Discussion 6 WK 6

MANAGEMENT OF EMPLOYEE

CONDUCT: AGENCY

LECTURE OUTLINE

16-1 Names and Roles: Agency Terminology (See PowerPoint Slide 16-1)

16-1a Agency

· Relationship is One in Which One Party Agrees to Act on Behalf of Another

Examples: Sales clerks, real estate agents, sports agents

16-1b Principals

· Employers

16-1c Agents

· People Hired By a Principal to Do a Task on Behalf of the Principal

16-1d Employers and Employees: Master-Servant Relationships (See PowerPoint Slide 16-2)

· Master/principal exercises a great deal of control over the servant/agent

· Factors that control whether this type of relationship exists

· Level of supervision

· Level of control

· Nature of agent's work

· Regularity of hours and pay

· Length of employment

16-1e Independent Contractors (See PowerPoint Slide 16-3)

· Hired to Perform a Task But is Not Directly Supervised

Example: Lawyer

16-1f Agency Law

· Restatement of Agency – common law followed by most courts

· Three Parts to Agency Law (See PowerPoint Slide 16-4)

· Creating the agency relationship

· Relationship between principal and agent

· Relationships of agent and principal to third parties

16-2 Creation of the Agency Relationship

Created When the Principal Hires Someone (See PowerPoint Slide 16-5)

16-2a Express Authority

· Created by principal stating or placing in record form that agency exists and the authority thereof

· Requires oral agreement or agreement evidenced by a record – must have some form of a record if statute of frauds applies to it (as it would any other agreement for services)

Example: Agency contract is longer than one year

16-2b The Record

If the Agent’s Contracts Must Be Evidenced by a Record, the Agent’s Authority Must Be Evidenced by a Record

16-2c Capacity (See PowerPoint Slide 16-6)

· Principal must have capacity

· Age and mental capacity

· Uniform Durable Power of Attorney Act

· Been adopted in most states

· The authority kicks in automatically upon certain events, such as incapacity are certified by medical professional

· Used by children who will need to manage their parents’ affairs

· Unincorporated associations do not have capacity

· Have no legal existence

Examples: Little League teams, some churches

· Members will be liable since there is no principal

· Uniform Unincorporated Nonprofit Association Act allows liability for organization, not those who sign

See BUSINESS PLANNING TIP (Signature) and PowerPoint Slide 16-7 to cover proper signature for an agent – should always indicate capacity.

· Capacity of agent is not an issue but many firms are requiring drug testing for them

16-2d Implied Authority (See PowerPoint Slide 16-8)

· The Extension of Express Authority by Custom

Examples: Treasurer has authority to start bank accounts, order checks, and so on; apartment manager has authority to call for repairs and collect rent

16–2e Apparent Authority

· Arises from the way agents present themselves to third parties

· Also called agency by estoppel or ostensible authority

Examples: Failure to notify of agent’s retirement, allowing bank to use your name for another’s loan

See PowerPoint Slide 16-9.

CASE BRIEF 16.1

Thomas v. Weatherguard Construction Company, Inc.

42 N.E.3d 21 (Ill. App. 2015)

FACTS: Raymond Thomas (plaintiff) came across an ad by Weatherguard Construction Company (defendant) on the Career Builder website. The ad contained only Weatherguard’s name. He submitted an online application, along with his resume, and received a call “from someone from the office for an interview.” The building at which he interviewed had Weatherguard's name on it. When Mr. Thomas walked into the building he saw “several employees that had, like, Weatherguard uniforms and stuff on.”

Mr. Thomas was interviewed by Farbaky, who was wearing a Weatherguard uniform. Mr. Thomas also spoke to Chad Hagen, who was also wearing a Weatherguard uniform. Mr. Thomas received a business card from Hagen at the same time, which had Weatherguard's name on it. After the interview, Mr. Thomas received a call back from Farbaky, inviting him back to the office. When he returned to the office, he was invited on a “ride-along” with Farbaky to observe what the job entailed. Farbaky took Mr. Thomas to customers' homes and informed him “about the company.” Mr. Thomas had the opportunity to perform a roof inspection with Farbaky, who showed him the process of approaching the customer and inspecting the roof for damage. During the ride-along, Farbaky rang a prospective customer's doorbell and Mr. Thomas heard him state that “he was from Weatherguard Construction” and that they were in the area inspecting roofs for hail damage.

