Can an At-Will Employee Sue for Fraud Arising from a Termination? The Texas Supreme Court Will Decide.

The Fifth Circuit has certified two interesting questions regarding the at-will employment rule to the Texas Supreme Court.  Curiously, the case arises out of a union dispute over which the Texas Supreme Court would normally have no jurisdiction.

The plaintiffs are 63 former employees at DuPont's La Porte, Texas facility.  Most of the plaintiffs were union members and were protected by a collective bargaining agreement.  DuPont announced that it was spinning off part of its operations to a subsidiary (DTI).  Any employee who transferred to DTI would no longer be protected by the CBA.

DuPont and the union began negotiations over how to handle the spinoff.  Because of the seniority provisions in the CBA, many of the plaintiffs would have had the right to transfer to another position within DuPont rather than working for DTI.  DuPont was concerned that so many employees would elect to remain with DuPont that DTI would not have enough trained employees.

DuPont and the union agreed to a process under which the employees at the unit in question could (1) choose to stay with DuPont and continue to be covered by the DuPont CBA, or (2) move to DTI and be covered by a new DTI CBA that was identical to the DuPont CBA.  If too many employees elected to stay with DuPont, then DuPont and the union would begin another round of negotiations.

Many of the employees were worried that DuPont would sell DTI to a third party.  If that happened, they would lose some of their benefits, because their employer would no longer be part of the DuPont family.  DuPont made representations to alleviate these concerns:

At these meetings, the Terathane Unit employees expressed concerns that DuPont might sell DTI to a third party. Many of the employees had worked for DuPont for a long time and wanted to protect their compensation and retirement packages by remaining a part of the DuPont family. Appellants allege that they were repeatedly assured that DTI would remain a part of DuPont. The parties agree that Phil Anderson told the employees that a sale of DTI was "highly unlikely." Anderson used charts and graphs to show that DTI was too large to be sold because it was bigger than any of its potential buyers. He often explained, by way of analogy, that "we're the whale, and fish don't eat whales."

Virtually all of the employees elected to move to DTI.  Just over two months later, DuPont announced that it was selling DTI to Koch Industries.  The sale was completed a year later.

The plaintiffs did not claim that that DuPont's promises formed an enforceable contract.  Instead, the plaintiffs sued for fraud, seeking damages for the reduction in their future benefits.  The district court granted summary judgment for DuPont.  The district court held that at-will employees could not sue for fraud because they had no guarantee of future employment with DuPont.  In other words, they could not rely on a promise of continuing employment with DuPont because DuPont had the power to fire them at will.

The Fifth Circuit initally affirmed this ruling.  The Fifth Circuit noted that, even though the CBA provided that DuPont could terminate the employees only for "just cause," DuPont had the power to cancel the CBA on 60 day's notice.  Therefore, the court reasoned, DuPont could fire all of the employees without cause in 60 days.  The court concluded that the Texas courts would regard the employees as at-will employees under those circumstances, and therefore concluded that they could not bring a fraud claim.

On rehearing, the Fifth Circuit changed its mind and decided to ask the Texas Supreme Court to rule on the state law issues.  The Fifth Circuit certified two questions:

1. Under Texas law, may at-will employees bring fraud claims against their employers for loss of their employment?
2. If the above question is answered in the negative, may employees covered under a 60-day cancellation-upon-notice collective bargaining agreement that limits the employer's ability to discharge its employees only for just cause, bring Texas fraud claims against their employer based on allegations that the employer fraudulently induced them to terminate their employment?
The Texas Supreme Court accepted the question and ordered supplemental briefing.  The court heard oral argument in February 2013.
While the case is likely to focus on the CBA (the plaintiffs conceded that the answer to the first question is probably "no"), this case should provide clarification concerning the scope of the at-will employment rule in Texas. 
 

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