Employment (or loss thereof) at Will Doctrine

A recent Kentucky Court of Appeals decision, Follett v. Gateway Regional Healthcare System, Inc, 2006-CA-000855-MR (July 20, 2007)(to be published), provides illumination on an exception to the employment at will doctrine in Kentucky. In this case Sharon Follett, the Director of Nursing at Mary Chiles Hospital, was fired by Patrick Romano, CEO of Gateway (which owns Mary Chiles). Ostensibly, the termination was for insubordination due to Sharon Follett giving raises to two nurses.

I do not even need foreshadowing to tip you off to the next event. Sharon Follett claimed the firing was actually for some whistleblowing she did the preceding year. She cited two events:

The first situation involved her reporting suspicions that an emergency room doctor was under the influence of alcohol while on duty. The other situation involved her involvement in reporting suspected emergency room billing irregularities at the hospital. Id. at 2.

Ordinarily in Kentucky, and employer can fire an employer for a good reason or just because they feel like it. Usually, a firing can occur even for a morally indefensible, but legal, reason. However, a narrow exception to this fire at will doctrine is when taking such an action violates a fundamental and well-defined statutory or constitutional public policy. In this case, Sharon Follett argued that the firing was due to her unwillingness to violate KRS 311.550(1):

Conviction of willfully resisting, preventing, impeding, obstructing, threatening, or interfering with the or any of its members, or of any officer, agent, inspector, or investigator of the board or the Cabinet for Health and Family services, in the administration of any of the provisions of KRS 311.550 to 311.620 shall be a Class A misdemeanor.

In looking at Follett’s claim, which was a non-civil rights claim for wrongful discharge, used a three prong approach. She had to show that: 1) she was engaged in a statutorily protected activity, 2) a termination occurred (this seems a bit obvious to actually be its own prong, but there it is), and 3) that there is a connection between the activity and the termination. Furthermore, for the third prong, she had to show that the protected activity was “a substantial and motivating factor but for which the employee would not have been discharged.” Id. at 6citing Zarebidaki, 867 S.W.2d at 188.

The Court then reviewed many of the facts set forth at the trial court level. This included the events around Sharon Follett’s reporting the problems and evidence indicating she, in fact, did have authority from Romano to give the raises. As a result, the Court vacated the trial court’s summary judgement and reinstate the action.

Moral of the story: Even though Kentucky has an employment at will doctrine that strongly favors employers, be sure to review ALL the surrounding circumstances when a firing is questionable. If you are a small business without in-house counsel, it is worth paying a consultation fee to an attorney to perform such a review.

The Zen of Dilbert:

Does this experience portrayed by Scott Adams’ Dilbert cartoon seem too familiar? If so, you may need to find an attorney with the same entrepreneurial spirit that has made your business successful.

Intentional trespass - important clarifications on environmental harm for businesses to consider

The Kentucky Supreme Court gives a good synopsis of trespass law in the state in the case of Smith v. Carbide and Chemicals Corp., 2005-SC-686-CL (June 21, 2007)(to be published). In this case, the Ky Dept. of Health found trichloroethlene (TCE) and technetium-99 (Tc-99) (essentially some bad stuff) in groundwater where the plaintiff’s/appellants property was located. This happened in 1988 and again in 1990. About 10 billion gallons of contaminated water was involved, but no health problems were ever associated with the bad stuff. The landowners sued based on intentional trespass and diminution of property values.

The complaint was dismissed by the Federal District Court in Western Kentucky on summary judgment and then appealed to the Sixth Circuit Court of Appeals. The Sixth Circuit sent it over to the Kentucky Supreme Court because issues of Kentucky law never before addressed in the state were involved. The first issue was whether actual harm had to be shown to state a claim of intentional trespass. The second issue was whether the plaintiffs had a right to recovery if they could prove their property values had dropped.

As to the first issue, the Court said:

“even if the plaintiff suffered no actual damages as a result of the trespass, the plaintiff is entitled to nominal damages.” Id. at 71 . However, in intentional trespass, in order to recover more than nominal damages, a property owner must prove “actual injury,” which we shall discuss further below. Hu heft, 313 Ky. at 90, 230 S .W.2d at 826-27.