After the ride-along, Mr. Thomas called Farbaky and “accepted, you know, the position of coming aboard as far as being a claims specialist for Weatherguard.” Mr. Thomas was given a map of the geographic territory, as well as a Weatherguard hat and a Weatherguard jacket. Farbaky also provided a script to read in which Mr. Thomas would identify himself as being “‘from Weatherguard Construction Company.’” Farbaky also gave Mr. Thomas a business card, which had the Weatherguard name on it. Mr. Thomas was given business cards with both his and the Weatherguard name on it. Farbaky also applied for a solicitor's permit on Mr. Thomas's behalf with the City of Naperville and that the permit “allow[ed] Weatherguard employees” to solicit business in Naperville. Farbaky arranged for Weatherguard logos to be placed on the sides of Thomas’s personal vehicle.

After approximately two weeks of work, Thomas “started kind of feeling like [he had] a kind of like suspicion about the company.” When he received his first paycheck, it was a personal check from Farbaky with the word “draw” written on the memo line. When Thomas asked Farbaky about it, he was told that the term “draw” meant that the check was “[j]ust money being paid up front until Thomas actually got the dollar amount that was due [to him] from the jobs that [he] got.” Thomas continued to receive regular personal checks from Farbaky with the word “draw” written on the memo line. Thomas never received a payroll check from Farbaky and never received any checks from Weatherguard. Thomas received a total of $2,900 in personal checks.

As time passed and Thomas had not received any checks from Weatherguard, he “wasn't feeling * * * real [sic] good about the company,” but continued working for several months. When he was offered a full-time job as a store manager at Lowe's, he accepted it. He did not receive the commissions he was promised for the jobs he had obtained for Weatherguard. He filed suit to obtain those commissions. Weatherguard said that Farbaky ran a marketing company it had hired, but that it never heard of Thomas until contacted by his lawyer for payment.

DECISION BELOW: The trial court found that Thomas had established apparent agency, and that he had secured thirty-one contracts which benefitted Weatherguard and that the gross total on these contracts amounted to $223,932.60, and that he was entitled to 20% of the net amount for these contracts. Weatherguard appealed.

ISSUE ON APPEAL:  Was there apparent authority in Farbaky on behalf of Weatherguard?

DECISION: Defendant first argues that the trial court erred in finding that defendant had created the appearance that Farbaky had the authority to hire plaintiff on defendant's behalf.

“Defendant allowed [Farbaky] to respond to job applications put into the market by Weatherguard. It allowed its name to be the sole business entity on Farbaky's and Thomas' business cards. It allowed use of its offices, address, hats, jackets, car boards, marketing materials, web-site advertising, use of its name exclusively in training scripts, use of its secretarial staff and more. Weatherguard had some control over the day to day practices of the claims specialists. It provided the contracts bearing its name. It communicated with homeowners' insurance adjusters and to arrange days when the adjuster would view the house. It contacted the claims specialists to know the days when the adjuster would be at the house so that the claim specialist could make a point of being present. Further, Weatherguard's production manager has final say on whether the contract will be completed by Weatherguard.”

[S]uch conduct would reasonably lead a person to believe that he was employed by defendant or an agent of defendant, not an employee or agent of an independent marketing company.

Defendant argues that this conduct demonstrated only that Farbaky was authorized to use defendant's name in selling its services, not that Farbaky had the authority to hire plaintiff. Plaintiff testified that he responded to an advertisement of defendant, arrived at defendant's building, observed people with Weatherguard uniforms, and was given a Weatherguard business card, all of which MacDonald corroborated was permitted by defendant. Plaintiff further testified that Farbaky exclusively used defendant's name and never mentioned DBar to plaintiff, even when plaintiff was interviewing for employment. We cannot find that it was against the manifest weight of the evidence for the trial court to conclude that a reasonable person would have believed that he was being hired to work for defendant.

Defendant further argues that plaintiff failed to exercise any diligence in determining whether Farbaky had the authority to hire him to work for defendant. Defendant is correct that one dealing with an agent has to act with reasonable diligence and prudence in determining the scope of the agent's authority. However, plaintiff testified that when he received a personal check from Farbaky, he questioned Farbaky about it and was assured that it was merely an advance payment until plaintiff received his entire commission. Accordingly, we cannot find that the trial court's finding that Farbaky was defendant's apparent agent was against the manifest weight of the evidence.

The trial court did not “mischaracterize” MacDonald's testimony in any way. Accordingly, we cannot find that the trial court erred in awarding plaintiff damages and affirm the trial court's judgment in plaintiff's favor.

