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Chapter 11 Can't Protect Companies Who Break Covenant of Good Faith

Published:  December 18, 2017

U.S. Bankruptcy Court Judge Joan N. Feeney has ruled that an at-will employee who filed a whistleblower complaint against her employer was entitled to severance and can seek benefits against the employer’s Chapter 11 (bankruptcy) estate.

Christine Briggs, a pro se claimant, was an at-will employee at Genesys Research Institute (“GRI”). While employed, Briggs along with several colleagues filed written complaints with the Attorney General’s Office (“AG”) claiming GRI was misappropriating funds.  In 2014 GRI laid off several employees and informed them that they would be reimbursed for unused vacation and sick time.  GRI also adopted the severance policy of the previous company it took over.  Under this adopted severance policy GRI, at its sole discretion, decides whether to provide severance to laid off employees or not. Briggs alleged that only employees who did not file written complaints with the AG’s office were selected to receive severance.  Briggs argued this phenomenon reflects a lack of good faith based decision making and therefore it should not stand.

Harold B. Murphy, GRI’s trustee, objected to Briggs claim.  Murphy alleged that the decision to give severance to employees was at the sole discretion of GRI.  Additionally, at the bankruptcy trial Murphy presented no evidence to rebut the claims made by Briggs.

Judge Joan N. Feeney, found GRI’s decision, to not pay severance to those employees who filed a written complaint, failed to meet both the good faith and public policy carve-out of the at-will employee doctrine. Specifically, Feeney noted that “the complaint made by Briggs and her colleagues went beyond internal critical remarks and was not frivolous.”  Feeney added that the court took under consideration the Attorney General’s prompt investigation of the complaints filed by Briggs and her colleagues.  Under Feeney’s analysis, Briggs and her colleague’s conduct amounted to protected activity of which retaliatory conduct is an affront to the public as a whole.  Based on these facts, Judge Feeney ruled in favor of Briggs and severance pay was awarded.

This judicial decision suggests that the public policy exception to at-will employees can no longer be discounted as a high bar to meet.  Additionally, employers must be aware that this decision also sheds light on possible liability employers may incur for retaliating against employees at the post termination stage.  Furthermore, this is another case where writing into your policy that decisions will be made at the discretion of the company, is no longer satisfactory in the eyes of the court.

Should you have questions on this topic or other labor or employment related matters please contact the attorneys at Royal, P.C.