An attorney friend in Nashville, David Cooper, has alerted me to a new decision by the Tennessee Court of Appeals, which holds that Tennessee’s whistleblower statute (Tenn. Code Ann. 50-1-304) only applies to employees who have been terminated or discharged from their employment.

COA – Harman v University of Tennessee

In the Harman case, the plaintiff, a professor at the University of Tennessee, was demoted, but not terminated.

The court of appeals’ decision was predictable give the language of the statute, which states that “[n]o employee shall be discharged or terminated solely for refusing to participate in, or for refusing to remain silent about, illegal activities.” T.C.A. § 50-1-304(b).

It’s my opinion, however, that the decision only applies to statutory whistleblower claims. I believe that a plaintiff suing a private entity may bring a claim for retaliatory demotion under Tennessee common law.

Unfortunately for Professor Harman, he was foreclosed from suing the University of Tennessee under a common law theory because governmental entities are immune from suit under Tennessee common law. See, e.g., Baines v. Wilson County, 86 S.W.3d 575 (Tenn. Ct. App. 2002)(holding governmental entity is immune from liability for the common law tort of retaliatory discharge).

A recent Tennessee Court of Appeals decision involving a claim for unemployment benefits reiterated the general principle that ordinarily, an employee’s conduct off the working premises and outside the course and scope of his employment is not considered misconduct connected with work. Dura Auto Sys. v. Neeley

In Dura Automotive Systems v. Neeley, the claimant was terminated by his employer after it learned that the claimant admitted to smoking marijuana outside of work. The employer had a policy prohibiting its employees from using illegal drugs.

After termination, the claimant filed for unemployment benefits. His claim was denied by the Agency, which found that the claimant engaged in work related misconduct under Tenn. Code Ann. 50-7-303(a)(2)(A). The Appeals Tribunal reversed the Agency’s decision finding that the claimant had passed the company’s drug test (even though the claimant had admitted to smoking marijuana in the past) and that the claimant’s work performance had not been affected by his use of marijuana. Therefore, the claimant had not committed “misconduct connected with the claimant’s work” as required by Tennessee law to disqualify a claimant from receiving unemployment benefits.

The Board of Review affirmed the decision of the Appeals Tribunal awarding unemployment benefits, but the Chancery Court reversed the decision finding that the claimant had committed misconduct.

On appeal to the Tennessee Court of Appeals, the court agreed with the Appeals Tribunal finding that the employer had failed to demonstrate that the claimant’s drug use actually had any adverse effect on the claimant’s work and that the claimant had also passed the drug test required by the employer. Thus, the court of appeals concluded that the claimant’s conduct may have provided the employer an adequate basis to discharge him, but it did not warrant denying the claimant unemployment compensation.

In sum, despite an employee’s off site illegal conduct serving as a legitimate basis for termination, unless the conduct is connected to the employee’s work, it will not disqualify the employee from recovering unemployment benefits.

When, if ever, does providing poor service to a restaurant’s customers amount to “misconduct” under Tennessee’s unemployment compensation law? That’s the subject of a recent case (Doji, Inc. v. Neeley et al.) decided by the Tennessee Court of Appeals. Doji dba Demos v JG Neeley TDLWD and Ruffin OPN

As an initial matter, termination for “misconduct” will disqualify a claimant from receiving unemployment benefits under Tennessee law. See T.C.A. 50-7-303(a)(2)(A).

The court of appeals first noted that until recently, the term “misconduct” has not been defined by statute. [Note: Effective 1/1/2010, a definition of "misconduct" has been added to the Tennessee Code].

Instead, the court of appeals noted that the term “misconduct” had been defined by Tennessee case law to mean “conduct evincing such wilful and wanton disregard of an employer’s interests as is found in deliberate violations or disregard of standards of behavior which the employer has the right to expect of his employee, or in carelessness or negligence of such degree or recurrence as to manifest equal culpability, wrongful intent or evil design, or to show an intentional and substantial disregard of the employer’s interests or of the employee’s duties and obligations to the employer.”

