Virginia Supreme Court Rejects Damages for Breach of Nondisparagement Agreement

The Virginia Supreme Court recently reaffirmed the rule that a breach of contract does not allow recovery of damages based on humiliation or injury to feelings. 

In Isle of Wight County v. Nogiec and Small v. Nogiec, 704 S.E.2d 83 (Va. 2011), the Court affirmed the trial court's reversal of two plaintiff's verdicts based on statements made by a county official in violation of a nondisparagement clause in the plaintiff's severance agreement.  As part of Alan Nogiec's decision to retire early from his position as director of the Parks and Recreation Department for the Isle of Wight County, he entered a severance agreement with the County providing that the parties would "refrain from making any disparaging comments or statements, whether written or oral, about the other or any member of the County's Board of Supervisors, administrators, or employees."  Id. at 84. 

Two months later, Patrick Small, a witness before the Board, testified that the previous Parks and Recreation director (that is, Nogiec) had made significant mistakes, and indeed, had taken action that "border[ed] on negligence."  Id. at 85.  Nogiec brought suit against the County for breach of contract, and against Small for defamation.  After trial, the court entered verdicts for Nogiec against both defendants.

The Virginia Supreme Court reversed the judgment against the County. The evidence of harm resulting from the breach, which the Court described as "embarrassment and humiliation," was not recoverable for a breach of contract.  Id. at 86.  The Court based his holding on the rule that "tort damages are not recoverable for breach of contract under the circumstances of this case."  Id. at 87.  Evidence of pecuniary damages was necessary, and Nogiec did not provide it.  The Court also pointed out that if Nogiec were permitted to prevail on both his breach of contract and defamation claims, he would have been recovering twice based on the same evidence.  Nogiec testified that he "believed" that Small's statements adversely affected his ability to find new employment, but failed to present any evidence other than the fact that he was not invited for job interviews for any of the positions for which he applied during a two-month period following Small's report to the Board.  

The Court upheld, by contrast, the verdict against Small for defamation.  Though it acknowledged that Small's testimony was entitled to a qualified privilege for reporting his duties to the Board, the Court pointed out that the circuit court had given the jury a proper instruction about malice (the necessary showing to overcome the privilege). 

In light of these holdings, lawyers drafting severance agreements should not presume that a nondisparagement clause will provide their clients with complete compensation for nonpecuniary damages.  As long as the law refuses to grant recovery of emotional distress or other tort-like damages, drafters must pay close attention to which remedies the law will actually permit.  Presumably, the parties to a severance/settlement agreement can agree, by contract, that emotional distress and humiliation, resulting from a breach of a nondisparagement clause, is compensable.  But, what employer would ever agree to such a provision?  One approach is to provide in the nondisparagement clause that proof of a breach alone without necessarily proof of actual damage, is compensable, and that the jury can determine the damages to be awarded.  Or, one could provide that proof of a breach automatically results in an award of a fixed amount of liquidated damages.  Bottom line, the Virginia Supreme Court's decision underscores the need for counsel to carefully craft nondisparagement clauses so that they have teeth and hopefully deter each side from badmouthing the other.  While the Nogiec case involves an employee being disparaged, in my experience, oftentimes nondisparagement clauses are of vital importance to management.  I would be interested in the suggestions of others on how to craft more meaningful nondisparagement clauses.

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Sixth Circuit Panel Continues to Reject Motivating Factor Test for Causation in ADA Cases

In Lewis v. Humboldt Acquisition Corp., Inc., 2011 U.S. App. LEXIS 5313 (6th Cir. Mar. 17, 2011), a panel of the 6th Circuit again held, given that the panel was powerless to overrule Circuit precedent, that the “motivating factor” (or a “substantial cause”) test did not apply in ADA cases.  Rather, the panel adhered to Circuit precedent (Monette v. Elec. Data Sys. Corp., 90 F.3d 1173, 1178 (6th Cir. 1993)) that adopted the “solely” causation standard for ADA claims from the Rehabilitation Act of 1973, which expressly requires sole causation.  See 29 U.S.C. § 794(a).  Other than the 6th Circuit, only the 10th Circuit adheres to the “solely” standard in ADA cases. See Fitzgerald v. Corr. Corp. of Am., 403 F.3d 1134, 1144 (10th Cir. 2005); Williams v. Widnall, 79 F.3d 1003, 1005 (10th Cir. 1996).  All other Circuits that have addressed the issue have adopted the “motivating factor” test.  See, e.g.,  Pinkerton v. Spellings, 529 F.3d 513, 518-19 & n.30 (5th Cir. 2008) (collecting cases).  While Judge Merritt writing for the unanimous panel, did not expressly signal a belief that the “solely” standard was erroneous and that the en banc 6th Circuit ought to reverse that standard, Judge Griffin, concurring, made plain his opinion that the “solely” test, was erroneous and should be set aside.  We will keep our eyes out for a decision from the 6th Circuit on the inevitable en banc petition.

