Fifth Circuit Court of Appeals Recognizes Bad Faith Termination Claim Against Supervisor Under Mississippi Law

by J. Wilson Eaton III, Esq.

On February 4, 2014, a three-judge panel of the United States Court of Appeals for the Fifth Circuit issued a decision that effectively sidesteps the employment-at-will rule in Mississippi, by recognizing personal liability for supervisors who terminate an employee in "bad faith," which the Court interprets as "without right or good cause."

Background

In Vaughan v. Carlock Nissan of Tupelo, Inc. and Corbett Hill, Dkt. No. 12-60568 (5th Cir., Feb. 4, 2014) (unreported), Sandi Vaughan, a former employee of Carlock Nissan of Tupelo, alleged that her supervisor, Hill, terminated her for reporting illegal activity to the dealership's corporate parent, Nissan USA. Vaughan also alleged that by terminating her for these reasons, Hill tortiously interfered with her employment relationship with the dealership.

Employment-At-Will Rule Prevents Liability for Employer

Vaughan's primary claim was filed against her employer and alleged that Carlock Nissan terminated her for reporting her employer's illegal activity. Mississippi is an employment-at-will state, meaning that absent a contract (or handbook provision) to the contrary, employers may lawfully terminate employees for any reason, with or without notice.

However, since 1993 Mississippi courts have recognized an exception to the employment-at-will rule when an employee (1) refuses to participate in an illegal act or (2) reports an illegal act, and this forms the basis for the termination. See McArn v. Allied Bruce Terminix Co., 626 So. 2d 603 (Miss. 1993).

Vaughan's McArn claim was dismissed on summary judgment because she failed to demonstrate a genuine issue of material fact regarding whether the conduct she reported was in fact illegal. The Fifth Circuit affirmed, and the employment-at-will rule therefore prevented any liability against the employer.

Intentional Interference with Contract Claim Unaffected by Employment-At-Will

Notwithstanding its dismissal of Vaughan's underlying McArn claim, the Fifth Circuit held that Vaughan stated a viable claim against Supervisor Hill for tortious interference with employment, when he terminated Vaughan's employment allegedly in bad faith.

One might ask how any of Vaughan's claims would survive summary judgment, when the court found the employment-at-will rule applied to Vaughan's employment, and that her employment could be terminated for any reason. The answer is that Vaughan's second claim, tortious interference with her employment relationship, exists outside the realm of an employment-at-will relationship with an employer. In fact, as was the case in the Vaughan case, the claim can be directed toward an individual, such as Supervisor Hill, and can lead to personal liability.

Mississippi courts recognize a claim of tortious interference with contract in the employment relationship, and even in the context of employment-at-will (where there is no actual or implied contract). Liability results when one "intentionally and improperly interferes with the performance of a contract between another and a third person by inducing or otherwise causing the third person not to perform the contract ..." Shaw v. Burchfield, 481 So. 2d 247, 254-55 (Miss. 1985).

To establish a tortious interference claim, Vaughan was required to establish that her termination was:

• intentional and willful;
• calculated to cause her damage;
• done with the unlawful purpose of causing damage and loss, without right or justifiable cause on the part of the defendant; and
• resulted in actual damage and loss.

In addition, since Hill was a supervisor and was authorized to act on behalf of Carlock Nissan, his interference in Vaughan's employment relationship (i.e., termination) was privileged and would not result in liability, unless he acted in bad faith or outside the scope of his employment. "Bad faith" may be established by showing the supervisor acted with "malice," which the Fifth Circuit defined as terminating Vaughan "without right or good cause."

Fifth Circuit Sends Bad Faith Termination Claim Against Supervisor to Jury Trial

The Court turned to Vaughan's allegations and Hill's stated reasons for Vaughan's termination to determine whether there existed a genuine issue of material fact, which would require Vaughan's claim to be decided by a jury.

The Fifth Circuit noted that Vaughan claimed Hill told her on the day she was fired that she had "no right to report these things to Nissan," and that her termination occurred only four days after she called Nissan and specifically named Hill as the bad actor. In contrast, Hill claimed that he knew Vaughan complained to Nissan USA, but he did not know Vaughan complained about him.

Hill claimed that he terminated Vaughan for the following reasons: as a cost cutting measure; because she complained to Nissan U.S.A., including the fact she did not raise her concerns with Hill first; and because Vaughan initially denied calling Nissan U.S.A.

The Fifth Circuit decided that determining which party to believe, Vaughan or Hill, involved credibility determinations inappropriate for summary judgment. "Whether to credit [Hill's] alternative explanations--and, for that matter, whether to credit his assertion that he was unaware of the contents of Vaughan's complaints because he did not read the document [containing Vaughan's complaints] he was handed and that listed Vaughan's name at the top--as "good causes" within the meaning of Mississippi's bad faith exception involves credibility determinations inappropriate for summary judgment."

The Court concluded, "Reading the record in the light most favorable to Vaughan, we conclude that she has presented sufficient evidence to create a genuine issue of material fact with respect to whether Hill fired her for exposing allegedly illegal activities at the dealership, which we think suffices as bad faith termination under Mississippi law."

What This Case Means For You

Mississippi employers and supervisors should be concerned about this Fifth Circuit panel's recognition of a "bad faith termination" claim in Vaughan, although it is not clear how much weight the analysis in this unreported case will be given by other courts and other panels within the Fifth Circuit. This decision highlights the importance of implementing termination "best practices," such as two-level review of termination decisions and documenting a good reason for termination, rather than relying solely on the employment-at-will rule to justify an employee's discharge.

The case also provides an additional reason for employers to provide supervisory training in human resources and personnel matters. Supervisors may become more interested in the discussion when they learn that they may be held personally liable for "bad faith termination" when they have failed to adequately document and cannot otherwise prove "good cause" justifying a termination decision.