Issue 46

Zatuchni & Associates Newsletter

RECENT CASES

Employee's Criticism of Supervisor's Management Practices
Was Not Cause For Discharge

A recent New Jersey case illustrates that an employee's criticism of a superior's management style does not amount to the kind of insubordination that supports the employee's termination "for cause."

In Ricci v. Corporate Express of the East, 344 N.J.Super. 39, 2001 WL 1142285 (App. Div. 2001), the plaintiff sold his property management business to the defendant company, then became the company's salaried employee. Under the sales agreement, the plaintiff was entitled to additional compensation if the company's gross revenues reached certain levels. Moreover, under the employment agreement, the plaintiff was entitled to severance pay unless terminated for cause. The agreement defined "cause," in part, as "the commission by Employee of a willful act of dishonesty or misconduct that is injurious to the Company."

Things soured for the parties shortly after the plaintiff began working for the company. Specifically, the plaintiff began criticizing his direct supervisor for a variety of business practices that he believed were hindering his chances to receive additional compensation under the sales agreement. The plaintiff wrote two letters to his supervisor's superiors, complaining of his management style, as well as an additional letter in the same vein which he sent directly to his supervisor with a copy to the superiors. The plaintiff also spoke directly to his supervisor's superior and informed him that his supervisor was trying to undermine him. Sometime later, the company terminated the plaintiff for cause. The plaintiff then sued the company for severance pay, arguing that his actions did not fall within the definition of "cause" under the employment contract.

The appellate court agreed, noting that the contract contained no express prohibition against complaining about one's superiors. The company argued that the employee's complaints were insubordinate and amounted to "misconduct injurious to the Company." However, in the absence of any definition of "insubordination" in the contract, the court relied on a common-sense, dictionary-definition of the term as "a willful failure to follow instructions" or "an act of disobedience." The court then concluded that the plaintiff's actions did not rise to this level.

What It Means For You: It's important to note that the court found that the plaintiff's letters, although critical, "included many positive suggestions and were neither impertinent nor un-businesslike." Additionally, the court found no evidence that the plaintiff had ever refused to carry out an order. In essence, the court found that a middle-manager's "hurt feelings" do not establish harm to the company.

So what kind of conduct qualifies as good cause for dismissal? This court indicated that good cause is ordinarily found "when the employee's performance is deficient or when the employee creates a risk of harm to himself or others."

Abandon HR At Your Peril: Outback Steakhouse Grilled In Gender Discrimination Suit

A federal jury in Florida awarded nearly 2.2 million to a former Outback Steakhouse employee in her gender discrimination suit. The company paid the employee $24,000 to work on developing new restaurants for the chain. The company then hired a male counterpart to work with her in a similar position - namely, Steve Wilson, a former Tampa Bay Buccaneer who was on work release after serving a prison sentence for manslaughter.

Wilson was reportedly hired as a favor to a state senator. Regardless, the female employee alleged that after she trained Wilson, Outback transferred most of her job functions to him and paid him a salary of $40,000. Further, when the employee complained, the company transferred her to a clerical position. At this point, the employee informed the company that she was considering hiring an attorney, but no action was taken. When she returned from vacation, Outback gave her the ultimate "G'Day, Mate": It fired her for poor performance, then refused to cut her final paycheck when she refused to sign a statement waiving her right to sue the company. It took a jury only five hours to return the award, which included 2.1 million in punitive damages.

What It Means For You: Trial attorneys for the EEOC, which prosecuted this case, believe that one of the reasons the jury held Outback liable was because it did not have a formal HR department to which aggrieved employees like the plaintiff could complain. While Outback's general counsel claims that the company's HR functions are simply decentralized, the EEOC speculates that this kind of informal human resources structure failed the company in this instance.

ISSUES TO KEEP IN MIND

Liability Coverage For Discrimination Suits? Check Your Workers’ Compensation Policy

New Jersey is the only state that allows coverage for discrimination and sexual harassment claims to extend from traditional workers' compensation policies. For that, you can thank the New Jersey Supreme Court and its landmark 1998 decision, Schmidt v. Smith, 155 N.J. 44 (1998). In Schmidt, a female employee sued her company and a male co-worker for hostile work environment under the NJ Law Against Discrimination (LAD), assault, and intentional infliction of emotional distress. While the jury found the co-worker liable on all counts, it held the company liable for hostile work environment harassment alone. Total damages and fees amounted to over $180,000.

The company sought indemnification for the damages under its workers' compensation policy. The insurer refused to indemnify on the grounds that the policy contained an exclusion for "damages arising out of coercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation, discrimination against . . . any employee, or any personnel practices, policies, acts or omissions."

The Supreme Court held that this exclusion was valid, assuming that the harassment and discrimination at issue did not result in any bodily injury to the employee. However, if the liability did result in bodily injury, then the exclusion was invalid, as it would contradict the purpose of the workers' compensation statutes: to require employers to compensate their workers for injuries they suffer on the job. Since the employee at issue did in fact suffer bodily harm (in this case, assault and emotional distress), the Court went on to rule that the insurer was obligated to cover the damages.

ON THE REGULATORY FRONT

New York Congressional Rep Pushes To Broaden FMLA Coverage To Smaller Businesses

Carolyn Maloney (D-NY) recently introduced HB 2784 - the FMLA Enhancement Act - in the House. Currently, an employer needs 50 employees for the FMLA to apply; Maloney's bill seeks to expand FMLA coverage by reducing the minimum number of employees to 25. It also broadens the FMLA to provide employees with parental involvement leave for participating in or attending their children's or grandchildren's educational and extracurricular activities. Finally, the bill specifies that leave may be taken for routine medical needs and to assist elderly relatives.

What It Means For You: This is definitely a bill for small businesses to watch, as most are currently exempt from the FMLA due to their size.

If you or anyone from your organization would like to obtain copies of the cases or regulations discussed in this Newsletter, or would like more detailed information, please contact us at (609) 688-0900 or by e-mail at dzatuchni@zatuchniassociates.com.

Disclaimer

The information contained in this Newsletter does not constitute legal advice. Zatuchni & Associates, LLC tries to provide quality information, but we make no claims, promises or guarantees about the accuracy, completeness, or adequacy of the information contained herein. As legal advice must be tailored to the specific circumstances of each case, and laws are constantly changing, nothing provided herein should be used as a substitute for the advice of competent counsel.