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Supreme Court Holds that a Verbal Complaint Constitutes "Filing" Under the FLSA in a 6-2 Majority (Kagan, J., not participating)

In Kasten v. Saint-Gobain Performance Plastics Corp., No. 09-834, 563 U.S. ___ (March 22, 2011), the Supreme Court held that the anti-retaliation provision of the Fair Labor Standards Act (FLSA) applies to both oral and written complaints.  In an opinion written by Justice Breyer, the Court found that 29 U.S.C. § 215 (a)(3) of the FLSA, its anti-retaliation provision, should be broadly construed to protect an employee who "has filed any complaint" . . . under or related to [the Act] . . ." Slip op. at 1. Justice Scalia, with whom Justice Thomas joined, vigorously dissented.

In so holding, Justice Breyer states: ". . . The phrase 'filed any complaint' contemplates some degree of formality, certainly to the point where the recipient has been given fair notice that a grievance has been lodged and does, or should, reasonably understand the matter as part of its business concerns." Slip op. at 11.  This frames a new jury instruction to ask jurors to determine whether Justice Breyer's "formality" test has been satisfied.  Following the articulation of that test, Justice Breyer states: "And it is difficult to see how an employer who does not (or should not) know an employee has made a complaint could discriminate because of that complaint." Id.

Finally, Justice Breyer states that the Court agrees with the government's statement at oral argument that a complaint is "filed" when "a reasonable, objective person would have understood the employee" to have "put the employer on notice that [the] employee is asserting statutory rights under the [Act]."  Id. at 12.  Do I hear Justice Breyer again framing the jury instruction?  Justice Breyer goes on to say the following: "To fall within the scope of the antiretaliation provision, a complaint must be sufficiently clear and detailed for a reasonable employer to understand it, in light of both content and context, as an assertion of rights protected by the statute and a call for their protection."  Id.  More fodder for jury instructions.

Justice Breyer and Justice Scalia (with Justice Thomas opting out of Justice Scalia's sarcastic footnote number 6 about Skidmore deference) cross swords over whether any deference should be given to the fact that the Secretary of Labor had consistently construed the statute to encompass oral complaints.  Justice Breyer finds the agency views to be reasonable, consistent with the statute, to reflect careful consideration rather than post hoc rationalization, and to consequently "add force" to the Court's ultimate ruling.

Interestingly, even though a violation of the anti-retaliation provision of the FLSA can subject the violator to criminal prosecution, see 29 U.S.C. § 216(a), Justice Breyer refuses to apply the "rule of lenity" that applies to the interpretation of criminal statutes, finding that the statute does not "remain[] sufficiently ambiguous to warrant application of the rule of lenity here."  Id. at 14.  This holding by the Court may very well be transported into civil litigation under the Computer Fraud and Abuse Act, which from its inception was a criminal statute and only later a civil statute also.

The Court, of course, declines to address the underlying, unresolved issue in this case, that is, whether internal corporate complaints are entitled to protection in any event.  So, bottom line, we know for certain that oral complaints that satisfy Justice Breyer's "formality" test are protected under the FLSA, but given the deep division that exists within the federal courts, we do not know whether complaints, whether they be oral or written, within a company about FLSA violations constitute protected activity under the anti-retaliation provisions of the FLSA.  That issue remains for another day, and Justice Scalia makes it unequivocally plain that he would find internal corporate complaints to not be encompassed by the statute.  Certainly, in those circuits that have held internal corporate complaints to be protected, employers will now need to institute procedures to receive oral complaints and to alert the chain of supervision to advise management of oral complaints.

