Management Chapter 12 Pentrix Did Not Act Good Faith Note

Chapter Twelve

The Employment Agreement

A MANAGER’S DILEMMA: PUTTING IT INTO PRACTICE

Making Employment Decisions in Difficult Times

Issues Presented: (a) Should you fire Bhandari to reduce operating expenses? (b) If Bhandari

is terminated, on what basis could she sue the company? Would she prevail? (c) How could

you have structured the relationship to avoid this potential lawsuit?

(a) The decision to fire Bhandari is both an economic and an ethical one. To determine

whether it is in the company’s best interest to fire Bhandari, you should consider the impact on

current and potential employees, investors, and customers. You should also balance the

(b) If Bhandari is terminated, she can sue for breach of implied contract, breach of the

implied covenant of good faith and fair dealing, promissory estoppel, unjust enrichment,

(c) The company could have provided for monthly vesting of the options, which

compensates her for foregoing a higher salary and would weaken her claim that the real reason

QUESTIONS AND CASE PROBLEMS

Question 1

Issue Presented: Was Hemphill’s whistleblowing conduct a “contributing factor” in

Celanese’s decision to terminate his employment?

In Hemphill v. Celanese Corp., 430 Fed. App’x 341 (5th Cir. 2011), the U.S. Court of

Appeals for the Fifth Circuit affirmed the lower court’s decision. The court concluded

that Hemphill failed to create a genuine issue of fact regarding whether his protected

The court relied heavily on the fact that the persons responsible for investigating

Hemphill’s conduct and recommending his termination were unaware of the prior

audit discrepancies. The primary human resources director conducting the

investigation, Zarinah Curry, had no prior knowledge of Hemphill’s auditing activities.

Question 2

Issues Presented: Did Exxon breach its duty as an ERISA fiduciary in not disclosing a

potential change in ERISA benefits to all employees who might be affected?

In Bins v. Exxon Co. U.S.A., 189 F.3d 929 (9th Cir. 1999), the U.S. Court of Appeals for the

Ninth Circuit held that Exxon, U.S.A. (EUSA), a division of Exxon Corporation (Exxon), had

The first element, a specific proposal, distinguishes “serious consideration” from the

“antecedent steps of gathering information, developing strategies, and analyzing options.”

While the proposal need not describe the plan in its “final form,” it must be “sufficiently

concrete” to support consideration by senior management for the purpose of implementation.

Consideration becomes “serious” under the second element, discussion for implementation,

when “the subject turns to the practicalities of implementation.” The parties in the present case

did not dispute that the proposal in question was a specific proposal for purposes of

implementation.

In explicating this standard, the court noted its reluctance to place its full reliance on it:

“[A]ny formulaic test risks narrowing the fiduciary duty by giving the benefit of the doubt to

employers who comply with the words of the test but do not comply in spirit with their

fiduciary obligations under ERISA.” The core inquiry, explained the court, must be whether the

“employer has violated its duty of loyalty to plan participants by failing to disclose material

information, making misleading statements, or otherwise putting its business goals ahead of its

fiduciary obligations.” An employer’s need to operate efficiently as a business should play no

role in determining when the employer has an obligation to communicate with employees

about a proposed change in benefits. Instead, ERISA requires that a fiduciary “discharge his

duties with respect to a plan solely in the interest of the participants and beneficiaries.”

Question 3

Issues Presented: Was either Jeffrey or Brittany engaged in protected concerted action under

the National Labor Relations Act when they made their Facebook postings? May Goalpost

terminate them? Are Goalpost’s threats of legal action lawful?

The NLRB found that Jeffrey and Brittany had engaged in protected concerted action

under the National Labor Relations Act when they made their Facebook postings. As such, their

discharges and the subsequent threats of legal action by their employer were unlawful.

Here, the Board determined that the employees’ Facebook conversation related to their

shared concerns about a term and condition of employment – the employer’s administration of

income tax withholdings. Moreover, prior to the Facebook conversation, this shared concern

had been brought to the employer’s attention by at least one employee who specifically noted

on Facebook that she had requested it be discussed at an upcoming management meeting with

employees. Thus, the conversation that transpired on Facebook not only embodied “truly group

complaints” but also contemplated future group activity.

The Board rejected the employer’s argument that the employees lost protection because

their statements were defamatory. According to the Board, an alleged defamatory statement

will not lose its protected status unless it is not only false but maliciously false. Here, Jeffrey

merely indicated that he “liked” the initial Facebook posting by his former coworker, which

accused the employer’s owners of not being able to do paperwork correctly. Brittany’s posting

was limited to a factually correct statement that she had an outstanding tax obligation, and her

opinion that one of the employer’s owners was “[s]uch an asshole.” These statements,

concluded the Board, were not even false, much less maliciously false under the Board’s

standard.

