Friday, April 20, 2012

Punitive Damages may be awarded in Sabine-Pilot Wrongful Termination-of-Employment Suit -- Safeshred, Inc. v. Martinez (Tex. April 20, 2012)

Texas Supreme Court says, in opinion released today (Friday April, 20, 2012), that punitive damages are available in successful wrongful termination claim by employee fired for refusing to perform an illegal act because it is a tort, not a contract claim, and exemplary damages are available in tort cases as a general rule. The Court nevertheless reverses the court of appeals’ affirmance of exemplary damages in the case under review, finding that there was not legally sufficient evidence of malice in the employee's termination by his employer.  

Safeshred, Inc. v. Martinez (Tex. April 20, 2012)

This case requires us to clarify the nature and scope of the cause of action for wrongful termination of an employee for refusing to perform an illegal act that we recognized in Sabine Pilot Service, Inc. v. Hauck, 687 S.W.2d 733 (Tex. 1985). In particular, we must determine whether a plaintiff in a Sabine Pilot action may recover punitive damages, and if so, what must be shown as a prerequisite for those damages.

We agree with the court of appeals’ conclusion that a Sabine Pilot cause of action sounds in tort and allows punitive damages upon proper proof. However, because we hold that Martinez failed to present legally sufficient evidence of malice relating to his firing, we reverse the court of appeals’ judgment insofar as it affirms the award of exemplary damages.


A. The Availability of Punitive Damages

 1. Tort or contract

The first question we must answer is whether a Sabine Pilot claim sounds in tort or contract, because the answer to that question will decide whether exemplary damages are recoverable. While exemplary or punitive damages may generally be awarded for torts involving malicious or grossly negligent conduct, they are not available for breach of contract claims. Amoco Prod. Co. v. Alexander, 622 S.W.2d 563, 571 (Tex. 1981). Safeshred argues that the employment relationship is inherently contractual, and that Sabine Pilot essentially supplements that relationship with an implied contractual provision preventing discharge for refusal to perform an illegal act. Martinez, on the other hand, notes that every Texas case to categorize a Sabine Pilot claim has labeled it a tort,2 and that comparisons to other statutory wrongful termination causes of action support that characterization.

Courts outside of Texas are split on whether a public policy exception to the employment-at-will doctrine, like a Sabine Pilot claim, sounds in tort or contract. Compare Brockmeyer v. Dun & Bradstreet, 335 N.W.2d 834, 841 (Wis. 1983) (contract), and Monge v. Beebe Rubber Co., 316 A.2d 549, 551 (N.H. 1974) (same), with Thompson v. St. Regis Paper Co., 685 P.2d 1081, 1089 (Wash. 1984) (en banc) (tort), and Parnar v. Americana Hotels, Inc., 652 P.2d 625, 631 (Haw. 1982) (same).

We conclude that such claims sound in tort.

Apart from Sabine Pilot, this Court has steadfastly adhered to the employment-at-will doctrine. See, e.g., Ed Rachal Found. v. D’Unger, 207 S.W.3d 330, 332 (Tex. 2006). In that vein, we have consistently refused to expand Sabine Pilot beyond the “narrow exception” we recognized in that case. See id. at 332–33 (refusing to expand Sabine Pilot liability to cover whistleblower actions not already authorized by statute); Winters, 795 S.W.2d at 725 (same). Safeshred argues that, in order to maintain that narrow interpretation, we must call a Sabine Pilot claim a contract claim.

But, in fact, the opposite is true. To say the cause of action sounds in contract, we would need to drastically alter our view of the at-will employment relationship in general, rather than merely recognize a narrow exception to the at-will doctrine. E.g., Physio GP, Inc. v. Naifeh, 306 S.W.3d 886, 887-888 (Tex. App.—Houston [14 Dist.] 2 2010, no pet.); Draker v. Schreiber, 271 S.W.3d 318, 323 (Tex. App.—San Antonio 2008, no pet.) (citing Louis v. Mobil Chem. Co., 254 S.W.3d 602, 610 (Tex. App.—Beaumont 2008, pet. denied)); Miller v. Raytheon Aircraft Co., 229 S.W.3d 358, 373 (Tex. App.—Houston [1st Dist.] 2007, no pet.); see also Garcia v. Sun Belt Rentals, Inc., 310 F.3d 403, 404 (5th Cir. 2002); Hanold v. Raytheon Co., 662 F. Supp. 2d 793, 803 (S.D. Tex. 2009).