While I am only beginning to think through the implications of the opinion, it seems to me that it would be wise for employers to put in writing in its employee handbook where and how one can orally complain within the company.  One would think that if the company has articulated a specific process and specific persons to whom one can and should complain, alleged oral complaints outside of that process may not meet Justice Breyer's "formality" rule and thus may not be entitled to protection under the FLSA.

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Employees' Use of Medical Marijuana

Background:

Employers increasingly are being confronted with the question of how to deal with employees who use medical marijuana, in states where its use has been legalized by the state legislature.

Jurisdictions with Medical Marijuana Statutes:

Fifteen states (Alaska, Arizona, California, Colorado, Hawaii, Maine, Michigan, Montana, Nevada, New Jersey, New Mexico, Oregon, Rhode Island, Vermont, and Washington), as well as the District of Columbia, have statutes allowing for the use of medically prescribed marijuana, or allowing for possession of small amounts of marijuana.  

For details about the laws in these 16 jurisdictions, as well as links to the underlying legislation for each jurisdiction, see ProCon.org, 15 Legal Medical Marijuana States and DC: Laws, Fees, and Possession Limits, http://medicalmarijuana.procon.org/view.resource.php?resourceID=000881 (last updated on Jan. 27, 2011).

Employment Cases Involving Medical Marijuana:

Where employers terminate employees for use or possession of medically prescribed marijuana, in states where such possession or use has been legalized by the state legislature, the terminated employees have in some cases brought disability discrimination claims against the employer.  So far, courts appear to be trending towards ruling in favor of the employer in such cases.  See, e.g.:

Emerald Steel Fabricators, Inc. v. Bureau of Labor and Industries, 348 Ore. 159 (2010). The Supreme Court of Oregon held that despite Oregon’s medical marijuana statute’s silence on the issue of employment discrimination, an employer was not required to accommodate an employee's use of medical marijuana.

Ross v. Ragingwire Telecommunications, Inc., 42 Cal. 4th 920 (2008). The Supreme Court of California held that employers were not obligated to accommodate the use of prescribed marijuana, that drug testing was legal, and that terminating an employee for marijuana use was not discrimination.

Ethical Implications of Advising Clients Regarding State Medical Marijuana Laws:

On July 7, 2010, the Board of Overseers of the Bar of the state of Maine issued an ethics opinion (Opinion # 199) on advising clients concerning Maine’s Medical Marijuana Act.  The issue presented in the opinion involves “the role which Maine attorneys may ethically play because of the interplay of Maine’s new law with the Federal prohibition against the distribution of marijuana.” 

The opinion examined M. R. Prof. Conduct 1.2(e), which states:

A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of the proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law.

Based on that rule, the Board concluded that “[w]hile attorneys may counsel or assist a client in making good faith efforts to determine the validity, scope, meaning, or application of the law, the Rule forbids attorneys from counseling a client to engage in the business [of violating the federal prohibition against marijuana distribution] or to assist a client in doing so.”

The full opinion can be found at http://www.maine.gov/tools/whatsnew/index.php?topic=mebar_overseers_ethics_opinions&id=110134&v=article.

Articles:

For articles on the topic of medical marijuana in the workplace, see:

Anna M. Dailey and Jeffrey A. Foster, Medical Marijuana and the Workplace, Dinsmore & Shohl, LLP (Sept. 8, 2010), http://www.jdsupra.com/post/documentViewer.aspx?fid=75d08a35-70ed-415c-af40-d86c4b1dd91a.

Shelly K. Schwartz, The Drug-Free Workplace vs. Medical Marijuana, CNBC.com (Apr. 20, 2010), http://www.cnbc.com/id/36179669/The_Drug_Free_Workplace_vs_Medical_Marijuana

My Fox Phoenix.com, Medical Marijuana and the Workplace, Dec. 1, 2010, http://www.myfoxphoenix.com/dpp/money/job_news/medical-marijuana-and-the-workplace-12-1-2010.

Jon Coppelman, Medical Marijuana in the Workplace: Dude, Lock Me Out!, Workers’ Comp Insider (Feb. 7, 2011), http://www.workerscompinsider.com/2011/02/medical-marijua.html.

Jessica Pieklo, Medical Marijuana and the Workplace: Wal-Mart Suit Tests Some Limits, Care2.com, http://www.care2.com/causes/civil-rights/blog/medical-marijuana-and-the-workplace-wal-mart-suit-tests-some-limits/.

