Wrongful Termination of Employment: Can Sabine-Pilot claim be brought against supervisors in their individual capacity?

Employee's Choice: Do as told and commit illegal act or risk getting fired?

SCOPE OF SABINE-PILOT EXCEPTION TO EMPLOYMENT-AT WILL NARROWED

Can supervisors be held liable individually for wrongfully terminating an employee who refuses to commit an illegal act when instructed to do so under the Sabine-Pilot exception to the employment-at will doctrine?

Justices on the Fourteenth Court of Appeals split on how to answer that question. Characterizing the issue as one of first impression (i.e., no controlling case law exists), the panel majority, led by Justice Brock Yates as author of the court's opinion, votes to let the bosses off the hook.

Senior Justice Harvey Hudson writes a vigorous dissent, detailing the egregious conduct of the defendants, who fired an employee for refusing to commit criminal acts to increase revenues for the business by billing for services not rendered, and subsequently tried to destroy the former employee's professional career.

Physio, Ltd v. Naifeh (Tex.App. - Houston [14th Dist.] Feb. 4, 2010)(Yates) (employment law - wrongful termination; liability on Sabine-Pilot wrongful termination claim)
Appellants appeal the trial court’s judgment holding them individually liable for firing appellee for the sole reason that she refused to perform an illegal act. See Sabine Pilot Serv., Inc. v. Hauck, 687 S.W.2d 733, 735 (Tex. 1985). Because we hold that the Sabine Pilot doctrine should not be extended to impose liability on individual employees rather than the plaintiff’s employer, we reverse and render.
DISMISSED IN PART AND REVERSED AND RENDERED IN PART:
Opinion by Justice Brock Yates
Before Justices Brock Yates, Hudson and Sullivan
14-08-00017-CV Physio GP, Inc., Physio, Ltd, Tanja Saadat and Shawn Saadat v. Natalie Naifeh
Appeal from 295th District Court of Harris County
Trial Court Judge: Tracy Kee Christopher (who is now a Justice on the same court of appeals)

Dissenting Opinion by Justice Hudson in Physio GP, Inc. v. Natalie Naifeh (Sabine Pilot claim against supervisors individually should be viable)

DISSENTING OPINION BY JUSTICE HUDSON:

Does the Sabine Pilot[1] exception to the “employment-at-will doctrine” extend to an individual defendant who is not the employer of the plaintiff? In other words, may an individual, who is not the employer of the plaintiff, be liable for wrongful discharge of the plaintiff under the Sabine Pilot doctrine? The majority answers negatively and supports its position with cogent arguments and authorities. However, as the majority acknowledges, this is an issue on which jurists have struggled and the states are divided. Unlike my colleagues, I find myself persuaded by a contrary rationale and opposing authorities.

The majority argues the Saadats could not logically be liable for wrongful termination because they had no authority to fire Naifeh. The majority concludes that only the employers, i.e., Physio GP, Inc. and Physio, Ltd., had the power to terminate Naifeh’s employment. While the rationale has a logical allure, it rests on a legal fiction. In the real world, no one disputes the fact that Naifeh was fired by Tanja Saadat. Moreover, no one disputes the effectiveness of that termination. Only in the most abstract sense can it be said that Tanja did not fire Naifeh, and it is little comfort to her to now learn that Tanja had no intrinsic, individual authority to terminate her employment.

The majority’s strongest argument, in my mind, is that the specter of individual liability could discourage corporate supervisors from terminating employees in legitimate situations. In the majority of cases, an employer is shielded by the employment-at-will doctrine. The doctrine does not stem from an inherent right of the employer, but from the absence of a contractual agreement regarding the period of employment. Thus, employment may be terminated by the employer or the employee at will, for good cause, bad cause, or no cause at all. Montgomery County Hosp. Dist. v. Brown, 965 S.W.2d 501, 502 (Tex. 1998). By definition, the employment-at-will doctrine does not require an employer to be reasonable, or even careful, in making its termination decisions. Tex. Farm Bureau Mut. Ins. Cos. v. Sears, 84 S.W.3d 604, 609 (Tex. 2002).

Further, I do not doubt that the employment-at-will doctrine is decidedly beneficial to economic efficiency. Nor do I dispute the notion that fear of unjustified litigation can cripple corporate productivity. However, the Texas Supreme Court recognized a common law exception to the employment-at-will doctrine in Sabine Pilot when a termination is based on an employee’s refusal to do an unlawful act. The wisdom of that decision and its public policy ramifications are not at issue here. Having found such an exception, it is our duty, as in intermediate appellate court, to give it application where appropriate.

