Sometimes when companies fire an employee, the employee may be entitled to some benefits. Disputes over employment benefits can often lead to a bloody battle over the exact wording of a contract. It can mean the difference between receiving $80,000 and receiving nothing. What happens, however, when the employee fails to fulfill all their duties as required by their employment contract? Are they still entitled to benefits post-employment as agreed upon by both parties? This is the exact issue faced by the court in a case out of Lauderdale County between an uncooperative employee and an employer who promised post-employment benefits.
In Shoals Extrusion v Beal, an employee sued his employer in Lauderdale County after his employer refused to continue paying him after terminating his employment early. Beal was offered a position as plant manager in a newly formed business. Beal and his employer entered a five-year contact in which Beal would receive a $20,000 signing bonus, $70,000 annual salary, and paid health insurance. In exchange, Beal agreed to work 40+ hours a week at the times set by the employer.
The contract also prepared for the possibility of early termination by one of the two parties. If Beal chose to leave before the end of his five-year contract, he would have to pay back his signing bonus. However, if the employer chose to terminate before the end of the five-year contract, they agreed to pay Beal his wages and benefits for one more year (aka severance-pay provision).
The factory operated in two shifts. The first shift started at 7:00am and lasted for roughly 8 to 10 hours. And the second shift started soon after. To make the working hours more convenient for the second shift, the employees voted to move the start time of the first shift up to 6:00am.
Beal refused to follow the new start time and continued to show up at 7:00am. After repeated conversations with Beal, his employer fired him after Beal refused to accept a severance agreement. The employer also refused to continue making payments to Beal based on the severance-pay provision of the employment contract. Beal sued for breach-of-contract.
The trial court granted Beal’s motion for summary judgement and awarded him over $80,000. They reasoned that because the employment agreement did not have a specific clause allowing the employer to fire Beal for failure to do his duties, that they were still bound by the severance-pay provision.
The company appealed to the Supreme Court of Alabama who reversed the trial courts grant of summary judgement. The case was sent back for further proceedings. The Supreme court relied on a 2011 case that laid out the requirements for recovering under a breach-of-contract claim. These requirements include:
- The existence of a valid contract between the parties
- That the plaintiff did his duties under the contract
- That the defendant did NOT do his duties under the contract and,
- That the plaintiff was damaged by the defendant not doing his duties
The Supreme Court’s decision revolved around the second requirement. Beal’s failure to follow the express terms of working at the times set by the employer released the employer from having to follow through with the severance-pay provision as well. In other words, because Beal did not do what he said he would do, neither does the employer.
Additionally, the Supreme Court stated that contracts have an implied duty of good faith. This means that you agree to follow the terms of the contract without some hidden motive. Because Beal threatened to not work additional hours, started spreading false rumors of financial problems, and threatened to work reduced hours if he did not receive an ownership stake at the company, he broke the implied duty of good faith.
If you are a company that wants to hire someone on a contractual basis, make sure you have an attorney that can make an iron clad contract to help prevent unnecessary expensive litigation. If you are an employee that has been fired, but you believe you are entitled to some benefits, make sure you have an experienced attorney that can create the strongest case in your favor.