This is so because, to say that Sabine Pilot created an implied contractual provision would presume, in the first place, that there is a contract between at-will employees and their employers in which to place an implied provision. We have never recognized such a proposition. See, e.g., Montgomery Cnty. Hosp. Dist. v. Brown, 965 S.W.2d 501, 502–03 (Tex. 1998) (treating the implied employment contract urged by petitioners as a significant departure from at-will employment); Garcia v. Sunbelt Rentals, Inc., 310 F.3d 403, 404 (5th Cir. 2002) (“[N]o Texas court has held that an at-will employment relationship constitutes an oral contract . . . .”). On the contrary, we have long held firm to the principle that, in Texas, an at-will employee may be fired for a good reason, a bad reason, or no reason at all. Brown, 965 S.W.2d at 502. And where the promise of continued employment is illusory, it cannot form the basis of an enforceable contract. Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson, 209 S.W.3d 644, 660–61 (Tex. 2006) (citing RESTATEMENT (SECOND) OF CONTRACTS § 77 cmt. a (1981); 3 WILLISTON ON CONTRACTS § 7.7 (4th ed. 1992)). It would be inconsistent to call Sabine Pilot an implied contractual restriction on a relationship that is not even contractual. Cf. City of Midland v. O’Bryant, 18 S.W.3d 209, 216 (Tex. 2000) (“[A] contractual limitation [like a duty of good faith and fair dealing] would afford more rights to the plaintiffs than at-will employees possess.”).

Instead, we conclude that Sabine Pilot claims are not contractual in nature, but sound in tort, providing a remedy when an employee refuses to comply with an employer’s directive to violate the law and is subsequently fired for that refusal. This approach is consistent with our treatment of a statutory workers’ compensation retaliation claim (another narrow exception to employment-at-will), which we have labeled an intentional tort. See Cont’l Coffee Prods. Co. v. Cazarez, 937 S.W.2d  444, 453 (Tex. 1996) (discussing TEX. LAB. CODE § 451.001). It also gives due attention to the fact that Sabine Pilot liability stems not from an agreement between employer and employee (the subject of contract), but from legislatively expressed public policies embodied in the criminal law. For these reasons, we hold that a Sabine Pilot claim sounds in tort, not in contract.

2. Punitive Damages for This Tort

Safeshred contends that, even if we recognize a Sabine Pilot claim as a tort, allowing exemplary or punitive damages would constitute an expansion of the claim that we did not intend in Sabine Pilot, and one better left to the Legislature. But punitive damages are generally available for common law torts so long as the traditional prerequisites are met: a finding of actual damages, Doubleday & Co. v. Rogers, 674 S.W.2d 751, 754 (Tex. 1984); and outrageous, malicious, or otherwise reprehensible conduct, Transp. Ins. Co. v. Moriel, 879 S.W.2d 10, 16 (Tex. 1994). Rather than expanding the claim, allowing punitive damages would merely avoid arbitrarily excluding a category of damages that is otherwise presumptively available. In a similar situation, where the Legislature only specified the availability of “reasonable damages” for workers’ compensation retaliation claims, we interpreted that term to include punitive damages, which “have long been seen as an important policy tool and a valid measure of damages.” Azar Nut Co. v. Caille, 734 S.W.2d 667, 669 (Tex. 1987) (citing Hofer v. Lavender, 679 S.W.2d 470, 474–75 (Tex. 1984)). Here, we face similar policy concerns to those presented by the statute at issue in Azar Nut (deterring employers from wrongfully terminating employees), as well as the additional objective of deterring violations of the criminal law. We hold that, in the proper case, Sabine Pilot plaintiffs may recover any reasonable tort damages, including punitive damages.

SOURCE: TEXAS SUPREME COURT - Safeshred, Inc. v. Louis Martinez, III (Tex. April 20, 2012)(Opinion by Lehrmann) (on petition for review from the Austin Court of Appeals)
LEGAL TERMS AND LINKS: Sabine Pilot Exception to Employment at Will Doctrine  Employment at Will

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