We affirm the trial court's judgment in plaintiff's favor. However, we remand the case to the trial court for the limited purpose of determining reasonable attorney fees.

16-2f Ratification (See PowerPoint Slide 16-10)

· Principal reviews contract and decides to honor it even though agent had no authority to enter into it

· Retroactive approval of agent’s contract

ANSWER TO CONSIDER 16.4: There was not implied authority by Chavez to bind the board to such a settlement. An executive director of a non-profit organization might have implied authority to settle suits for employees, but not one involving himself. Business custom would require that any allegations brought against an executive director be brought to the board’s attention. Yes, someone from the outside might assume he had authority, but it would be best to obtain board authority. The NAACP Board recently voted that it would not make the payment Mr. Chavez had negotiated because he was without authority to reach such a settlement without Board authorization and approval.

16-3 The Principal-Agent Relationship

16-3a The Agent’s Rights and Responsibilities (See PowerPoint Slide 16-11)

· Loyalty

· Agent can’t represent both sides

· Can’t make a profit at principal’s expense

See PowerPoint Slide 16-12.

CASE BRIEF 16.2

Lucini Italia Co. v. Grappolini

2003 WL 1989605 (N.D. Ill. 2003)

FACTS: Mr. Frigo hired Mr. Grappolini as a consultant for his Lucini company, a company that developed high-end olive oils for sale in the United States. Mr. Grappolini was to negotiate a supply contract with Vegetal for its olive oil, one that was necessary for use in creating a flavored olive oil Frigo was developing (the LEO project).

With the LEO product launch approaching, and no copy of the alleged Vegetal supply contract available, Mr. Frigo had Lucini’s lawyer in Italy contact Vegetal directly for a copy. The lawyer learned that Vegetal had a supply contract, but the contract was with Mr. Grappolini’s company and that it was not transferable to Lucini. Mr. Frigo then confronted the officers of Vegetal they acknowledged that they had negotiated with Mr. Grappolini for his company, not for Lucini and were not aware of Lucini’s needs or Mr. Grappolini’s representation of Lucini. The officers at Vegetal said that Grappolini had been a “bad boy” in negotiating the contract for himself. Vegetal agreed to supply Lucini with olive oil in the future, but could not deliver it in time for the launch of Lucini’s new line. The soonest it could deliver would be after the next harvest, a time that meant the marketing and sales plans of Lucini for its new product had been wasted.

Mr. Frigo and Lucini filed suit against Mr. Grappolini and his company (defendants) for breach of fiduciary duty.

ISSUE: Did Mr. Grappolini breach his fiduciary duty?

DECISION: As agents, Defendants owed Lucini general duties of good faith, loyalty, and trust. In addition, Defendants owed Lucini “full disclosure of all relevant facts relating to the transaction or affecting the subject matter of the agency”.

· Duty of loyalty – post-employment (See PowerPoint Slides 16-13 and 16-14)

· Covenants not to compete are enforceable for the most part

· Requirements for noncompete agreements to be enforceable

· There must be need for protection – the principal must be able to show that restrictions on employees are necessary to protect its trade secrets, customer information, etc.

· The covenant must be reasonable in geographic scope and time; the covenant cannot last forever or cover more of an area than is necessary; the type of services controls what is appropriate for scope

· The covenant must be formed in a valid manner, just as all other contracts with offer, acceptance, consideration, and no duress; employees should have a chance to think about the agreement and seek independent legal advice if they wish

· Other theories for noncompete enforcement

· Tortious interference is becoming a basis for litigation by employers against former employees who compete with them after leaving

· Confidentiality agreements are in addition to covenants not to compete

· Doctrine of inevitable disclosure

· Non-solicitation clauses

· Statutory protections

See PowerPoint Slide 16-15.

CASE BRIEF 16.3

Garon Foods, Inc. v. Montieth

2013 WL 3338292 (S.D. Ill. 2013)

FACTS: Sarah Montieth was an employee of Garon Foods from November 2011, until she voluntarily resigned in February 2013. Garon sells peppers to cheese manufacturers for use in making pepper jack cheese. Garon acts as a distributor for peppers it obtains from a supplier that Garon relabels and distributes to its pepper jack cheese manufacturing customers under Garon's name. During her time at Garon, she had access to a computer program listing the names of Garon's customers, and she was assigned to manage the accounts of a small number of customers (around five at any one time).

