Ohio Appellate Court Rejects Most of Employee’s Incentive Compensation Claims

Last month, the Ohio Court of Appeals mostly affirmed an employer’s summary judgment in a case where a former employee challenged the amount and payment of his incentive compensation.   Bollman v. Lavery Automotive Sales, 2019-Ohio-3879.  The employee never signed an incentive compensation agreement and, instead, relied on a chart that the employer distributed each year summarizing its compensation plan. The court found that the employer was free to change that chart and incentive plan at will.  Further, the court found that sales commissions do not constitute wages under Ohio’s prompt payment statute.  However, the court agreed with the employee that the employer had been unjustly enriched when it deducted $20/per car more from the bonus pool than it was being charged by GM for its incentive compensation system.


According to the Court’s opinion, the employee was employed at will as a sales consultant.  He was paid a salary plus a commission for every car he sold over 10 each month based on a bonus chart provided by the employer when he was hired.  After 6 years, the employee began participating in a GM incentive program that paid $100/car sold and required the employer to pay $25/car into the bonus pool.   This GM program was in addition to the commissions he received from his employer.  The employer informed its sales staff that it would deduct the GM $25/car charge from their bonus pool.  When GM increased the charge to $30/car, the employer began deducting $50/car from the bonus pool.  When the employees objected, the employer told them that they could resign.   The employee resigned a few years later and brought suit.

The Court rejected the employee’s breach of contract claim based on its deduction of the GM charge from the bonus pool.  The chart did not contain any explicit terms and he conceded that other incentive compensation plans were not documented either.  Further, employee admitted that the employer orally informed him that it would be deducting the GM charge from the bonus pool and that the employer continued to pay his base salary.  The employee objected, but continued to cash his paychecks.   The employer was free to change the compensation plans at will.

The Court also rejected the employee’s claim that the bonus deduction violated Ohio’s prompt wage payment statute: “The per vehicle dealer contribution charges Appellee withheld were deducted from Appellant’s commission. This Court has held the definition of the word “wage” as used in R.C. 4113.15 does not include commissions, which are not guaranteed pay or reimbursement for expenses.”


The Court, however, agreed with the employee that the employer may have been unjustly enriched by deducting $50/car from the bonus pool when GM was only charging it $30/car.

The doctrine of unjust enrichment “applies when a benefit is conferred and it would be inequitable to permit the benefitting party to retain the benefit without compensating the conferring party.” Garb–Ko, Inc. v. Benderson, 10th Dist. No. 12AP–430, 2013–Ohio–1249, ¶ 25 (Citation omitted). The elements of an unjust enrichment claim are: (1) the plaintiff conferred a benefit on the defendant, (2) the defendant knew of the benefit, and (3) it would be unjust to allow the defendant to retain the benefit without payment to the plaintiff.

While the Court had no problem with the employer offsetting the amount it was charged by GM from the employee’s sales commissions/bonus pool, it concluded that the employer “was unjustly enriched by deducting amounts which exceeded the per vehicle dealer contribution charge it paid to General Motors . . . “


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 Rejects Honest Belief Defense in Regarded As ADA Claim Based on Circumstantial Evidence That Questioned Employer’s Credibility.

On Wednesday, the Sixth Circuit Court of Appeals reversed an employer’s summary judgment on an ADA “regarded as” discrimination case and rejected the employer’s honest belief defense based on evidence produced by the plaintiff to create a jury question about pretext.   Babb v. Maryville Anesthesiologists PC, No. 19-5148 (6^th Cir. 11-6-19). First, the plaintiff produced expert witness evidence about the reasonableness of the plaintiff’s professional conduct, which made debatable the reasonableness of the employer’s decision, particularly when no investigation had been conducted before her termination.  In other words, there were no particularized facts supporting the employer’s decision beyond the initial report of allegations.  Second, the plaintiff relied on an email sent by a co-worker claiming that she had been fired because of concerns with her vision.  This was arguably not a stray remark when the co-worker had been requested to send the email by one of the decision-making physicians who failed to deny in his affidavit that he told her what to say.