In contrast, the court of appeals noted that “mere inefficiency, unsatisfactory conduct, failure in good performance as the result of inability or incapacity, inadvertences or ordinary negligence in isolated instances, or good faith errors in judgment or discretion are not to be deemed “misconduct” within the meaning of the statute.”

Applying the facts of the case to the definition of “misconduct” established by case law, the court of appeals held that “we are convinced that the sporadically poor quality of service provided by [the claimant] to [the employer's] customers is not the sort of deliberate violation of an employer’s policies that constitutes misconduct within the meaning of the unemployment statutes.”

As noted above, the Tennessee Code now contains a definition of “misconduct”. The new definition of “misconduct” tracks the case law definition for the most part and provides as follows:

Per T.C.A. 50-7-303(b)(3)(A):

“Misconduct” includes, but is not limited to, the following conduct by a claimant:

(1) Willful or wanton disregard of the rights or interests of the employer;

(2) Deliberate violations or disregard of standards of behavior that the employer has the right to expect of an employee;

(3) Carelessness or negligence of such a degree or recurrence to show an intentional or substantial disregard of the employer’s interest or to manifest equal culpability, wrongful intent or evil design;

Per T.C.A. 50-7-303(b)(3)(B):

“Misconduct” also includes any conduct by a claimant involving dishonesty arising out of the claimant’s employment that constitutes an essential element of a crime for which the claimant was convicted;

And, finally, per T.C.A. 50-7-303(b)(3)(C):

“Misconduct” does not include:

(1) Inefficiency, or failure to perform well as the result of inability or incapacity;

(2) Inadvertence or ordinary negligence in isolated instances; or

(3) Good faith errors in judgment or discretion.

Under Tennesse statutory law, “[n]o employee shall be discharged or terminated solely for refusing to participate in, or refusing to remain silent about, illegal activities.” T.C.A. 50-1-304. The same is true under Tennessee common law. See, e.g., Crews v. Buckman Labs. Int’l, Inc., 78 S.W.3d 852, 865 (Tenn. 2002) (common law claim for refusing to remain silent about illegal activities) and Reynolds v. Ozark Motor Lines, Inc., 887 S.W.2d 822, 825 (Tenn. 1994) (common law claim for refusing to participate in illegal activities).

A new case decided by the Tennessee Court of Appeals on 10/30/09 (VanCleave v. Reelfoot Bank) illustrates the differences between a complaint that alleges an employee was fired for refusing to particpate in an illegal activity versus an employee fired for refusing to remain silent about an illegal activity. Click here.

In VanCleave, the plaintiff, a bank employee, alleged she was terminated for refusing to participate in an activity, i.e., opening a bank account without identification and signature card from a customer, that she reasonably believed was illegal under federal and state banking laws.

In granting the employer’s motion for summary judgment, the trial court stated that the plaintiff failed to show that she intended to protect the public, rather than simply herself or the bank, when she refused to open the account in the manner requested by the customer.

To the extent that the trial court required the plaintiff to establish that she subjectively intended to protect the public when she refused to participate in activity that she reasonably believed to be illegal, the court of appeals stated that in a refusal-to-participate retaliatory discharge claim a plaintiff need not show a subjective intent to further the public good. All that is required, according to the court of appeals, is for the plaintiff to simply show that the alleged illegal activity implicated important public policy concerns.

A recent case decided by the Western Section of the Tennessee Court of Appeals illustrates the difficulty in enforcing non-compete agreements even where an employer is found to have a properly supported protectable business interest in procuring the non-compete agreements. See Columbus Medical Services, LLC v. Thomas, 2009 WL 2462428 (Tenn. Ct. App. August 13, 2009). opinion.pdf

The case involved a staffing company (Columbus) whose employees (speech and occupational therapists) were assigned to work at a Tennessee state residential care facility (Arlington) for severely disabled adults under a contract with the state of Tennessee. After Columbus lost its contract with the State to a competing company (Liberty), Columbus’s former employees, i.e. the therapists, were hired by Liberty to continue working at Arlington.

Although the court of appeals held that Columbus established that it had a legitimate business interest in protecting itself from “opportunistic disintermediation” by its customer or by a competing employment agency such as Liberty, the court of appeals refused to enforce the non-compete agreements against the therapists.