Prior to starting employment, Sarah signed a “Garon Trade Secrets Confidentiality Agreement” in which she agreed to hold Garon's trade secrets confidential and to refrain from using them for anything other than Garon's benefit. Under the Agreement, trade secrets included customer lists, customer products, customer pricing, data, designs, financial records, formula, packaging, procedures, processes, suppliers, vendors, and other confidential information. Garon further protected some of this information on a computer system with individual passwords and by hiding it on its computer server.

At the time of her resignation, Sarah signed another document in which she acknowledged the Agreement's non-disclosure provisions. Garon never asked Sarah to sign a covenant not to compete with Garon.

During Sarah's employment with Garon, she sent an e-mail with some of the foregoing confidential information to her personal e-mail account. She did this for the purpose of preparing for a meeting to address a customer complaint that had arisen while others at Garon were away on vacation. On one occasion, Sarah also sent a purchase order containing confidential information to a trucking company to facilitate an urgent transportation request. When Sarah resigned, she was escorted from Garon's property and took no documents with her. She did retain in her memory the names of purchasing agents of certain Garon customers and general knowledge of the industry, such as “ballpark” pricing arrangements. Any specific pricing details Sarah retained in her memory are likely to be obsolete within a year or less due to the fluctuation of product prices.

After Sarah's resignation, she began working as an independent contractor for the Supplier of peppers to Garon. This was the Supplier's first attempt to market its product directly to cheese manufacturers.

No credible evidence shows Sarah gave the Supplier any of Garon's confidential information or trade secrets. However, Garon alleges Sarah breached the Agreement when she began marketing the Supplier's products directly to pepper jack cheese manufacturers, which included Garon's customers. Sarah sent mass e-mails to the purchasing agents of the companies on a list of pepper jack cheese manufacturers. She had not obtained the manufacturer list from Garon, but derived it on her own through internet searches. She had remembered some of the purchasing agents' names from her work at Garon, but had obtained others, along with contact information, through telephone calls to the manufacturers. She did not specifically target any of Garon's customers with her e-mail solicitations, but she did not avoid them either. However, some of the mass e-mails contained references from which the manufacturer could easily conclude that the Supplier was Garon's source of the products Garon sold under its own name. For example, one mass e-mail offered to sell the Supplier's product to manufacturers using standard packaging methods (pails, drums and totes) “at a significant cost savings and with shorter lead times” than the manufacturer could get through a distributor. The e-mail further contained a specification sheet for a product that this customer had purchased from Garon.

Despite receiving a cease and desist letter from Garon's counsel, Sarah continues to solicit business for the Supplier. Sarah has not brought any new customers to the Supplier since her marketing efforts began, but Garon has lost one long-time customer who generated more than $200,000 of business a year. If the Supplier is able to draw customers away from Garon, Garon's reputation in the industry would suffer and it would be nearly impossible to get its customers back. Additionally, since Sarah began working for the Supplier, the Supplier has increased the product prices it charges Garon, which Garon has been forced to pass along to its customers.

Garon filed suit alleging Sarah breached the Agreement by revealing confidential information and violated the Illinois Trade Secrets Act (“ITSA”), by misappropriating Garon's trade secrets. Garon asked the Court to issue a preliminary injunction barring Sarah from using or disclosing Garon's confidential information or trade secrets, ordering her to return all confidential information or trade secrets within her possession, and ordering her to disclose everyone to whom she provided Garon's confidential information or trade secrets and all the customers she has contacted since leaving Garon.

ISSUES: Did Sarah breach her agreement not to disclose? Did she reveal trade secrets? Was Garon entitled to an injunction?

DECISION: The court found that Sarah had violated the agreement through certain of her actions and that she had revealed some information that constituted trade secrets. However, an agreement to not disclose is still a covenant not to compete and balancing in required between Garon’s rights and Sarah’s ability to earn a living.

The court therefore issues a tailored injunction that spelled out what Sarah could and could not do for the next eight months.

Sarah is enjoined from soliciting business for the Supplier from any cheese manufacturer whose account she was assigned to manage during the twelve months before she stopped working for Garon. This injunction shall last for eight months following entry of this preliminary injunction. This preliminary injunction does not prevent Sarah from servicing any of these cheese manufacturers who independently become customers of the Supplier by means other than her solicitations.