According to the Court’s opinion, about a month after the experienced plaintiff CNRA was hired in June 2015, a physician noticed that she had poor eyesight (because of how close she had her face to a monitor in order to read it). She admitted that she had “degenerative retinal condition” that made it hard for her to read certain screens and medical records,” but assured him that it did not affect her ability to perform her job.  That physician told another and claimed that the plaintiff would be blind within 10 years, which the plaintiff disputes.   After a few other physicians expressed similar concerns, a meeting was held with the plaintiff on October 30 where she had explained that she had been diagnosed a decade earlier and was requested to obtain medical clearance that she could safely perform her job duties and to consider LTD insurance.  However, one of the physicians indicated that they may need to consult with counsel because her ophthalmologist was unlikely to give them the necessary assurance.   Otherwise, she was told that she was a “good fit” with the practice.


The plaintiff consulted with her ophthalmologist, but the Court noted that there was nothing in the record about what the plaintiff was told or, importantly, what – if anything -- she told her employer.  Apparently at the suggestion of two of the physicians to ensure that she was not misreading data, the plaintiff began having her co-workers read hospital monitors to her and this simply aggravated concerns about her eyesight and these concerns were noted in her performance evaluation.   The employer was then informed of two apparent clinical judgment errors that the plaintiff made in patient care which were unrelated to her eyesight.  No investigation was conducted concerning the errors, but at a partnership meeting the following week, her eyesight and the errors were discussed and the decision was made to terminate her for the alleged errors.   She was informed in mid-January that she was terminated solely because of the supposed errors, which shocked her because no one had questioned her about the issues beforehand.

A new co-worker, after discussing the termination with one of the physicians (who did not have responsibility for HR), then emailed the other CNRAs (at the physician’s direction).  She explained in her email that the plaintiff had been terminated because of concerns with her eyesight and “a few other issues” and that the plaintiff had failed to produce documentation that she could safely perform her job.  The undisputed evidence was that this new employee had never been told why the plaintiff had been fired and instead that she had based her explanation on staff gossip.  The particular physician was never questioned about it during the litigation and his affidavit was strangely silent about what information he told the new employee about why the plaintiff had been terminated.   


The plaintiff found another job as a CNRA and no issues were raised about her eyesight or professional judgment.  She filed an EEOC Charge and sued on the basis that she was illegally terminated because she was regarded as disabled when, in fact, she was not.   During the litigation, she supplied an expert affidavit that the alleged mistakes she had made were not in fact judgment errors, but were normal incidents during which she performed reasonably.   The trial court excluded the expert affidavit, and granted the employer’s motion for summary judgment, relying primarily on the honest belief defense.  On appeal, the Court ruled that portions of the expert affidavit were still admissible and could be used to show that the employer’s explanation for her discharge was pretextual.


To prevail on a “regarded as” discrimination claim, the Court held that the plaintiff must show

 that their employer believed they had a “physical or mental impairment,” as that term is defined in federal regulations.  The employer may then rebut this showing by pointing to objective evidence “that the impairment is (in the case of an actual impairment) or would be (in the case of a perceived impairment) both transitory and minor.”

“[E]ven if an employee establishes that their employer “regarded” them as disabled under the aforementioned standard, the employee must still show that their employer discharged them (or took some other form of adverse employment action against them) because of, or “but-for,” their actual or perceived physical or mental impairment.”  This can be shown with either direct evidence or using the circumstantial burden of proof.   Under the latter method, if the employer articulates a non-discriminatory reason for its action, “an employee can show that an employer’s explanation was pretextual in “three interrelated ways”: “(1) that the proffered reasons had no basis in fact, (2) that the proffered reasons did not actually motivate the employer’s action, or (3) that they were insufficient to motivate the employer’s action.”  Further, the plaintiff “may also demonstrate pretext by offering evidence which challenges the reasonableness of the employer’s decision to the extent that such an inquiry sheds light on whether the employer’s proffered reason for the employment action was its actual motivation.” At the summary judgment stage, the employee is only required to identify a disputed issue of material fact and is not required to prove her case.


