Supreme court divided on whether at-will employment precludes payment
of benefits
Good faith inheres in every contract. Thus, an employer cannot avoid
paying benefits conditioned on continued employment if termination is
made in bad faith, even if employment is at-will. The case will continue
to determine if termination was made in bad faith.
By Joe Forward, Legal Writer,
State Bar of Wisconsin
Nov. 19, 2010
– An employer that fires an employee in bad faith forfeits the
right to enforce a contractual agreement that conditions receipt of
accrued benefits on the employee’s continued employment. That is
the holding upheld as a result of an equally divided Wisconsin Supreme
Court in Phillips
v. U.S. Bank National Association, 2010 WI 131 (Nov. 19,
2010).
A Wisconsin appeals court ruled in February that former U.S. Bank
employee Deanne Phillips could negate a contract governing accrued
benefits if she could prove the bank fired her to avoid paying them. The
case went to the supreme court, but it recently came back divided.
Chief Justice Shirley Abrahamson, and Justices Ann Walsh Bradley and N.
Patrick Crooks would affirm the ruling of the appeals court. Justices
David Prosser, Patience Drake Roggensack and Michael Gableman would
reverse. Justice Annette Ziegler did not participate.
Phillips worked for U.S. Bank as a financial planner from 1998 until
2007, the year the bank terminated her employment. Two documents
governed Phillips’s benefit plan. Both determined that termination
or bank policy violations would preclude payment of a benefit.
Phillips’s benefits were fully accrued at the time of her
termination.
According to U.S. Bank, Phillips was fired because she knew about
another employee’s plans to join a competitor, did not tell U.S.
Bank supervisors, and lied when asked about it. That violated U.S.
Bank’s Code of Ethics, the bank argued. But Phillips argued the
bank’s excuse for firing her was a pretext so the bank would not
have to pay the accrued benefits.
The appeals court in Phillips
v. U.S. Bank, N.A., 2009AP246 (Feb. 2, 2010), reasoned that if
the bank’s representative “testified at trial consistent
with her deposition, and Phillips testified at trial consistent with her
deposition, a reasonable jury could assess their credibility and find
that at least one of them was lying.”
The circuit court had granted the bank summary judgment because
Phillips was an “at-will” employee, meaning she could be
fired for any reason at all, and the contracts required her to be
employed in order to receive the benefits. In other words, it did not
matter why Phillips was fired, the circuit court ruled.
But the appeals court rejected that argument, applying agency law. Even
though agency agreements can limit commissions following termination,
the appeals court explained, “the termination must not be in bad
faith.”
U.S. Bank argued that at-will employment allowed the bank to fire
Phillips for any reason, and and receipt of benefits required continued
employment. But the appeals court explained that good faith
“inheres in every contract and, therefore, an employer must comply
in good faith with its ‘contractual obligations.’”
If U.S. Bank fired Phillips as a pretext to avoid paying benefits, that
would be a termination in bad faith. Because there were genuine issues
of material fact surrounding that issue, the appeals court ruled that
summary judgment was inappropriate.
That ruling stands because the supreme court could not reach a
majority. Thus, the circuit court’s summary judgment ruling is
reversed and the case will proceed accordingly.
Attorneys
Mindy Rowland and Bradley Fulton of DeWitt Ross & Stevens S.C.,
Madison, represent U.S. Bank. Alan Olson and Nicholas McLeod of Alan C.
Olson & Associates S.C., New Berlin, represent Deanne Phillips.