There are good reasons to believe a corporate employee may be liable in his or her individual capacity for wrongful termination. First, the tort is intensely personal. It is not based on negligence, but on intentional malice. In other words, the gravamen of wrongful termination is not found in some corporate mistake, but in the uniquely human passion of hatred, spite, meanness, and revenge. For example, the uncontroverted evidence in this case shows that Tanja asked Naifeh to participate in a massive insurance fraud scheme by signing patient records reflecting treatments and services that had never been administered. Naifeh refused, and she was fired.

The Saadats then set out on a campaign to destroy Naifeh’s credibility and professional reputation. The Saadats alleged that Naifeh was fired because she had performed unauthorized treatment on a patient’s knee. The allegation was untrue, and the Saadats later admitted at a Texas Workforce Commission hearing that they had a copy of the prescription, authorized by the patient’s physician, for treatment of the knee.

The day after Naifeh was fired, the Saadats filed a police report falsely alleging Naifeh had stolen documents. The Saadats also manufactured a fake “Confidentiality Agreement” (with Naifeh’s forged signature) stating that “all information related to Physio[’s] day-to-day operation in regards to patient information and billing shall be kept confidential[,] and I shall not share any of this information with any patient or any individual.” Using the fabricated Confidentiality Agreement and false police report, the Saadats asserted claims against Naifeh for misappropriation of confidential and proprietary information and conspiracy to misappropriate confidential and proprietary information. They also filed a claim under the Texas Theft Liability Act.

The Saadats also created multiple false disciplinary records and submitted them to the Texas Workforce Commission in an attempt to prevent Naifeh from receiving unemployment benefits. Finally, the Saadats submitted multiple false disciplinary records to the Texas Physical Therapy Board in an effort to have Naifeh’s professional license revoked.

The tort committed here is akin to assault, battery, false imprisonment, and other intentional torts. The conduct was purposely directed at Naifeh with the deliberate intention of inflicting an injury upon her. This is the very behavior Sabine Pilot was intended to prevent, and there is no Texas authority restricting liability solely to the corporate employer.

As the majority notes, other states have considered, with mixed results, whether the common law tort of wrongful discharge can expose a corporate employee to personal liability.[2] Some view wrongful discharge as any other tort and impose individual liability on employees for their own tortious conduct.[3] Others have reasoned that the tort can only be committed by the person or legal entity that employed the terminated employee.[4] “These courts reason that an individual officer or employee of a corporation cannot commit the tort of wrongful discharge because an individual officer or employee has no authority separate from the authority exercised on behalf of the corporation to discharge an employee of the corporation.” Jasper v. H. Nizam, Inc., 764 N.W.2d 751, 775 (Iowa 2009). Thus, they reason that “the existence of an employment contract is . . . the most fundamental prerequisite to a claim of wrongful discharge.” Bourque v. Town of Bow, 736 F. Supp. 398, 401 (D.N.H. 1990). Accordingly, these courts hold that “wrongful discharge is a corporate tort within a corporate setting, not an individual tort.” Jasper, 764 N.W.2d at 776.

In Texas, however, the common law tort of wrongful discharge is not derived from principles of contract law; neither does it spring from a contract of employment. If the employee’s termination violates some contractual provision, he can sue for its breach. It is precisely because an “at-will” employee is not protected from a “bad cause” termination; because he has no contractual protections; and because public policy seeks to discourage criminal acts, that Sabine Pilot created a narrow exception to the employment-at-will doctrine. Further, it is the general rule in Texas that a corporation’s employee is personally liable for tortious acts which he directs or participates in during his employment. Walker v. Anderson, 232 S.W.3d 899, 918 (Tex. App.—Dallas 2007, no pet.).

A corporate shareholder or director, for example, who wrongfully terminates an employee is liable for tortious interference with the corporation’s employment contracts if the action is willful, intentional, and advances the interest of the actor rather than the interests of the corporation. See Holloway v. Skinner, 898 S.W.2d 793, 795–96 (Tex. 1995). Here, the evidence and the reasonable inferences there from would be sufficient to establish that Tanja’s actions were willful and intentional, that although it was not in Physio’s interest to terminate Naifeh for refusing to commit a criminal act, Tanja acted in her own interests in doing so.[5]

In my view, the public policy considerations raised in Sabine Pilot, i.e., to relieve “at-will” employees from being pressured to commit criminal acts, would rationally apply to both the employer and its agents. The pressure exerted against Naifeh to falsify records was no less intimidating because it was asserted by a fellow employee. Tanja had the power to terminate Naifeh and did so because she would not become a party to a criminal enterprise. Her conduct constitutes the very essence of the common law tort created by Sabine Pilot.

Accordingly, I respectfully dissent.

/s/ J. Harvey Hudson

Senior Justice

Panel consists of Justices Yates (majority), Sullivan, and Senior Justice Hudson.*

[1] Sabine Pilot Serv., Inc. v. Hauck, 687 S.W.2d 733, 735 (Tex. 1985).