Eric B. Meyer, Can an Employee be Fired for Using Medicinal Marijuana? The Employer Handbook (Feb. 22, 2011), http://www.theemployerhandbook.com/2011/02/employee-medicinal-marjiuana-fired.html.

Recent Employment / Labor Case Involving Non-Prescribed Marijuana:

Consolidation Coal Co. v. Local 9909, 2010 U.S. Dist. LEXIS 89035 (N.D. W. Va. 2010). The United States District Court for the Northern District of West Virginia held that an arbitrator did not exceed her authority by ordering reinstatement of a coal miner who was discharged after testing positive for marijuana.

See also Mitchell H. Rubinstein, Reinstatement of Coal Miner Who Tested Positive for Marijuana Upheld, Adjunct Law Prof Blog (Aug. 25, 2010), http://lawprofessors.typepad.com/adjunctprofs/2010/08/reinstatement-of-coal-miner-who-tested-positive-for-marijuana-upheld.html.

Please be sure to visit our website at http://RobertBFitzpatrick.com

Staub v. Proctor Hospital

With Justice Scalia writing for a six justice majority, the Supreme Court on Tuesday, March 1, 2011, issued its much-heralded “cat’s paw” decision. The opinion has been summarized on many other sites – see, for example, the article on Philip Miles’ Lawffice Space (here), Jon Secrest’s post on Roetzel & Andress’ Labor & Employment Blog (here), Ed Hopson’s Posting on the Wyatt Employment Law Report (here), and Richard Renner’s post on the Whistleblowers Protection Blog (here) – just to name a few. Thus, my purpose is not to summarize the holding, but rather to share some initial observations about the opinion.

1.    Despite the fact that many plaintiff employment lawyers are ballyhooing this decision as a huge victory for plaintiffs in employment discrimination cases, I have a very contrarian view. This opinion is not the cat’s meow; it is not, by any means, a blowout for plaintiffs. Indeed, years from now, the defense bar may look back at this opinion and give it a tip of the hat. Why do I make such an extraordinary statement?

2.    Justice Scalia’s opinion is predicated on a determination that these claims sound in tort, and that accordingly traditional tort law principles of causation apply. Indeed, littered within the opinion are citations to some of the Court’s most recent jurisprudence on causation, drawn particularly from RICO and False Claims Act cases. A close review of that jurisprudence indicates that there are significant differences among the justices on proximate cause issues, which will undoubtedly be fodder for future disputes in employment discrimination cases.

3.    An apt example is the division articulated by Justice Kennedy in Anza v. Ideal Steel Supply Corp., 547 U.S. 451 (2006) (RICO), wherein the majority discusses the requirement of a “direct causal connection” between the alleged violation and the plaintiff’s injuries. In Anza, the majority (Justices Kennedy, Stevens, Scalia, Souter, Ginsburg, Alito, and Chief Justice Roberts) found the plaintiff had failed to establish a “direct causal connection”; whereas Justice Thomas in a scholarly concurrence and dissent sharply criticizes the majority for imposing a “stringent proximate-causation requirement,” contending that the Court, in essence, had misapplied its holding in Holmes v. Securities Investor Protection Corp., 503 U.S. 258 (1992) (RICO). Justice Thomas argued that Holmes “simply held that one reason that indirect injuries should not be compensable is that such injuries are difficult to ascertain . . . We did not adopt the converse proposition that any injuries that are difficult to ascertain must be classified as indirect for purposes of determining proximate causation.” Suffice it to say that the Staub Court’s reference to Anza at page nine of its slip opinion may signal that such disputes about proximate-causation will continue in future cases.

4.    I note also Justice Scalia’s concurrence in Anza in light of the decision in Thompson v. North American Stainless, 2011 U.S. LEXIS 913 (2011), in which Justice Scalia, writing for the Court, articulates a “zone of interest” test for standing in Title VII cases. In his Anza concurrence, he joins the Court’s opinion and notes that, for him, it is “inconceivable” that the injury alleged in that case is within the “zone of interests” protected by the RICO statute, referring back to his concurrence in Holmes at 503 U.S. at 286-90. This reference should merely remind all of us that the supposed victory for plaintiffs in North American Stainless may be largely a Pyrrhic victory given the Court’s adoption of a “zone of interest” test drawn from the jurisprudence of the Administrative Procedure Act.