The Court found sufficient evidence for the jury to find that the plaintiff was perceived as disabled:

Viewed in the light most favorable to Babb, the record shows, not only that Maryville physician-owners and employees openly expressed concern about Babb’s “degenerative retinal condition,” including on Babb’s job evaluation and during the meeting at which Maryville decided to fire Babb, but that Maryville’s head of personnel (Dr. Robertson) met with Babb specifically to discuss Babb’s vision, and, during that meeting, asked Babb if she had disability insurance.  See Babb, 361 F. Supp. 3d at 775 (emphasizing this latter fact).  More still, after that meeting, Dr. Robertson advised her colleagues that Babb’s vision issues might require them to consult an attorney.  This is more than enough evidence from which a reasonable juror could find that, in January 2016, Maryville genuinely believed Babb had a “physiological . . . condition” affecting one of her “body systems,” namely, her vision. 

While the Court agreed that requesting a fitness-for-duty examination (as happened here on October 30) cannot be used against the employer, this case was distinguishable from those cases where the employer ONLY requested a fitness-for-duty examination and did not also mention the concerns on a performance evaluation or discuss the medical condition while deciding to terminate the employee, etc.


The Court then found that there was sufficient evidence for the jury to consider whether the employer’s explanation was pretextual.  First, there was a question about whether the plaintiff’s two errors were in fact errors reflecting terrible clinical judgment which would justify her termination or, based on the expert affidavit, reflected that she performed reasonably under the circumstances.  “This dispute matters because the less serious Babb’s clinical mistakes, the more likely they were not the “real” motivation behind Babb’s termination.” The Court rejected the employer’s honest belief defense because it “failed to make a reasonably informed and considered decision before taking its adverse employment action.” The expert’s affidavit challenged “the likelihood that a reasonable anesthesiology practice would have actually relied on those facts to fire an experienced nurse practitioner like Babb.”


Second, the Court found sufficient disputed evidence as to whether the alleged clinical errors actually motivated the employer’s decision.  The employer insisted that she was fired solely because of the clinical errors and never contended during litigation that her vision posed a safety hazard.  But, hours after the plaintiff had been terminated, a co-worker sent an email immediately after speaking with one of the decision-making physician partners that the plaintiff had been terminated primarily because of questions about her vision.  Finally, her vision was a significant issue of discussion during the meeting when the decision was made to terminate her employment and was even discussed in her performance evaluation.   “If this kind of “smoking gun” evidence cannot get an employment discrimination plaintiff past summary judgment on the question of pretext, it is hard to imagine what could.”


The Court refused to draw any favorable inferences in favor of the employer based on undisputed evidence that the co-worker’s email had contained information which had never been relayed to her by any of the physicians.  Rather, the Court found that the other undisputed facts made the co-worker’s explanation about her source of information a disputed issue of fact that only a jury could resolve.    In particular, ruling in the employer’s favor would require a finding that she “is a credible witness, which, of course, we cannot do at this stage.”


The Court also refused to disregard the co-worker’s email as an irrelevant “stray comment” because, among other things, the particular physician never submitted any evidence about what he told the co-worker in his affidavit and apparently was not deposed about the information either:

Aycocke’s e-mail, however, was not the kind of “stray discriminatory remark,” offered by a “non-decisionmaker,” disconnected to the decisional process,  . . . Rather, Aycocke’s e-mail was a quasi-official communication, written at the behest of one of the key players in Babb’s termination (Dr. Proffitt), almost immediately after Babb’s termination, following an in-person conversation with Dr. Proffitt.  It was not a speculative claim shared privately among colleagues; it does not read like gossip.  Indeed, despite submitting a declaration in discovery,  . . .  Dr. Proffitt has never testified to the contrary.  In light of this rather unique context, then, a jury should decide whether Aycocke based the content of her e-mail on “rumor and innuendo,” as she and Dr. Robertson testified at their depositions, or whether she based it on the word of Dr. Proffitt, as the circumstantial evidence would seem to suggest.  And, if a jury could find that Aycocke based her e-mail on the word of Dr. Proffitt, a jury could also find that Maryville acted pretextually when it fired Babb for “clinical errors.”