Sarah is enjoined from soliciting business for the Supplier from any cheese manufacturer she knows is or was a Garon customer by mentioning or using any specific information in the solicitation about their past purchasing needs or sales terms. This restriction includes mentioning in the solicitation the specifications of the products she knows from her experience at Garon were sold to that cheese manufacturer by Garon.

This preliminary injunction does not prevent Sarah from responding to a cheese manufacturer's request for products that it has purchased from Garon so long as the request for those products is initiated by the cheese manufacturer.

Sarah is enjoined from referring in her solicitations to (1) Garon or (2) any other information from which a cheese manufacturer is likely to draw the conclusion that the Supplier provides Garon with the products Garon sells under its name. This restriction includes, but is not limited to, mentioning in the solicitation the specific weights of products in conjunction with the method of packaging that were sold exclusively by Garon (e.g., 43–pound pails) and inviting the cheese manufacturer to compare the quality audit documentation of Garon and the Supplier.

This preliminary injunction does not prohibit Sarah from responding to a cheese manufacturer's request for products packaged in the specific weights and methods sold by Garon or for a list of the packaging weights and methods available from the Supplier, so long as the request is initiated by the cheese manufacturer.

ANSWER TO ETHICAL ISSUES (Garon): Taking what doesn’t belong to you and taking unfair advantage. Sarah is welcome to work elsewhere and even develop a business for purchasers to buy directly from the supplier. However, she cannot build the business on the back of all the work Garon’s had undertaken over the years in developing products and pricing and relationships with customers.

· Duty of obedience (See PowerPoint Slide 16-16)

· Follows principal’s instructions

· Need not do anything illegal

· Duty of Care

· Give time and effort

· Follow through

16-3b The Principal’s Rights and Responsibilities (Duties)

· Duty of compensation

· Duty to pay

· Except gratuitous agency

· Del credere agency – agent will be liable for payment if buyer does not pay

· Duty of indemnification

16-4 Liability of Principals for Agents’ Conduct: The Relationship With Third Parties

16-4a Contract Liability (See PowerPoint Slides 16-17 and 16-18)

· Principal has full liability for authorized acts of agent and those done with apparent authority

· Issues of disclosure arise

· Disclosed principal – principal is fully liable; agent is not unless the agent had no authority

· Partially disclosed principal – agent indicates there is a principal but does not tell who it is; third party can hold either liable

· Undisclosed principal – agent does not disclose there is a principal; agent stands alone unless principal comes forward (See Exhibits 16.1 and 16.2 and PowerPoint Slides 16-19 and 16-20)

16-4b Liability of Principals for Agents' Torts (See PowerPoint Slide 16-21)

· Must have master-servant relationship

· Not independent contractor

· Degree of supervision is controlling

· Liable for torts of servants in scope of employment

· Scope = doing master’s work

Examples: Deliveries, sales calls, and so on

· Doctrine of respondeat superior – let the master answer

· The sleep issues and variations in the state

Faverty – McDonald's was responsible; other states do not follow

See PowerPoint Slide 16-22.

· Not liable for torts committed while on frolic – frolics include:

· Stops for personal reasons

· Going off duty temporarily

· Liable for detours such as lunch break while employee is on the road

· Can be liability for the negligent failure to supervise or negligent hiring of employees

· Duty of screening and background checks is important

· Once you know of employee’s activities or dangerous tendencies, you must take action or risk liability even for those types of actions that are not considered within the scope of employment; liability results from inaction with knowledge of danger

CASE BRIEF 16.4

Lange v. National Biscuit Company

211 N.W.2d 783 (Minn. 1973)

FACTS: Ronnell Lynch was a cookie salesman for Nabisco. Jerome Lange was the manager of a small grocery story on Lynch’s route. Nabisco had received complaints about Lynch being overly aggressive in taking shelf space. On May 1, 1969, while Lynch was delivering merchandise to Lange’s store, Lynch and Lange became involved in an argument and Lynch assaulted Lange and threw merchandise around the store. Lange sued Nabisco for his injuries.

DECISION BELOW: The jury found for Lange even though Lynch’s acts were outside the scope of employment because Nabisco was negligent in hiring and retaining Lynch. The judge granted Nabisco a judgment NOV and Lange appealed.

330 Part IV Business Management and Governance

Chapter 16 Management of Employee Conduct: Agency 330

315

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

ISSUE ON APPEAL: Was Nabisco responsible for Lynch’s conduct when it was not part of his scope of employment?

DECISION: Yes. Generally, masters are not held liable for intentional torts unless the master requested it of the servant. But here, there was an implied request through Nabisco’s inaction with respect to complaints about Lynch.

