions and firing, and not to employment decisions which “do not change [an employee’s] salary, benefits, title, or work hours,” even if they make the employee’s job “significantly more difficult.” It rejected the emotional distress claim on the grounds that the supervisor’s undisputedly petty and cruel behavior was not objectively outrageous and “utterly intolerable in a civilized community.”

In the second opinion released this morning, the Sixth Circuit rejected the ADA claim of a medical resident because his evidence of pretext was based on personal conjecture and speculation. Hall v. Ohio Health Corp., No. 10-3327 (6th Cir. 7/27/2011). The plaintiff had been terminated from two prior residency programs before beginning at Doctor’s Hospital. While there, he had been placed on academic probation and warned about inappropriate behavior (such as engaging in personal conversations when he was supposed to monitoring patients, inattention to detail, self-prescribing pain medication for a foot condition, disappearing during rounds, being unprepared, etc.). Finally, he was caught diverting pain medication to himself (by prescribing the medication to a patient and then taking it for himself). When confronted, he never admitted to having an addiction. Fed up, the Hospital terminated him, but advised him to reapply if he fixed his problems. After completing an addition program, the plaintiff reapplied to OhioHealth, but was rejected. The lawsuit followed. The Court found that the plaintiff could not show that the Hospital’s explanation was pretextual: his long history of unprofessional and unethical behavior, lack of requisite medical knowledge and his prior supervisor’s unwillingness to work with him again. Any evidence that he was rejected solely because of a former addiction was based only on his personal belief instead of evidence.

Finally, the Franklin County Court of Appeals rejected the wrongful discharge claim of a police chief who claimed that he was terminated for reporting an investigation into the neglect of a mental patient to the institution’s executive officer. Boyd v. Ohio Dept. of Mental Health, 2011-Ohio-3596. In particular, the plaintiff was investigating how a mental patient had been sent to a medical appointment without a mandatory police escort, which enabled the patient to escape. The incident had been reviewed by two institutional committees, but he continued to investigate – allegedly without the knowledge or approval of his boss. He claims that he was fired for reporting the investigation to her – allegedly in violation of O.R.C. § 5101.61(E), which “prohibits an employer from "discharg[ing], demot[ing], transfer[ring], prepar[ing] a negative work performance evaluation, or reduc[ing] benefits, pay, or work privileges, or tak[ing] any other action detrimental to an employee or in any way retaliat[ing] against an employee as a result of the employee's having filed a report [to the Ohio Department of Job and Family Services] under this section." Problem was, he never reported anything to ODJFS; he only reported the investigation to his boss. He asserted that his boss had authority to resolve any systematic problems with patient neglect and reports to her should be as protected as reports to ODJFS. However, the Court refused to expand public policy as reflected by the General Assembly in the statute.

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.