So, they can make the claim, but can they get much by way of damages? The Court was a little less clear in their answer to this second question, which really was about the measure of damages rather than a “right to recovery”. So, yes, upon proof of actual injury, the plaintiff can recover “just compensation” for their damages. However, what constitutes actual injury is a more elusive concept. This Court noted that the former decision in Wilhite v. Rockwell International Corporation, 83 S.W.3d 516 (Ky. 2002), was more “forgiving” of the trespass than they would be in this case. This is where businesses need to perk up and pay attention.

Pointing to a subtle, yet substantial, shift in their jurisprudence in this area, the Court asserted:

When the parcel’s groundwater is contaminated, whether by imperceptible particles or visible particles, to the extent that it cannot be used for consumption by humans, animals, or crops, there is an actual injury. When ponds and streams have to have signs posted to prevent swimming, fishing, drinking, or other otherwise normal uses, there is an unreasonable interference with one’s use and enjoyment. The amount of harm, if any, to the individual parcels, and the corresponding measure of actual or compensatory damages will depend upon the proof introduced at trial - an issue of fact. Ellison , 32 S.W.3d at 70. To the extent that the property owners prove actual or compensatory damages for the harm (the cost of restoring the property to the pretrespass condition), “the amount by which the injury to the property diminishes its total value operates as an upper limit on any damage recovery.” Id . Thus, the diminution in the property’s value due to an intentional trespass is a recognized measure of damages after, or if, an actual injury has been found.

Thus, the most cost efficient and economical advise to offer to businesses that have the risk of loosing contaminants into the environment, is to take reasonable extra precautions to prevent such losses. If a contamination event occurs, it would be more economical under this line of jurisprudence to seek early settlement of claims even in the absence of specific health hazards or documented health impairments.

Intentional intereference with contractual relationships:

The Court of Appeals addressed the tort of intentional interference in contractual relations, among other issues, in Ashland Hospital Corp. v. Calor, 2006-CA-000395-MR (June 1, 2007)(to be published).

In this appeal by a hospital from a verdict in favor of the complainant doctor, the Court stressed the necessity of a showing of “malice or wrongful conduct is essential to an intentional interference claim.” Id. at 9. But, “if the defendant has a legitimate interest to protect, the addition of a spite motive usually is not regarded as sufficient to result in liability.” Id. In this case, the appellant, Ashland Hospital, had a legitimate business interest in communicating with a billing agency, Staff Care, regarding Dr. Calor’s billing practices. Therefore, they were entitled to a directed verdict.

The case also addressed the appeal by Ashland Hospital on a defamation claim filed by Dr. Calor. Ashland Hospital was also entitled to a directed verdict in their favor on that claim for the similar reason that had a qualified privilege to communicate their concerns to Staff Care. The qualified privilege existed because both the hospital and Staff Care had a “common interest in the accuracy of Dr. Calor’s billable hours.” Id. at 6. Also, there was no evidence introduced that there was malice or that the information disclosed was not reasonable and for a proper purspose.

What this means for businesses is that information about a third party with business ties in common can be shared between companies. However, the information shared should be limited to that which advances the common interests of the businesses and not for malicious reasons.

Do it yourself incorporation

The rising popularity of Limited Liability Companies is partly due to the ease of organization this company form with the state. The Kentucky Secretary of State’s online business service provides all the forms and information necessary to create your own LLC. For many fairly sophisticated entrepreneurs, the do-it-yourself approach works out just fine. Also, the IRS now accepts LLCs as non-profits. However, some more complicated business structures need the professional assistance of an attorney.

One example is a non-profit organization. Ironically, many of these non-profit companies, usually founded for charitable purposes, are very small, lean operations with little or nothing set aside for legal assistance. However, the consequences for mistakes with non-profits can be graver due to the IRS regulations.

When starting a non-profit, one must have specific language in the Articles of Incorporation that does not fit into the Secretary of States form. Also, while not filed with the state, there need to be bylaws that will be submitted to the IRS with the Form 1023 required to be recognized as a non-profit under 501(c)(3). Also, when applying as a 501(c)(3) entity, the default designation given is a private foundation. This entails additional scrutiny of your operations as compared to a public charity. Churches, hospitals and certain educational institutions are specifically designated public charities, but many others need a letter of determination from the IRS.

Comprehensive legal consultation

Every time I meet a new person and wind up saying that I am an attorney, or counselor at law, the very next question is, “What kind of law do you practice?” or “What kind of lawyer are you?” I am always tempted to say, “The good kind.” But, I think I have a better answer, “A comprehensive one.” In every professional field, there is increasing pressure to specialize. The general practitioner, whether in law or medicine, is being squeezed out of existence. I often wonder if there will be a backlash to this demand for specialization.

