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.

Workplace Investigation Cannot Be Both Sword and Shield

Last week, the Portage County Court of Appeals issued an opinion addressing the confidentiality of workplace investigation notes, reports, recommendations and recordings of witness interviews when the employer’s attorney conducted the investigation and interviews.  Smith v. Technology House, Ltd., 2019-Ohio-2670.   The defendant employer had broadly asserted its Faragher/Ellerth affirmative defense of taking prompt remedial action, but had not specifically cited to its attorney’s investigation as the basis for that defense.  Nonetheless, the trial court found that the interview recordings, report and recommendations should be produced in discovery.  The Court of Appeals reversed in part on the grounds that the employer had not specifically waived attorney-client privilege or yet asserted that the investigation was the basis for its defense, but held that the recording of the plaintiff’s interview must be produced because she was clearly adverse to the employer at the time and had her own attorney.  It also ordered an in camera inspection of the investigation materials to determine what else may be outside privilege and work product protection because it predated the investigation, etc.  Finally, it noted that privilege may not be used as both a sword (i.e., defense) and shield (confidential). 


According to the Court’s opinion, the plaintiff alleged that she complained about sexual harassment.  The employer, fearing litigation, immediately retained counsel to conduct an investigation, which began the following day.  When the plaintiff was brought into a room with the company’s attorney, she left the room to contact her attorney and then informed the employer’s attorney that she was represented.  He still interviewed her, a few managers and a few hourly employees.  All of the interviews were apparently recorded.  When litigation commenced, the plaintiff sought during discovery a copy of the interview recordings of her and her non-supervisory co-workers as well as any notes and documents related to those interviews.  The employer responded that the information was protected by attorney-client privilege and the work product privilege.   The trial court granted the plaintiff’s motion, but the discovery order was broader than the request in that it ordered the production of all recordings and documents related to the investigation.  The defendant was also ordered to correct its discovery responses to identify the attorney who conducted the investigation.   The employer appealed the discovery order.


The employer pointed out that the Ohio Supreme Court has found workplace investigations by attorneys to be covered by the attorney-client privilege.   Therefore, the trial court’s broad order compelled the production of materials that were protected by privilege.   Nonetheless, the Court found that not everything related to the investigation was privileged.  “Documents and records whose existence preceded a factual investigation or were created independent of such investigation, i.e., independent of any communication between attorney and client, would not be protected by the attorney client privilege.”


“Also, the identity of persons who participated in the investigation is not covered by the privilege.”  Therefore, the attorney’s participation in the investigation is not confidential.

Further, the recording of the interview with the plaintiff was not protected by privilege because she was, by then, an adverse party with her own attorney.

Finally, the attorney-client privilege does not protect the recording of the interview with Smith as this interview may not properly be said to have occurred within the context of the attorney-client relationship.  In the case of a corporate client, Ohio cases have generally held that the privilege extends to communications between counsel and employees of the corporate client.  . . . In light of the foregoing, Technology House could not reasonably expect that the substance of the interview would have the character of a confidential communication between an attorney and client which underlies the reason for the privilege.  At the time of Smith’s interview, a de facto adversarial relationship existed between the parties and, therefore, the substance of that interview falls outside the scope of the privilege.

The Court also found that the attorney’s assessment and materials about the plaintiff’s interview would be protected as work product.   However, the application of privilege or work product to a particular document requires an analysis of the particular document and that was not possible on the current record because the employer failed to provide or produce a privilege log describing the documents being withheld as privileged and work product.

Upon remand, the trial court of necessity must either conduct an in camera review of the compelled discovery to determine whether the attorney-client privilege and work-product doctrine exempts them from discovery or require the production of description of the documents sufficient to make such a determination, noting that the following types of materials are not privileged: documents and records whose existence preceded Attorney Thompson’s factual investigation or were created independent of that investigation (supra at ¶ 24); the identity of persons who participated in the investigation (supra at ¶ 25); and any recordings or transcripts of the substance of the interview with [the plaintiff].

The Court also rejected the plaintiff’s assertion of waiver as premature on the current record.  The plaintiff argued that the employer’s assertion of its Faragher/Ellerth defense waived privilege and work product protection for the investigation. 