ANSWER TO CONSIDER 16.6: The court held that there were genuine issues of material fact that existed as to whether employee's trip to a hotel to nap was within his scope of employment. The case was sent back for trial because there were questions about the scope of duty, and it is possible that a nap in these circumstances could have been within the scope of duty. Fowler v. U.S., 647 F.3d 1232 (10th Cir. 2011).

· Negligent hiring and supervision (See PowerPoint Slide 16-23)

· Hiring an employee without sufficient references/background checks is negligence

· Failure to supervise or take action with a dangerous or violent employee is negligent supervision

ANSWER TO CONSIDER 16.7: The court held that the conduct of Waffle was clearly outside the scope of employment and that the university had no knowledge or history of such behavior on the part of Waffle. This was not scope of employment conduct for which the University could be held liable. Waffle was liable. However, what with prison and all, she was not a rich source for recovery. Hyatt v. Board of Regents of Oklahoma Colleges, 2015 WL 52112 (W.D. Okl. 2015).

· Testing – more employers are doing it

· Necessary for certain situations: driving, machinery operation, any jobs where human safety is an issue

· U.S. Supreme Court has upheld right of employer/railroad to test employees because of public safety issues; public safety interest outweighs privacy interests

· Torts of independent contractors (See PowerPoint Slide 16-24)

· Principals generally not liable for torts of independent contractors

· However, they are liable for inherently dangerous activities done by independent contractors

Example: Using explosives

· Also principals are liable for hiring an incompetent independent contractor

Example: Abusive collection agency

16-5 Termination of the Agency Relationship (See PowerPoint Slide 16-25)

· Need to Give Public or Constructive Notice (Trade Publication) of the Termination in Order to Terminate Apparent Authority

· Also Give Private (Mailed) Notice (Letters) to Those That Have Dealt With the Agent

· Without Notice, Agent Will Have Lingering Apparent Authority (No One Knows They Have Left)

16-6 Termination of Agents Under Employment at Will (See Exhibit 16.3 and PowerPoint Slides 16-26, 16-27, 16-28, 16-29 and 16-30)

· Has No Definite Ending Date

· Usually There is No Formal Written Contract – Implied Contract

· Used to Be They Could Be Fired at Any Time; Courts Now Afford Protection

16-6a The Implied Contract (See PowerPoint Slide 16-31)

Personnel Manuals Will Be a Contract if Employees Relied on Its Procedures

CASE BRIEF 16.5

Dillon v. Champion Jogbra, Inc.

819 A.2d 703 (Vt. 2002)

FACTS: Dillon was working at Jogbra and was given a promotion as well as “pep talks” by managers about her new position and how long she would be doing it and the training. She was then put into a temporary position after a short stint in her new position, told she could apply for other jobs, and then not placed in those jobs. Eventually she was terminated when her temporary position ended. Jogbra did not follow its established procedures for terminating her employment. She filed suit for wrongful discharge, promissory estoppel and breach of implied contract.

DECISIONS BELOW: The trial court granted summary judgment.

ISSUES ON APPEAL: Does an employee have any rights or protections under implied contracts? Promissory estoppel?

DECISION: The court held that Dillon had the right to proceed with the claim related to wrongful discharge and breach of contract, but not promissory estoppel.

16-6b The Public Policy Exception (See PowerPoint Slide 16-32)

· Protection – Whistleblowers

· Protects employees who report illegal conduct or conduct that violates public policy

· Protects employees who refuse to participate in illegal conduct

Examples: Pricefixing, FDA or FAA violations

· The Antiretaliation Statutes: protection for whistleblowers

· Passed in many states and by federal agencies

· Prohibit firing, demotion, reprimands, and pay cuts of employees who report conduct of their employers

· Federal level – Energy Reorganization Act affords protection for employees involved in nuclear work (called EPS – Employee Protection Section)

· All 50 states have some form of protection for whistle-blowers

· Sarbanes-Oxley (SOX) provides antiretaliation protection against employees who raise financial reporting issues

· Criminal penalties for retaliation up to 10 years

· Employee damages are reinstatement, back pay and damages – up to 30% of federal recovery can go to whistleblowers

· Also applies to analysts

See PowerPoint Slide 16-33 to cover suggestions for whistleblowing for both employers and employees.

See PowerPoint Slide 16-34.