[2] Other jurisdictions take varied approaches to claims of individual liability for wrongful termination. At one end of the spectrum, California, Illinois, and Kansas do not recognize liability for wrongful-discharge claims against individual non-employers. See Reno v. Baird, 957 P.2d 1333, 1334 (Cal. 1998) (holding that supervisors may not be sued individually under California’s Fair Employment and Housing Act, and stating that this holding “also applies to common law actions for wrongful discharge”); Buckner v. Atl. Plant Maint., Inc., 694 N.E.2d 565, 569–70 (Ill. 1998) (no personal liability for retaliatory discharge of subordinate for filing a workers’ compensation claim); Rebarchek v. Farmers Coop. Elevator, 35 P.3d 892, 903–04 (Kan. 2001) (same). At the opposite end of the spectrum, Iowa, New Jersey, Pennsylvania, and West Virginia recognize the personal liability of individual non-employers for wrongful termination even when the individual acted within the course and scope of his or her employment in firing another employee. See, e.g., Jasper v. H. Nizam, Inc., 764 N.W.2d 751, 777 (Iowa 2009) (holding that liability for the tort of wrongful discharge based on refusal to commit an unlawful act can extend to the corporate officers who authorized or directed the discharge); Ballinger v. Del. River Port Auth., 800 A.2d 97, 110 (N.J. 2002) (“[A]n individual who personally participates in the tort of wrongful discharge may be held individually liable.”); Kamensky v. Roemer Indus., Inc., 1 Pa. D. & C.4th 497, 499–500 (1988) (president of employer corporation is subject to personal liability for terminating a reinstated worker’s employment for failure to withdraw an unemployment compensation claim); Harless v. First Nat’l Bank in Fairmont, 289 S.E.2d 692, 698 (W. Va. 1982) (“The discharge serves to fix responsibility on the employer but this does not mean that another employee who has been the principal protagonist in obtaining the employee’s discharge would not also be liable.”). Other jurisdictions consider whether the “principal protagonist” acted within the course and scope of his own employment when wrongfully discharging another employee. For example, the Mississippi Supreme Court has held that an individual is not liable for his actions in wrongfully discharging an employee if the individual acted within the course and scope of his employment, but it has not addressed the question of whether an individual should be held liable for wrongful termination if he acted outside his employment duties or contrary to the employer’s interests. See DeCarlo v. Bonus Stores, Inc., 989 So. 2d 351, 358–59 (Miss. 2008) (en banc); see also Bourgeous v. Horizon Healthcare Corp., 872 P.2d 852, 855–56 (N.M. 1994) (leaving open “the question of whether a retaliatory discharge claim lies against a supervisor, agent, or coemployee if the firing was an intentional act done solely for the supervisor, agent or coemployee’s own interest and therefore outside the scope of employment”).

[3] See DeCarlo v. Bonus Stores, Inc., 512 F.3d 173, 176–77 (5th Cir. 2007) (collecting cases); Higgins v. Assmann Elecs., Inc., 173 P.3d 453, 458 (Ariz. Ct. App. 2007); Ballinger, 800 A.2d at 110–11; Harless, 289 S.E.2d at 698–99.

[4] See Hooper v. North Carolina, 379 F. Supp. 2d 804, 814–15 (M.D.N.C. 2005) (North Carolina law); Miklosy v. Regents of the Univ. of Cal., 188 P.3d 629, 644–45 (Cal. 2008); Reno, 957 P.2d at 1347; Buckner, 694 N.E.2d at 569–70; Rebarchek, 35 P.3d at 904.

[5] Although no question of whether Tanja’s conduct was itself criminal is at issue in this civil case, the difference between Tanja’s interests and Physio’s interests is easily seen when one considers separately the risks and benefits to each arising from Tanja’s conduct in (a) altering the documents, and in (b) asking Naifeh to sign the altered documents and in terminating her for refusing to do so. It was conceivably in Physio’s financial interests to inflate its bills, and thus, one could make a colorable argument that by altering records used to support its billing practices, Tanja was acting in Physio’s best interests. But because a person who makes false statements in connection with the delivery of or payment for health care services can face imprisonment for up to five years, the person who makes such a statement has a personal stake, distinct from that of a corporate employer, in avoiding detection. A reasonable factfinder therefore could conclude that in asking Naifeh to sign the patient records, Tanja was acting in her own interest to conceal the fact that the documents had been altered, so that if it were discovered that insurers were billed by Physio for services that were not performed, it would appear that Naifeh and not Tanja was responsible.

* Senior Justice J. Harvey Hudson, sitting by assignment.

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Individuals could not be held personally liable for wrongful discharge in violation of public policy
KEY WORDS: employment at will doctrine in Texas, public policy exception to at-will employment, wrongful termination of employment, discharge, refusal to commit illegal act, whistleblowing, private employer, employer, corporate liability vs. individual personal liability of manager, supervisor, owner for Sabine-Pilot wrongful termination claim