Although no Ohio court has adopted this position, it has been held in other jurisdictions that the assertion of the Faragher/Ellerth defense effects a waiver of any privilege attaching to a party’s investigation of the alleged harassment.  “When an employer puts the reasonableness of an internal investigation at issue by asserting the Faragher/Ellerth defense, the employer waives any privilege that might otherwise apply to documents concerning that investigation,” including “‘not only the [investigative] report itself, but [ ] all documents, witness interviews, notes and memoranda created as part of and in furtherance of the investigation.” . . . .

The issue of whether Technology House and Gear waived the privilege attaching to Attorney Thompson’s investigation by asserting a Faragher/Ellerth defense may be resolved by recourse to “[o]rdinary waiver principles” and the “animating maxim that the privilege cannot ‘be used as both sword and shield.’”  In re Itron, Inc., 883 F.3d 553, 558 (5th Cir.2018).  That is: “when a party entitled to claim the attorney-client privilege uses confidential information against his adversary (the sword), he implicitly waives its use protectively (the shield) under that privilege.”  (Citation omitted.)  Id.  

Accordingly, courts do not find a waiver of privilege unless a party indicates its reliance  on a particular investigation in its assertion of the Faragher/Ellerth defense.  The “clear majority view” is that the defense must be “premised, in whole * * * or [in] part, on the results of an * * * investigation.”  . .  . . “This holding aligns with the numerous cases across jurisdictions finding waiver ‘when a client asserts reliance on an attorney’s advice as an element of a claim or defense,’ * * * and the many dozens of cases finding no waiver when no such reliance has occurred.”

In the present case, Technology House and Gear’s assertion of the Faragher/Ellerth defense does not acknowledge the existence of much less indicate reliance upon Attorney Thompson’s investigation.  The mere assertion that they exercised “reasonable care to prevent and promptly correct any alleged sexually harassing behavior” does not constitute a waiver of any privilege applicable to the investigation.

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.

OWBPA Exhibits Are Admissible to Challenge Whether Plaintiff Was Terminated as Part of RIF or as Pretext

Last month, the Summit County Court of Appeals reversed an employer’s summary judgment on an FMLA retaliation claims because the trial court had not considered the attachments to separation agreements (required by the OWBPA) showing the number of employees selected for a reduction in force and severance pay to impeach the employer’s explanation for the plaintiff’s termination.  Kane v. Inpatient Med. Servs., Inc., 2019-Ohio-1975.  The plaintiff argued that the employer’s failure to include her on one of the exhibits shows that she was not actually terminated as part of the reduction in force, but the trial court excluded the exhibit as evidence of a compromise.  The court of appeals held that Rule 408 only bars such evidence to impute liability and its amount, and not to impeach a witness.  The Court, however, agreed that the plaintiff’s jury trial waiver was valid.


According to the Court’s opinion, the defendant employer purchased the company for which the plaintiff had worked for two years as a regional vice president shortly before she began maternity leave. The plaintiff was terminated when she returned from her second maternity leave and was told that her position had been eliminated as part of a reduction in force.  She filed suit alleging FMLA interference and retaliation and the trial court granted summary judgment to the employer.  The trial court refused to consider two exhibits which the plaintiff had submitted in an attempt to show that the employer’s stated explanation was pretextual.   The first was an unsigned separation agreement which contained the exhibits required under the Older Worker Benefit Protection act reflecting the lay off of only 14 Indiana employees of company acquired by the employer and which did not include the plaintiff.  The second was the same exhibit from a different separation agreement which reflected that only she and the company president had been laid off.   Both of these, she claimed, conflicted with the employer’s answers to interrogatories that 15-20 employees had been laid off and from which entities had been laid off in the reduction in force. The Court of Appeals remanded for the trial court to consider these exhibits.


Ohio Rule of Evidence 408 prohibits the consideration of offers of compromise to show either liability or the amount of liability.  The rule further provides that:

Evidence of conduct or statements made in compromise negotiations is likewise not admissible. This rule does not require the exclusion of any evidence otherwise discoverable merely because it is presented in the course of compromise negotiations. This rule also does not require exclusion when the evidence is offered for another purpose, such as proving bias or prejudice of a witness, negativing a contention of undue delay, or proving an effort to obstruct a criminal investigation or prosecution.

