Tortious Interference with At-will Employment

Page 1: Tortious Interference with At-will Employment

Metamorphosis of Tortious Interference

Wisconsin has long recognized the tortious interference with contract cause of action in many contexts. The tort has been applied to protect against intermeddling with a variety of contractual relations, including real estate deals, listing agreements, lease rights, contracts to perform services, "exclusive rights" agreements, and business purchases.10

Wisconsin has adopted the Restatement (Second) of Torts formulation and analysis for tortious interference claims.11 Section 766 provides that: "One who intentionally and improperly interferes with the performance of a contract (except a contract to marry) between another and a third person by inducing or otherwise causing the third person not to perform the contract, is subject to liability to the other for the pecuniary loss resulting to the other from the failure of the third person to perform the contract."12 Tortious interference claims in the at-will employment context fall within this paradigm, the claim being that the intermeddler has improperly induced the third person (the employer) to terminate the at-will employment contract.

Wisconsin recognizes two additional species of tortious interference: 1) interference with a person's own performance under a contract, which includes making the performance more expensive or burdensome;13 and 2) interference with another's prospective contract.14 Tortious interference with prospective contract is asserted sometimes when an at-will employee loses a promotion or a new job.

Mendelson and its Progeny: Improper Motive

In 1960, in Mendelson v. Blatz Brewing Co.,15 the Wisconsin Supreme Court addressed whether a discharged at-will employee could maintain an action against others within the company for tortious interference arising out of the employee's termination. Mendelson, the brewery's minority shareholder, alleged that the majority shareholders and officers conspired to remove him as general manager (so one of the defendants' sons could have the job) and force him to sell his stock. The supreme court held that Mendelson stated a claim, noting that "Wisconsin has aligned itself with the majority in holding that a cause of action is maintainable for unlawful interference with an employment contract terminable at will."16

The court recognized a "privilege" for corporate officers or directors in terminating employees, but noted that the privilege is destroyed if the object "is to put pressure upon the plaintiff and coerce him into complying with the defendant's wishes in some collateral matter."17 The court held that in order to state a claim against a corporate officer personally, it is not necessary to allege malice, only an improper motive.18

The court in subsequent cases adhered to the corporate officer/director conditional privilege, noting that "[i]f directors are acting in good faith for the protection of the interests of their corporation and in the course of their official duty, they should be protected" but that the privilege "will be destroyed by a wrongful motive."19 "Wrongful motive" in the corporate director context has been interpreted to mean a situation where directors exceed the scope of their official duties and make bad faith "decisions which are antithetic to the interests of the company" - in effect breaching their fiduciary duties to the corporation.20

Extension of Conditional Privileges

The supreme court's recognition of a privilege for officers and directors spawned conditional (or qualified) privileges for other groups targeted by discharged at-will employees, including coemployees, third parties, and attorneys giving advice.

Coemployee Privilege. Discharged employees have sued coworkers for tortious interference. As noted, the most famous recent case is Mackenzie v. Miller Brewing Co.21 Mackenzie, an upper-level manager, sued his employer (Miller Brewing), his supervisor, and a coemployee arising out of a lost promotion and subsequent termination.22 The coemployee reported to Miller that Mackenzie had inappropriately commented on a Seinfeld television episode that, by innuendo, referred to female sexual anatomy. Miller terminated Mackenzie for exercising "poor management judgment." Mackenzie asserted a tortious interference with contract claim against the coemployee for "fraudulently representing" that she felt harassed by the conversation. The jury found tortious interference and awarded $0.00 in compensatory damages and $1.5 million in punitive damages. The trial court set aside the award on the ground that without compensatory damages, there could be no punitive damages. The court of appeals upheld the trial court, noting that the coemployee was protected by the "conditional privilege" available to those reporting workplace problems.23

The court harkened back to the coemployee privilege it had first recognized in Wolf v. F & M Bank,24 in which a discharged bank president blamed his termination on two female coemployees who accused him of sexual harassment. The court found that Mackenzie had not mustered evidence of "ill will" or "improper" motive, which according to the court in Wolf was the sine qua non to overcome the coemployee privilege.25 Recognizing "society's interest in encouraging complainants to report sexual harassment," the court refused to carve out an exception to the general rule of preclusion of punitive damages in the absence of compensatory damages.26

Third Parties: Privileges to Assert Complaints and Truthful Information. Discharged employees also have asserted tortious interference claims against third parties to blame them for their termination. The right to be free from unlawful third-party intermeddling from those outside the workplace was recognized by the Wisconsin Supreme Court long ago in Johnson v. Aetna Life Insurance Co.27 In Johnson, an employee injured on the job claimed that his employer's insurer caused his termination after he refused to settle his injury claim on the insurer's terms. The court recognized the plaintiff's cause of action by stating: "[T]he plaintiff had the right to dispose of his labor wherever he could to the best of his advantage. This is a legal right entitled to legal protection.... and, if anyone assumed to meddle in his affairs, he did so at his peril."28

Courts to this day continue to protect at-will employment from outside threats. However, as with officers and coemployees, third parties receive qualified insulation. For example, in Augustine v. Anti-Defamation League of B'nai B'rith,29 the supreme court held that a radio listener who complained about how a radio announcer handled comments made during a radio program was protected because his complaints were made "in the exercise of a privilege to assert complaints" emanating from the right of free speech guaranteed by the U.S. Constitution.