5.    Also of note in Staub is Justice Scalia’s reference to the supposed split among the circuits on the question whether scienter can be established by aggregation of the states of mind of multiple individuals within the corporation. While the Court does not pass on the question, it is noteworthy that Justice Scalia gratuitously references the supposed split, citing two decisions from the D.C. Circuit, as well as a Fifth Circuit opinion, expressing “a good deal of skepticism about corporate intent theories that rely on aggregating the states of mind of multiple individuals.” United States v. Science Applications Int’l Corp., 626 F.3d 1257, 1274 (D.C. Cir. 2010) (Tatel, J.). Justice Scalia follows those cites with citations to a First Circuit and Fourth Circuit decisions supposedly embracing the “collective intent” theory. A close reading of Judge Tatel’s opinion in U.S. v. SAIC, suggests that it would be a misreading of both of these opinions, United States ex rel. Harrison v. Westinghouse Savannah River Co., 352 F.3d 980 (4th Cir. 2003) (False Claims Act) and United States v. Bank of New England, 821 F.2d 844 (1st Cir. 1987) (Currency Transaction Reporting Act).

6.    Justice Scalia’s citation to Sosa v. Alvarez-Machain, 542 U.S. 692 (2004) (Federal Tort Claims Act) in Staub is also of interest, as Justice Souter in Sosa discusses the fact that proximate cause is “causation substantial enough and close enough to the harm to be recognized by law, but a given proximate cause need not be, and frequently is not, the exclusive proximate cause of harm.” I note that Justice Scalia’s citation to Sosa is really an indirect citation to his opinion discussing the fact that “in the ordinary case there may be several points along the chain of causality.” See Beattie v. United States, 244 U.S. App. D.C. 70, 756 F.2d 91, 121 (D.C. Cir. 1984) (Scalia, J., dissenting), cited with approval by Justice Souter in Sosa.

7.    Also, Staub, in all likelihood, is not the last word from the Court this term on proximate cause. The Court still has for decision a Federal Employee Liability Act (FELA) cases, CSX v. McBride, 598 F.3d 388 (7th Cir. 2010), cert. granted, 2010 U.S. LEXIS 9272 (Nov. 19, 2010), in which the Court is presented with the question of whether FELA requires proof than an employer’s negligence was the proximate cause of an employee’s injury or whether a showing that the negligence played some part in causing the injury is sufficient for liability.

8.    Numerous questions abound as a result of the Staub opinion, including the following:

a.     If there is an internal grievance / complaint procedure, and it is not mere “window dressing,” and it is not used by the plaintiff, is that an affirmative defense? In footnote 4, Justice Scalia notes that as a potential issue for another day.

b.    Of probably greatest significance is Justice Scalia’s repeated use of italics to highlight the fact that the discriminator must intend to cause the adverse employment action that is visited upon the plaintiff. So, it is presumably plaintiff’s burden to not only establish that someone other than the ultimate decisionmaker had a discriminatory intent, and that individual’s input was relied upon by the ultimate decisionmaker, plaintiff also must establish that the discriminating actor “designed and intended” to produce the adverse action, in Staub, termination. In Staub, the evidence was that the discriminating supervisor was “out to get” Staub.

c.     The Court also leaves for another day whether the employer would be liable if the discrimination emanated from a co-worker rather than a supervisor. See fn.4.

9.      Presumably, Hill v. Lockheed Martin Logistics Mgmt., 354 F.3d 277 (4th Cir. 2005), Furline v. Howard Univ., 953 A.2d 344 (D.C. 2008), and Ginger v. District of Columbia, 527 F.3d 1340 (D.C. Cir. 2008), are all no longer good law.

10.     Finally, the opinion has a rather slapdash quality to it, as though it were hastily written. One reference in the opinion that hopefully was not intended as an insult, but rather is merely a hallmark of some sloppy writing, is Justice Scalia’s footnote one where he refers to Judge Richard Posner of the Seventh Circuit merely as “Posner.”

 These are just some preliminary thoughts based on my initial reading of the opinion. I am still mining some of the cases cited by Justice Scalia, as well as the briefs and oral argument, to see what other signals might be discerned.

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