Question 4

Issues Presented: (a) If a fifty-three year old employee has been terminated, ostensibly as a

result of a company slowdown, but after being told he might be promoted and after being

accused of leaking computer designs to the company’s competitors, what legal claims may he

bring against the company? (b) What facts does a terminated employee need to establish in

order to make out a claim of age discrimination or wrongful discharge? (c) What damages

are available to a terminated employee under these theories?

(a) Cases, such as the one outlined in this question, turn on their own special facts.

Often the plaintiff will feel that the true reason for his termination is being hidden from him,

which will make the discovery process (the legal process through which relevant facts are

gathered) critical to the success of his claims.

(1) Age Discrimination. A plaintiff may bring an age discrimination claim under two

different theories: disparate treatment or disparate impact.

(i) Disparate treatment. Under the facts as we have them in this case, there does not

seem to be any basis for a disparate treatment theory. This does not mean, however, that there

If the employer claims that the true reason for Barnes’ dismissal was his theft of the

company’s intellectual property, and if Barnes can establish that he never leaked any company

computer designs, the company’s claim will probably backfire and help the court draw an

inference of age discrimination.

(ii) Disparate impact. The U.S. Supreme Court held in Smith v. City of Jackson, 544 U.S.

228 (2005), that older workers may recover against employers if they can show that a practice or

policy has a disparate impact on them even though the practice or policy may have been

adopted with no discriminatory intent or motivation.

In the City of Jackson case, the city had adopted a pay plan to improve retention and

bring starting salaries of police and public safety officers up to the regional average. The policy

The result is that the ADEA’s protection against the adverse effects of an employer’s

action because of age is narrower than the protection against disparate impact under Title VII.

If the employer can establish that reasonable factors other than age account for the disparate

impact, the action will not be found unlawful. Applying this standard, the Court found that the

Under a disparate treatment theory, Barnes can make out a prima facie case by showing

that in choosing whether to fire him or a comparably qualified younger employee, the company

(2) Implied Contract to Terminate for Cause Only. Under this theory, the facts will support

an argument either way. Cutting in favor of Barnes’ claim that the company implied it would

only terminate him for cause are the statements of Renee Thompson that Pentrix is a “family;”

Cutting against these various facts is the statement in the company’s policy manual

indicating that all employees are terminable at will. This policy statement does not necessarily

mean that a court could not find an implied contract to terminate for cause in the totality of the

(3) Implied Covenant of Good Faith and Fair Dealing. If all else fails, Barnes can attempt to

argue that Pentrix violated an implied covenant of good faith and fair dealing. What a court

looks for here is some wrongful conduct on the employer’s part independent of the contractual

(b) The facts, always crucial in any legal dispute, are particularly important in a

wrongful termination case. To establish disparate treatment, Barnes will need to find evidence

that a comparable younger employee was not terminated. To establish disparate impact he will

need evidence that employees over the age of forty were systematically disadvantaged during

the company slowdown.

In preparing Barnes’ implied contract claim, a good attorney will want as many facts as

possible illustrating the totality of the employment situation. In particular, the attorney will

(c) Under the ADEA, an employee who has been the victim of age discrimination is

entitled to lost salary and benefits, reinstatement or “front pay,” and injunctive relief to stop

prohibited discriminatory actions. Liquidated damages equal to the amounts owing to a person

as a result of the violation are also available in the event of willful violations by the employer.

Question 5

Issue Presented: Are state law negligence claims for failing to maintain a safe workplace

preempted by ERISA?

Silverleaf successfully removed McAteer’s state-law negligence action to federal court,

asserting that federal subject matter jurisdiction existed because ERISA completely preempted

McAteer’s causes of action. McAteer subsequently filed a motion to remand and argued that

ERISA did not preempt her causes of action because she had brought only state law negligence

The court next addressed the merits of McAteer’s appeal: whether ERISA preempted

McAteer’s state-law negligence claims. The court first noted that ERISA explicitly states that it

“shall supersede any and all State laws insofar as they may now or hereafter relate to any

employee benefit plan. . . .” Under Fifth Circuit precedent, to determine whether a state law

Question 6

Issue Presented: What liability does an employer that was previously cited by the

Occupational Safety and Health Administration, and failed to implement correct safety

procedures for employees who service or maintain equipment, have when an employee

subsequently is injured while servicing company equipment?

Mull sued Zeta seeking damages based on an intentional tort theory. She submitted an

expert report that expressed the view that Zeta, motivated by a desire to enhance productivity,

had altered the original design of the winder, and that the alterations created “hazardous

operating conditions” and a “virtual certainty” of injury to the machine’s operators.