(As an aside, the court explained that the concept of “opportunistic disintermediation” is the improper elimination of the staffing agency as the “middle man” or the appropriation of the staffing agency’s services without proper compensation.)

The court of appeals first refused to enforce the non-compete agreements on the basis that the hardship to the therapists weighed heavily against enforcement of the non-compete agreements. Notably, Columbus did not offer the therapists the opportunity to work at another facilty after it lost its contract with the State. Also, any employment opportunities that did exist paid substantially less money.

Additionally, the court of appeals found that enforcement of the non-compete agreements would result in loss of continuity of care to the “fragile” and “vulnerable” residents of the Arlington facility, as well as a loss to the State of the value of highly specialized training that it paid for on behalf of the therapists.

Thus, based on the hardship to the therapists and the harm to the public and the State, the court of appeals concluded that the non-compete agreements were not enforceable under Tennessee law.

The Western Section of the Tennessee Court of Appeals issued a significant decision in a common law retaliatory discharge case yesterday. The name of the case is Gossett v. Tractor Supply Co, Inc. gossett-decision.pdf

In Gossett, the court held that stating a common-law cause of action for retaliatory discharge for the refusal to participate in an alleged illegal activity or activity in contravention of a well-established public policy does not require the employee to establish that they reported the matter their employer.

The Gossett decision stands in contrast to a 2007 decision issued by the Middle Section of the Tennessee Court of Appeals, which held that a person alleging retaliatory discharge for refusing to participate in, or commit, an illegal act as directed by their employer still had to establish that they reported the matter to their employer in order to state a claim. See Collins v. AmSouth Bank, 241 S.W.3d 879 (Tenn. Ct. App. 2007).

Frankly, this “extra” requirement imposed on plaintiffs by the Collins decision never made any sense (from a practical, legal or policy perspective) to me or my friend Wade Cowan, an attorney in Nashville, who represents Mr. Gossett. For example, under the Collins rule, an employee who refused to commit an illegal act at the instruction of a supervisor and who was then immediately terminated by the supervisor would not be able to state a retaliatory discharge claim because the employee had not reported the matter to his employer prior to his termination.

The Gossett decision exhaustively surveys and analyzes the law governing common law retaliatory discharge claims in Tennessee. It is a must read for an attorney practicing employment law in Tennessee. Since the Gossett decision creates a split in authority the Tennessee Supreme Court will very likely agree to hear the case should Tractor Supply Co. file a Rule 11 application for permission to appeal. If the Tennessee Supreme Court accepts the case, I predict that the Gossett rule will triumph over the Collins rule.

I consider myself fortunate to have been co-counsel on a couple of retaliatory discharge cases that have “made” law in Tennessee, e.g., Crews and Guy. I follow this area of the law pretty closely and was happy to see the Western Section of the Tennessee Court of Appeals reach the result that it did in its recent decision in Little v. Eastgate of Jackson, LLC, 2007 WL 1202431 (Tenn. Ct. App. Apr. 24, 2007).

In Little, the plaintiff was represented by friends Justin Gilbert and Michael Russell of Jackson, TN. The plaintiff, who worked at a convenience store, was terminated by his employer for leaving the store to come to the aid of a person being assaulted. The store stated that the plaintiff had exposed the store to liability. On appeal, the plaintiff persuaded the court of appeals to recognize that there was a clearly-mandated public policy in Tennessee in favor of encouraging citizens to rescue others reasonably believed to be in imminent danger of death or serious bodily harm. Accordingly, the court held that this public policy may be the basis for an exception to the at-will employment doctrine in Tennessee. The court did say, however, that an employer may assert applicable defenses, such as whether it had an overriding justification for discharging the employee in such a circumstance.

It will be intersting to see what happens when this case returns to the trial court. In particular, it would be interesting to see how a jury would respond to the store’s argument, i.e., it was a nice thing that the plaintiff did, but he could have exposed the store to liability; therefore, we had to let him go based on his bad judgment. I wonder if this will sell. The store’s position seems a little far-fetched even in this day of age. Although I will admit that this defense will be tougher to overcome than if there was proof that the employer was lying about the real reason for termination.