A March 2021 opinion by the United States District Court for the Southern District of Ohio, Dix v. Atos IT Solutions & Servs., Inc., provides a surprising and very unfortunate result for any employer terminating an employee for “cause.” At issue was whether the company must offer the employee an opportunity to cure his misconduct — even when such a cure appears to be impossible. The plaintiff was employed by an IT services company. His employment contract provided that he would receive three months of his salary in severance pay if the company terminated his employment without cause due to position elimination. When his employer was acquired by another IT services company, the acquirer provided the plaintiff with a “retention agreement,” under which it promised to pay him a $100,000 “retention bonus” on June 30, 2017, which was nine months after he started with acquirer. The retention bonus, however, was contingent on his continued employment with the company. Specifically, the plaintiff would forfeit the retention bonus if he “voluntarily resigned,” or if the company fired him “for cause.”
An IT employee performing routine maintenance on the plaintiff’s computer discovered pornography. On January 11, 2017, the company’s human resources called the plaintiff to a meeting where they accused him of viewing, downloading, and soliciting sexually explicit material on his work computer. The company demanded the plaintiff’s immediate resignation. The plaintiff provided a handwritten resignation.
The Lawsuit
The plaintiff then sued the company alleging that the company breached the retention agreement when it fired him without allowing him to first cure his misconduct. Based on the breach, he claimed that he was entitled to the $100,000 retention bonus. Not surprisingly, the company sought a summary judgment from the court that it did not breach the retention agreement. Here is where it gets crazy. The court denied the company’s motion and allowed the plaintiff’s claims to go forward to trial.
The Retention Agreement
Under the Retention Agreement, an employee would be terminated for cause (and forfeit the retention bonus) if he both (1) violates the company’s policies or procedures, and (2) does not correct that failure within five days after receiving notice of the policy violation. The plaintiff did not dispute whether he violated the company’s workplace policies. Instead, he argued that the Retention Agreement clearly and unambiguously required the company to offer him five days to cure his misconduct. The plaintiff argued that his termination was not “for cause” as defined in the Retention Agreement because the company did not offer him the opportunity to cure his violations before terminating him.
As you would expect, the company argued that, notwithstanding the plain language of the Retention Agreement, the company had no obligation to offer the plaintiff an opportunity to cure under the circumstances, as his “misfeasance was, by its very nature, incurable.” And, because the breach was incurable, the company reasoned that it had every right to immediately terminate him without affording him an opportunity to cure.
Can the Executive “Unring” the Misconduct Bell?
According to the court, the question for it on summary judgment was, based on the facts, whether any reasonable jury could find that the company violated the Retention Agreement by failing to provide the plaintiff an opportunity to cure his misconduct. The Court began its tortured analysis by observing that a court can grant summary judgment only if it concludes that, on the undisputed facts, no reasonable jury could find that the plaintiff’s violation of the company’s workplace rules was curable. The company relied on what the court labeled the “unringable-bell theory” — i.e., no matter what the plaintiff did going forward, it could not change the fact that the original violation itself occurred. Therefore, the violation is not curable. To this, the court replied that broad application of the company’s unringable-bell rule would make all breaches incurable, which in turn would render the contractual notice and cure language a nullity, an interpretive result that Michigan law instructs courts to avoid.
Thus, the court concluded that the key question on incurability is whether the policy violation that constituted the breach gave rise to such egregious harm that a going-forward change in behavior cannot overcome that harm. The court set forth a rather frightening standard.
That is, to prevail at summary judgment, an employer must first show that there is no genuine dispute that a reasonable employer could, objectively, have believed the breach was incurable. In other words, the employer must show that it reasonably could have believed that the harm created by the already-completed violations of workplace rules was so substantial that a promise not to engage in such behavior in the future would still leave the employee in a position of material breach.
Wow. Not sure how the plaintiff could cure this misconduct without a time machine, but there it is.
-Mike Melbinger, CompensationStandards.com June 15, 2021