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.

Single Paragraph General Release Upheld By Sixth Circuit

On Friday, the Sixth Circuit Court of Appeals affirmed the dismissal of retaliation and discrimination claims filed by a former employee who had signed a complete general release of all claims.  Hank v. Great Lakes Const. Co., No. 19-3118 (6^th Cir. 10-18-19).   While the holding is not unusual under the circumstances, the Court engaged in an extensive analysis of each argument challenging the validity of the release, and so, is a good refresher.  

The plaintiff and his former employer apparently began having problems after he injured himself at work and required knee surgery.  He was required to return to work sooner than he preferred and threatened to file another claim.  Instead, a few months later, he was confronted with video evidence that he had falsified his time card by claiming to have reported to work sooner than he had actually done.  He was offered the opportunity to be laid off permanently with no opportunity for rehire (instead of being terminated for willful misconduct that would disqualify him from receiving unemployment benefits) if he signed a complete release of all claims against the employer and his union.  The release did not comply with the OWBPA and he was not given 21 days to consider it or the opportunity to consult with an attorney.  He signed it and then breached it the following week by filing a grievance with his union and then later filing a lawsuit against his union and the employer alleging state law claims of retaliation, disability and age discrimination and a hybrid 301 claim.  He did not assert an ADEA claim.

The Court rejected the first argument – that the general release was void because it did not specifically exempt non-waivable rights to unemployment and workers compensation and future discrimination claims.  Problem is, the plaintiff was not asserting those claims in this action and the release was valid to his other claims: retaliation, §301 and state law discrimination claims.  Personal rights can be waived as long as they do not violate public policy.  Merely “because the release could conceivably be applied in a way that would be illegal,” does not make it unenforceable against the pending claims.  His release of “any sort of claim” as well as releases of “any and all claims” are generally enforceable under Ohio law to bar most claims, but will not be applied to bar unwaivable claims. “[A] generally worded release can bar claims that are waivable, but it cannot bar claims that aren’t waivable. A general release is not void on its face; rather, its enforceability depends on the claim that is to be released.”

Second, the Court rejected the plaintiff’s challenge to the consideration provided for the release.  The plaintiff asserted that he was statutorily entitled to file an unemployment compensation claim, so that could not constitute valid consideration.  However, the consideration provided by the employer was that it would convert his termination for cause into a layoff, meaning that he would be entitled to unemployment compensation if he were laid off, but would not be entitled to it if he were discharged for time card theft.   Putting aside the Ohio law requires employers to truthfully report why an employee was separated from employment, “promises to help facilitate a former employee’s unemployment-benefits application are sufficient consideration.”  The employer’s forebearance of its right to discharge him for cause and challenging his entitlement to unemployment compensation constitutes sufficient consideration for a release of claims.  That the employer previously intended to lay him off did not change the analysis because it had grounds to discharge him for cause at the time the release was signed.

In addition, contracts are not required to specifically mention the consideration provided. ““[C]onsideration for a contract need not necessarily be recited or expressed in writing; instead, the consideration may be proved by parol evidence or may be inferred from the terms and obvious import of the contract.”

Third, the plaintiff could not prove that he signed the release under economic duress because that requires proof that the employer engaged in an unlawful or otherwise wrongful act to deprive him of his unfettered will.  In this case, the employer was entitled to discharge him, so there was not unlawful or wrongful act. “It is not generally a “wrongful or unlawful act” if the defendant threatens to do something that it is legally entitled to do.”

He also challenged whether the release was knowing and voluntary, but it was only one paragraph, so he could not prove that it was too complicated for him to understand.  The Court also found it irrelevant that the release did not comply with the OWBPA because the plaintiff failed to assert any claims under the ADEA. “Plaintiff has not alleged any violation of the ADEA, and he does not argue that Ohio Rev. Code § 4112 incorporates the OWBPA’s protections.”