In Liebe v. City Finance Co.,30 the court of appeals addressed a tortious interference claim brought by a finance company employee who was discharged when his employer found out that he had disseminated a flier criticizing finance company loans. The employee sued a finance company that he alleged was responsible for alerting his employer of the flier. The court held that the defendant was privileged because the flier merely disseminated truthful information. The court adopted Restatement (Second) of Torts section 772 (1979), which provides that the transmission of truthful information is privileged and proper.31

Attorneys: "Honest Advice" Privilege. Because attorneys often are asked to advise corporate clients on termination decisions, they sometimes are targeted by terminated employees. As with the other actors, there is a line that attorneys may not cross. Although attorneys generally are not liable to third parties for acts committed within the scope of the attorney-client relationship, this immunity is qualified and does not insulate the attorney who is guilty of fraud or a malicious or tortious act.32 Thus, although attorneys who give truthful advice within the scope of their representation are insulated, based on the "honest advice" privilege of Restatement (Second) of Torts section 772,33 an attorney who is complicit with his client in terminating an employee via improper motives invites liability.

Other Conditional or Qualified Privileges. Wisconsin courts recognize privileges in several other contexts to thwart terminated employees' tortious interference claims. For example: 1) elected officials have a privilege, acting in their public capacity, to terminate political appointees,34 2) doctors operating a hospital have a "conditional privilege" when a termination is motivated "to preserve the hospital's interests" in providing medical care,35 3) doctors who decide whether to extend medical or surgical privileges to a fellow doctor are insulated by Wisconsin's peer review statute (Wis. Stat. section 146.37),36 and 4) those sharing a common interest or common enterprise have a privilege to share employment information.37

"Improper Motive": When Self-benefit Vitiates Corporate Interests

No clear-cut legal definition for "improper" or "wrongful" motive in the employment context exists; however, courts generally have found that where one promotes a "private agenda" for self-benefit, at odds with the interests of the corporation, that suffices as "improper."38 While malice is not necessary to render a motive improper,39 when present, its existence almost always will be conclusive proof of an improper motive (assuming that malice is the sole or predominant motive).40

Examples of improper motives include inducing a discharge: to coerce the plaintiff to compel payment of a debt; to prevent the employee from bringing suit or reporting a workplace regulation violation; to force compromise of a claim; or to extort money.41 It also is "improper" for one to induce termination by transmitting false information,42 such as a coemployee telling the employer that an employee has committed a crime or slandered the employer when they, in fact, have not done so.

If an officer or director acts to further the corporation's interests, there is no collateral or improper motive.43 Thus, improper motives do not exist where the employee's performance is deficient,44 when a business suffers financial losses under the employee's watch,45 or when the employee's actions create a conflict of interest.46

Difficulty creeps in when "mixed motives" are alleged, such as where a termination will benefit the corporation but also bring an officer or director personal financial gain.47 However, courts have held that even if a termination is motivated by personal "greed," it is not "improper" or "collateral" if it benefits the corporation.48 Courts generally give deference to corporate officers in view of the "business judgment rule" and will consider the "rules of the game" for each particular business context.49

Subjective Privilege: The "Impropriety" Factors of Section 767

In contexts where there is no applicable conditional privilege, the trier of fact will apply factors set forth in Restatement (Second) of Torts section 767 to determine the "impropriety" of a defendant's actions.50 The factors include the actor's conduct and motive, the various interests involved, the proximity of the actor's conduct to the interference, and the relations between the parties.51 The Comments to Restatement (Second) of Torts section 767 provide that "[i]t is in the application of [section 767] that the most frequent and difficult problems of the tort of interference with a contract or prospective contractual relation arise."52

In Mackenzie v. Miller Brewing Co.,53 in addition to targeting his coemployee over the Seinfeld conversation, the plaintiff also asserted a tortious interference claim against his supervisor for opposing a promotion. The jury awarded $100,000 on the claim. The court of appeals reversed the judgment, applying the section 767 factors to determine that the acts of Mackenzie's supervisor were privileged (apparently since Wisconsin courts had not previously expressly recognized a "supervisor's privilege").54 After weighing the competing interests, the court noted that the supervisor "was in a legitimate position to comment on Mackenzie's managerial abilities"55 and that "[c]ourts have been reluctant to recognize an at-will employee's interest in a promotion and have protected a supervisor's freedom to comment on a subordinate's qualifications for advancement."56 Although the court did not expressly create or recognize a "supervisor's privilege" in rejecting Mackenzie's tortious interference claim against the supervisor, its opinion strongly implies that one exists.

Page 3: From Privilege to Propriety: Confusion Creeps In