Because the plaintiff was not attempting to use the exhibits to show liability or the amount of liability, the exhibits were admissible to impeach the employer’s explanation for her termination as required to show that its explanation was pretextual. 


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.

Just Cause Policy Requires Some Fault Before Immediate Termination

Last month, the Franklin County Court of Appeals reversed an employer’s trial verdict on the discharge of an unclassified university employee on the grounds that the basis for his termination – that the university president believed that he had engaged in visa fraud based on a federal investigation which did not result in an indictment – did not constitute documented “just cause” based on applicable laws, rules and regulations. Fendley v. Wright State Univ., 2019-Ohio-1963.  The university’s policy required "documented just cause  as provided in applicable laws, rules or regulations.”  However, the belief of the university president was never documented and merely being under investigation for potential wrongdoing does not violate any law, rule or regulation.


According to the Court’s opinion, the plaintiff was an unclassified staff member for 11 years.  He and two other employees were administratively suspended in May with pay pending a federal and internal investigation into alleged visa fraud. After meeting with the federal investigators, the president believed that the plaintiff had engaged in visa fraud and decided to terminate his employment in August. The plaintiff was never indicted or charged with visa fraud.  Under university policy, an employee with 11 years of service could be terminated without cause with 9 months notice and could be immediately terminated “for documented just cause as provided in applicable laws, rules, and regulations or because of financial exigency.”  The trial court and magistrate determined that the University had just cause because of the ongoing federal investigation and the belief formed by the university president after meeting with federal investigators.  The Court of Appeals reversed.


The Court found that the policy did not permit the university to simply fire the employee for any lawful reason as would exist in employment at will.   The policy did not provide that the employee could be immediately terminated “as provided at law.”  The Court rejected the belief of the university president as a basis for the termination decision because it was not mentioned in either letter that suspended the plaintiff or in the letter terminating his employment.   Accordingly, the belief of the university president was not “documented” as required by the university policy.  It also refused to find the federal investigation into potential wrongdoing to be sufficient to constitute just cause because it was not indicative of any fault by the plaintiff.  No identified law, rule or regulation is violated by being under investigation for potential wrongdoing.   The university’s internal investigation likewise never documented any violation by plaintiff of any law, rule or regulation.


The dissent would have affirmed on the basis of the belief of the university president.

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.

Children’s Business Does Not Rise Like a Phoenix to Avoid ERISA Withdrawal Liability of Parents’ Business

In March, the Sixth Circuit applied the NLRA’s alter ego test to determine that the similar business of adult children was the alter ego of the parents’ business for purposes of imposing ERISA pension plan withdrawal liability. Trustees of Operating Engineers Local 324 Pension Fund v. Bourdow Contracting, Inc., No. 18-1491 (6^th Cir. 3-21-19).  The defendant company waived its objection to the application of the NLRA standard because it argued in favor of that standard to the trial court.  


Moreover, according to the Court’s opinion, the facts showed that the two businesses shared common management and ownership, although the parents were not owners or managers of the new business and had been the majority owners of the bankrupt business.  The new business was formed just days after the parent’s company missed their first withdrawal payment and bid for their first job days before the parent’s company filed for bankruptcy.  90% of the new business operations overlapped with 50% of the parents’ company business.  Although the new business operated out of a new location, it retained over 50% of the former employees and hired the same outside advisers.   The new company purchased all new equipment because the parents’ equipment was sold in bankruptcy. Almost 70% of the customers of the new company had been customers of the bankrupt company.   The owners of the new company were involved in preparing the bankruptcy petition of their parents’ company and used the family name in their business name in order to capitalize on the good will created by their parents’ business.   Because more factors weighed in favor of liability than against, the Court affirmed alter ego liability being imposed.   The Court also rejected a res judicata defense based on the discharge in bankruptcy of the parent company’s withdrawal liability because there was not an overlap in the cause of action.  The operative facts of the alter ego theory were not the same claim  for withdrawal liability asserted in the bankruptcy proceeding.


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.