CASE BRIEF 16.6

Hadley v. Duke Energy Progress

2016 WL 1071098 (E.D. N.C. 2016)

FACTS: Timothy S. Hadley worked for Duke Energy Progress (DEP) (Defendants) from August 5, 2002 until his termination on December 7, 2010.

On January 31, 2008, Hadley had lunch with Montgomery and Hardison. Montgomery and Hardison told Hadley that he would receive a raise in salary that year. Hadley wanted the raise to be effective retroactively to May 2006, when he was promoted. According to Hadley, Montgomery and Hardison promised that he would receive four monetary Energy Advantage Awards (“EAAs”) to compensate him appropriately for the time between May 2006 and when the raise would take effect.

Hadley periodically asked Montgomery about the status of the EAAs from 2008 through September 2009. In November 2008, Hadley contacted DEP Human Resources’ Sue Bathgate regarding the EAAs. In response, Montgomery called Hadley into a one-on-one meeting and told Hadley that he would be fired if he continued to pursue the EAAs with HR. Hadley alleges that he spoke with Montgomery about the EAAs again during an August 2010 meeting concerning Hadley's 2010 mid-year review, and Montgomery repeated his threat. On October 29, 2010, Hadley again mentioned the EAAs to HR.

In 2009, Hadley began to work also on DEP's Smart Grid Program, an energy efficiency project funded in part by a matching grant awarded under the American Recovery and Reinvestment Act of 2009.

In December 2009, Hadley discovered that DEP had paid IBM over $4 million for work that Hadley considered to be “not worth anywhere near the amount that IBM billed.” In November and December 2009, Hadley criticized the value of IBM's work to Montgomery and Hardison, telling them that he was concerned that “DEP was submitting costs to U.S. government agencies that ... could not be substantiated.” On December 22, 2009, Hadley received an IBM task order that would pay IBM over $3.5 million for three months work but would require “no deliverables.”

On January 5, 2010, Hadley told Montgomery that he “would not initiate the ... order” because of IBM's poor performance, because the task order did not require deliverables from IBM, and because DEP's own schedulers could “do the same work for approximately 10% of the cost.” Throughout December 2009 and January 2010, Hadley complained to DEP personnel, including Montgomery and others that the “data on the Smart Grid Program was being inaccurately reported to the Federal Department of Energy” and that there were “major discrepancies with what DEP was proposing to send to the Department of Energy as basis for [an ARRA matching grant].” In October 2010, Hadley also complained about Smart Grid to HR’s Nadine Kloecker-Dunn. Hadley believed DEP's actions were improper, “constituted a gross mismanagement of an ARRA contract and ARRA funds,” “constituted a gross waste of ARRA funds,” and “constituted an abuse of authority” related to use of ARRA funds. Hadley thought that the IBM work was “junk,” that “the project was in complete shambles,” and that there was “no rationale or basis behind any of [IBM's] numbers.” In January 2009, Montgomery told Hadley that “there would be consequences” for his repeated complaints regarding Smart Grid.

In early 2010, Hadley asked to be removed from Smart Grid. Montgomery granted Hadley's request and assigned Hadley to a project in Sutton, North Carolina. Sutton is a 2.5 hour drive from Hadley's home in Raleigh. At the time of Hadley's reassignment, Montgomery did not believe Hadley would be required to be present physically in Sutton on a daily basis. However, around May 2010, DEP enacted a policy change that required Project Controls employees to be physically present at their assigned project locations on a daily basis. Hadley was not the only employee that this change affected. In mid-2010, Montgomery told Hadley that he would need to begin working full-time at Sutton beginning in the third quarter of 2011, approximately 15 months later.

Hadley refused to travel to Sutton. In August 2010, Montgomery told Hadley that if he refused to travel to Sutton, he would no longer have a position. Moreover, Montgomery sent Hadley a memo stating that, in light of his refusal to travel to Sutton, Hadley's employment would end on October 15, 2010, if he did not find another position within DEP. Hadley did not find another position within DEP by October 15, 2010, but he remained employed with DEP until December 7, 2010.

In August or early September 2010, Montgomery noticed that Hadley had a considerable balance of unused vacation time. This fact surprised Montgomery because Hadley “typically took a ski vacation each year.” On September 15, 2010, Montgomery instructed Hadley via email to change his timesheet to reflect the correct vacation time. Hadley did not reply to Montgomery's email, but allegedly left a voicemail for Montgomery explaining that he had intentionally miscoded the vacation time to compensate himself for holiday time that had been misrecorded as vacation time in 2009. Hadley did not change his timesheet as Montgomery had requested and acknowledges that miscoding time violates company policy. Nonetheless, Hadley contends that Montgomery approved Hadley's timekeeping method to compensate for the alleged 2009 vacation error.