One downside to specialization is a narrowing of focus. Consider this situation in the construction/development industry where a prominent developer is being criticzed for violating Federal laws protecting wetlands. I do not wish to focus on the motives involved in bringing this situation about, rather it left me wondering what kind of legal counsel did the developer get before starting and along the way with this project. Did that developer have one attorney specializing in construction, but unaware of the issues of environmental law? Was an attorney consulted at the inception at all? And most importantly, if an attorney who valued a comprehensive approach had been consulted, would the developer now be facing expensive fines and delays? I do not know the anwers; for all I know, the developer sought and received top notch legal counsel.

What I do know, is that even if an attorney specializes, maintaining a comprehensive mindset can be invaluable. Such an attorney may not have the answers at the tips of his fingers. The value of such an attorney is more in how he or she thinks and not in the knowledge possessed. It is a truth about the practice of nearly any profession, but especially true about law, that the answers can be found if you just figure out the right questions to ask. So, a comprehensive minded lawyer would have been asking about environmental impact issues from the beginning.

Creative lawyers can boost business profit:

Here is a post by The Greatest American Lawyer that nicely affirms what I previously wrote in this prior post . If you own a business where having in-house counsel is not cost efficient, consider finding a solo practitioner or small firm with that “why not!?”/”can do” attitude to keep on small monthly retainer for those quick consults that will protect and boost your bottom line.

Counselor/Lawyer as Asset to Business:

Here is an excellent follow-up post from G.A.L. to this prior post about lawyers, risk aversion and profit. Attorneys can be major assets to businesses big and small in creative problem solving and consulting. Small firm and solo attorneys, being entrepreneurial by nature, are excellent and cost-effective sources of such services.

Does your Lawyer see the sky falling?

Business is about risk. There is no such thing as a risk-free business. If such business existed, then it would also be a profit-free business. There is a point, however, where too much risk is being taken which can also make the business profitless. The real art is finding that point where the risk taken maximizes the profitability of the business. Does your lawyer help you reach this point?

Too often, lawyers run about like Chicken Little seeing the sky falling. They see every potential liability risk regardless of the likelihood of that eventuality occurring. The majority of these percieved risks are so remote that to try and avoid them cuts into your profit unnecessarily. One way this commonly occurs is in drafting contracts. The lawyer keeps adding more and more clauses to cover every conceivable issue. At some point, these contracts become too cumbersome to understand. Occasionally they become unenforceable because of their boilerplate language allows courts to deem them “contracts of adhesion” and “unconscionable”. I can’t blame those lawyers. After all, they are trained to pinpoint liability and avoid it. Besides, if they are billing by the hour, the more problems identified, the more they can bill.

However, I suggest that if every time you take a new endeavor to your lawyer the focus of the discussion is on what can go wrong, then perhaps you have a Chicken Little attorney. Sure, risks should be discussed, but the focus should be, “How we can make this work.” Only risks that appear likely need to be focused on while remote risks should be mentioned, but they should not dominate the discussion. After all, business involves risks.

Why I use Counselor at Law rather than Attorney at Law:

Occasionally I am asked why I refer to myself as a Counselor at Law rather than Attorney. It is a sublety that most miss, but it actually encapsulates a key philosophy to my practice. An Attorney is an agent. They go and do what they are told to do by the principal. I remember going to an attorney in my prior life over an employment issue. I really needed to understand what was happening, but this highly recommended attorney told me very little. I later realized that this was because he either: 1) did not know what he was doing so stayed silent to look wise, or 2) said very little to minimize any liability on his part.

Anyway, he went and did what I asked him to do, but I was very dissatisfied with the process because I felt very much in the dark most of the time. I mean for my clients to feel informed. This is one thing a counselor does. They help you understand what you are going through.

Secondly, a counselor counsels. In my example above, I sought wise counsel as well as understanding. This is because I was faced with something outside of my experience. I recognize that it was ultimately my decision to make as to whether or not to pursue the matter, but I needed at least some rough estimates about the expected outcomes would be depending on my decision. So, as a Counselor at Law I take the risk I believe I believe my profession calls upon me to take to explain options and the likely outcomes of each.