April 20, 2012

Punitive damages for wrongful termination?

By Deborah J. La Fetra Senior Attorney

Texas-based commercial trucker Louis Martinez was fired when he refused to commit an illegal act by transporting an unsafe load. Although Texas is an “at-will employment” state—meaning that employers can typically fire employees for any reason or for no reason—the Texas Supreme Court recently established a narrow exception to that rule that says employers cannot fire an employee when they refuse to do something illegal. So Martinez sued his employer for wrongful discharge, and the jury awarded him $7,500 in lost wages, $10,000 for mental anguish, and $200,000 in punitive damages.

The Texas Supreme Court decided to review the decision to address two questions of crucial importance to the state’s businesses: are punitive damages are available at all in wrongful termination cases? And, if so, was the ratio of $26 in punitive damages for every $1 in actual damages (after the judges threw out Martinez’s “mental anguish” claims as improper) constitutional under the Due Process Clause? The U.S. Supreme Court has made clear that that provision forbids courts from using relatively small compensatory damages as an excuse to impose crushing punitive damages. PLF filed this brief in the case urging the court to abide by these Due Process limits.

As it turns out, the court completely reversed the punitive damages award without addressing Due Process concerns. It held that Martinez failed to show that his employer acted with malice, which is necessary for any punitive damages claim. The justices rejected Martinez’s argument that malice could be shown merely by the dangerousness of the illegal acts he was asked to perform, ruling that there was not a close enough connection between those acts and the harm Martinez suffered (being fired). The court also concluded that the nature of the wrongful termination claim is that the employee was asked to do something illegal and refused. “Allowing punitive damages based on the unrealized consequences of the illegal directive would amount to impermissibly punishing the employer for harm the plaintiff never actually endures.”

The decision does not foreclose the possibility of punitive damages in some future wrongful discharge case, but properly limited their availability to those cases in which the employer truly acted with malice, for example, spreading false rumors about the employee to prevent him from getting another job.

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