The Supreme Court of New Jersey concluded that Mull’s assertions, if proved, created a

genuine issue of material fact as to whether the employer’s conduct in disengaging the winder’s

safety devices, while knowing of the dangerous consequences of its conduct, fell within the

“intentional wrong” exception to the exclusive remedy provision of the Act and therefore

The Legislature would not have considered the removal of the winder’s safety

devices, coupled with the employer’s alleged knowledge of the machine’s

dangerous condition due to prior accidents and employee complaints, in

Question 7

Issue Presented: May an employee be terminated for: (a) declining to agree to a document

delineating certain obligations to their employer in relation to their spouse’s work on behalf

of a competing company, after being promised they would not be terminated as a result of

their spouse’s employment with a competing firm; (b) communicating with an insurance

adjuster against their employer’s instructions about certain fire safety violations committed

by their employer; (c) complaining about being underpaid in violation of the Fair Labor

Standards Act and state law; (d) opposing an employer’s treatment of employees who are

entitled to claim workers’ compensation benefits; (e) soliciting signatures for a letter

denouncing his or her employer’s management; or (f) bringing a personal injury action

against their employer?

(a) In Stewart v. Cendant Mobility Services Corporation, 836 A.2d 736 (Conn. 2003), the

Supreme Court of Connecticut found that Stewart could enforce Cendant’s promise that she

The court also stated that Stewart relied on Cendant’s promise to her detriment because

she did not seek alternative employment subsequent to the promise. Alternative employment

would have been accompanied by a signing bonus equivalent to Stewart’s total commissions

owed by Cendant. Stewart never received such commissions when she was terminated. The

court ultimately concluded that Stewart reasonably relied on Cendant’s representations to her

financial detriment.

(b) In Dohme v. Eurand America, Inc., 130 Ohio St. 3d 168 (Ohio 2011), the Supreme Court

of Ohio ruled that the employee failed to carry his burden on the employer’s summary

judgment motion to articulate a specific clear public policy violated by his termination. The

court articulated the elements of a claim of wrongful discharge in violation of public policy as

follows:

1. That clear public policy existed and was manifested in a state or federal constitution,

statute or administrative regulation, or in the common law (the clarity element).

The court determined that the employee failed to satisfy the clarity element because he

failed to articulate, by citation to its source, a specific public policy that his employer violated

when it discharged him. The employee simply alleged in his complaint that his employer’s

(c) In DeMell v. Cleveland Clinic Foundation, 2007 WL 1705094 (Ohio App. 8 Dist. June 14,

2007), the Ohio Court of Appeals upheld the trial court’s decision granting the employer’s

motion to dismiss the employee’s claim for retaliatory wrongful termination in violation of

(d) The Utah Supreme Court held that retaliatory discharge for filing a workers’

compensation claim violates public policy, and an employee who is fired or constructively

discharged in retaliation for claiming workers’ compensation benefits has a wrongful discharge

cause of action. However, the court declined to extend this cause of action to an employee who

suffers only harassment or discrimination, or to an employee who is retaliated against for

opposing an employer’s treatment of employees who are entitled to claim workers

compensation benefits. The court held that:

The public policy exception would be expanded beyond its intended narrow

scope if we were to hold that an employee with no authority over or personal

(e) The California Court of Appeal held that Luke’s claim for wrongful termination in

violation of public policy was properly dismissed by the trial court because it was preempted

by the National Labor Relations Act. Luke argued that his claim should not be preempted

because discussions among employees about work conditions are not “concerted activities”

protected by the Act. The court disagreed, noting that such discussions were in fact covered

(f) The Iowa Supreme Court held that the trial court properly dismissed Berry’s claim

for wrongful termination in violation of public policy because he did not identify a clearly

defined and well-recognized public policy that would be undermined by his termination. Berry

argued that Iowa’s comparative fault statute served as a source for the public policy of

Question 8

Issues Presented: Does an employee have an expectation of privacy in his workplace

computer sufficient to suppress images of child pornography sought to be admitted into

evidence in a criminal prosecution?

In United States v. Ziegler, 474 F.3d 1184 (9th Cir. 2007), the U.S. Court of Appeals for the

Ninth Circuit held that the defendant did have a reasonable expectation of privacy in his office

and workplace computer, and that defendant’s employer could consent to a search of

defendant’s workplace computer.

The court first addressed the threshold issue of whether Ziegler had a legitimate

expectation of privacy in his office and workplace computer. The government did not contest

The next question addressed by the court was whether the search of Ziegler’s office and

the copying of his hard drive were “unreasonable” within the meaning of the Fourth

Amendment. It is settled for purposes of the Fourth Amendment that “except in certain

carefully defined classes of cases, a search of private property without proper consent is

‘unreasonable’ unless it has been authorized by a valid search warrant.” One well-settled

exception, explained the court, is where the government obtains valid consent. In proving

voluntary consent, the government “is not limited to proof that consent was given by the

defendant, but may show that permission to search was obtained from a third party who

possessed common authority over or other sufficient relationship to the premises or effects

sought to be inspected.”

The court, therefore, needed to determine whether Frontline exercised common

authority over the office and the workplace computer such that it could validly consent to a

search. The court again looked to U.S. Supreme Court precedent, which established that even

where a private employee has an expectation that his private office will not be the subject of an