Finally, the Court affirmed dismissal of the claims against the union as well.

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.

Court Protects Whistleblower Report That Was Mandated by Employer

Earlier this month, the Mahoning County Court of Appeals reversed the dismissal of an attorney whistleblower complaint by the State Personnel Board of Review.  Desmond v. Mahoning Cty. Pros. Office, 2019-Ohio-4089.  The complaining attorney had been fired more than two months after being ordered to submit a memorandum detailing his prior allegations against a co-worker which he had failed to previously raise with his superiors and had already been the subject of a threatened lawsuit, but had shared with the attorney of an adverse party who drafted the lawsuit’s complaint.  The Court summarized that: “R.C. 124.341 contains no time frame for making a report, it contains no requirement that a supervisor be unaware of the conduct reported, and it does not specify that the protections of the statute will be lost if an employee is directed by his employer to make a report.  We also find that R.C. 124.341 does not except from whistleblower protection reports of attorney misconduct under the Ohio Rules of Professional Conduct.”   


According to the Court’s opinion, the complainant discovered that a co-worker who had taken over one of his cases was engaging in unprofessional behavior by, among other things, pursuing an indictment against a material witness for refusing to testify against an alleged murderer by invoking his fifth amendment privilege and by misrepresenting to the judge the witness’s stated intent to flee the state if released after the indictment was dismissed in order to keep that witness in jail.   Instead of sharing his concerns with management, he shared them with the witness’s attorney, who ultimately filed a complaint with civil rights charges and provided it to the employer.  He later texted his supervisor that the co-worker had mishandled the case and was directed to prepare a memorandum detailing his knowledge and concerns for the ongoing investigation into the allegations against the co-worker.  Despite agreeing to do so promptly, he required a reminder weeks later and a direct order more than a month later before he finally submitted the memorandum.  He was fired more than two months after that for, among other things, becoming an adverse witness to the employer through his communications to the witness’s attorney, failing to bring the concerns to management earlier and making false allegations against the co-worker, etc.  He appealed his termination to the SPBR, which dismissed for lack of jurisdiction on the grounds that his actions did not constitute protected whistleblowing under the statute.  The Court reversed. 


The Court agreed that the complainant’s text messages -- alleging that his co-worker “mishandled” the case and that some of the allegations against her were true – were not covered by the whistleblower statute because they were too ambiguous and did not allege illegal conduct.  However, the memorandum which he submitted was covered by the statute even though (1) he was ordered to submit it for face disciplinary action for insubordination and (2) covered issues of attorney professional conduct.   There is no exception in the statute for violations of the Rules of Professional Responsibility.  Further, the memorandum also implicated violations of federal civil rights laws and other prosecutorial misconduct. 


In addition, the Court determined that good faith was not absent merely because the complainant had been ordered to submit the memorandum to his employer which already knew the underlying allegations and was already investigating them.  

Turning to the good-faith requirement adopted by SPBR, R.C. 124.341 contains no express “good faith” requirement, except to the extent that it requires the employee “to make a reasonable effort to determine the accuracy of any information reported * * *.”  R.C. 124.341(C).  It provides no time frame for making a report, it contains no requirement that a supervisor be unaware of the conduct reported, and it does not specify that the protections of the statute will be lost if an employee is directed by his employer to make a report.  It was, therefore, not appropriate to deny jurisdiction on this basis.

Indeed, a whistleblower does not loose statutory protection merely because the covered written report was a mandatory duty as opposed to an independent offer.  Analogizing the situation to a sexual harassment complaint under Title VII as discussed in   Crawford v. Metropolitan Govt. of Nashville & Davidson Cty., Tenn., 555 U.S. 271, 277–78, 129 S.Ct. 846, 172 L.Ed.2d 650 (2009) :

The court concluded that “nothing in the statute requires a freakish rule protecting an employee who reports discrimination on her own initiative but not one who reports the same discrimination in the same words when her boss asks a question.”  Id. at 851.  We agree with this reasoning.  And we further emphasize, again, that if the legislature intended to protect only employees who identify violations independently—and not on the command of their employer—it could have expressly stated this 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.