DEP investigated whether Hadley violated DEP's Code of Ethics by falsifying his timesheets. After interviewing Hadley and reviewing Hadley's building access and business-computer records for 2009 and 2010, investigator Eugene Simmons concluded that Hadley had falsified his timesheets.

On December 7, 2010, DEP terminated Hadley's employment. DEP’s records reflect that the decision to terminate Hadley's employment was based on Simmons's conclusion that Hadley had falsified his timesheets.

After his termination, Hadley filed multiple complaints with North Carolina state agencies as well as the U.S. Department of Energy. All the agencies denied his complaints.

Hadley then filed suit in federal court. In his amended consolidated complaint, Hadley makes four claims: (1) retaliation in violation of the ARRA; (2) violation of North Carolina's Retaliatory Employment Discrimination Act (“REDA); (3) violation of the North Carolina Wage and Hour Act; and, (4) wrongful discharge in violation of North Carolina public policy.

ISSUES: Was Hadley fired in retaliation for his complaints about waste by IBM under the ARRA federal statute? Was Hadley’s termination a violation of public policy?

DPE moved for summary judgment on each claim.[footnoteRef:1] [1: Due to space constraints, the excerpted opinion includes only the ARRA and public policy claims, the two claims related to this chapter’s materials.]

DECISION: The court granted DEP summary judgment because the complaints about the IBM issues were far removed from Hadley’s termination and also because Hadley had employment issues, notably the falsification of his time records. The court found that no reasonable jury would conclude that there was retaliation or that Hadley was fired for any reason other than his missteps at work.

BUSINESS STRATEGY − THE EMPLOYEE HANDBOOK AS A SOURCE OF LITIGATION: TAKING PRECAUTIONARY STEPS: I mportance of careful drafting of manuals for employees. What's in them counts and creates contractual obligations.

16-6c Handling Employee Termination Disputes (See PowerPoint Slide 16-35)

· Many companies have created a peer review process for termination and other actions against employees

· Peer review now used as a means for reviewing employee grievances

16-7 Agency Relationships in International Law (See PowerPoint Slide 16-36)

· Complex Interrelationships Often Evade the Law

BCCI and its complex structure helped it evade the law

· Disclosure of Interrelationships Becomes Important for Conflicts, Compliance

BIOGRAPHY − THE AVANT-GARDE AD EXEC AT WALMART IN ARKANSAS: JULIE ROEHM

1. Termination cases always have two sides.

2. Ms. Roehm was not pristine – violations of conflicts policies.

3. Retaliation cases get messy.

4. Adapt to culture of company or find another company.

SUPPLEMENTAL READINGS (Not Required)

Baker, Scott G., “Torts – Johnson v. Lebonheur Children's Medical Center: Private Hospitals May Be Held Vicariously Liable Under Agency Theory for the Negligence of State-Employed Physician Residents,” 7.34 U. MEM. L. REV. 459 (Winter 2004).

Barnett, Seth B., “Negligent Retention: Does the Imposition of Liability on Employers for Employee Violence Contradict the Public Policy of Providing Ex-Felons With Employment Opportunities?,” 37 SUFFOLK U. L. REV. 1067 (2004).

Bryant, James A. and Donald R. Epley, “The Conditions and Perils of Agency, Dual Agency, and Undisclosed Agency,” 21 REAL ESTATE L. J. 117 (1992).

Corbett, William R., “The Need for a Revitalized Common Law of the Workplace,” 69 BROOK. L. REV. 91 (Fall 2003).

DeMott, Deborah A., “When is a Principal Charged With an Agent's Knowledge?,” 1.13 DUKE J. COMP. & INT'L L. 291 (Summer 2003).

Derum, Chad and Karen Engle, “The Rise of the Personal Animosity Presumption in Title VII and the Return to ‘No Cause’ Employment,” 81 TEX. L. REV. 1177 (April 2003).

Emerson, Robert W., “Franchisors’ Liability When Franchises are Apparent Agents,” 20 HOFSTRA L. REV. 609 (1992).

Estlund, Cynthia, “Free Speech Rights That Work at Work: From the First Amendment to Due Process,” 54 UCLA L. REV. 1463 (2007).