Employee Breached Implied Duty of Confidentiality When Using Customer List

Last week, the Franklin County Court of Appeals affirmed in part and reversed in part an $81k verdict against a former employee and his new business for misappropriating a client list – which his employer had earlier sold to the plaintiff -- to start his marketing campaign.  MNM & MAK Ents., L.L.C. v. HIIT FIT Club, L.L.C., 2019-Ohio-4017.  The Court found that the employee’s misappropriation of the password protected client information violated Ohio’s Trade Secret Act and that the taking was unlawful based solely on every Ohio employee’s implied fiduciary duty of loyalty.  Nonetheless, the Court remanded for a recalculation of damages because the award was improperly based on gross revenue and mistaken assumptions did not account for expenses for declining growth in new clients.


According to the Court’s opinion, the individual defendant was initially hired as an independent contractor subject to an agreement with a confidentiality clause protecting the employer’s proprietary information, as well an arbitration clause.  He was later hired as an employee, but had not employment agreement.  He was given access to all client contact information, which he eventually downloaded to help start his own competing business in August 2017 a year after the employer closed its New Albany facility.  He was unaware that the employer had sold in October 2016 the customer list to another entity, which clearly objected when those clients signed up with the defendant’s new competing business.   The employer and the buyer asserted claims for misappropriation against the former employee and his new company.  After a bench trial, the court awarded $81,777 in damages.  This appeal followed.


The Court found that the independent contractor agreement was relevant for the purpose of showing that the defendant employee knew that the customer information was confidential, but did not otherwise govern the dispute. “There is no public record of the list, and [the employer] never used the list in a public way or provided the list to any mailing company.”   


The Court rejected the employee’s argument that his downloading of the information was not unlawful misappropriation because he had lawful access to the information by his employer giving him the passwords and did not subject him to a confidentiality agreement. “[E]xpress consent to access trade secret information in the course of employment does not also confer express or implied consent to use the information for non-work, personal purposes.”  Employers are not required to enter into express confidentiality agreements with their employees to protect their trade secrets from misuse:

Employees owe a duty of good faith and loyalty regardless of whether they signed an employment agreement with their employer.   . . . The presence of an explicit, binding confidentiality or employment agreement is not required to find misappropriation of a trade secret.

Victorious plaintiffs are entitled to recover damages for the defendant’s unjust enrichment from the misappropriation. “Regardless of whether the damages calculation is based on a plaintiff's loss or a defendant's gain, the damages figure " 'cannot be based upon a gross revenue amount.'  . . . . Rather, "Ohio law 'requires that evidence of lost profits be based upon an analysis of lost 'net' profits after the deduction of all expenses impacting on the profitability of the business in question.'"  Yet, in this case, the Court found the trial court abused its discretion in awarding damages based the figure on defendants’ gross revenue and speculation tying it to the misappropriation:

Here, appellees requested damages in the amount of $81,776.77 based on their calculation of the membership fees and other revenue HIIT Fit allegedly received from individuals who were previously Knockout members — i.e. appellants' profits, rather than appellees' losses.  Appellees admittedly based their calculation on appellants' gross revenue . . .  The trial court never considered or discussed whether and how to reduce this proposed gross revenue figure by appellants' expenses to try to reach an amount representing appellants' net profits.  The trial court's failure to consider appellants' expenses and net profit was an abuse of discretion.

Further, the plaintiffs admitted that they calculated their damages by extrapolating the defendant’s revenue from its first five months – when it’s biggest month was only its first month – over an entire year even though records showed significant decline in new memberships over that year.   Plaintiff’s also mistakenly attributed non-customer revenue – from merchandise sales, etc. --  to their damages.


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.