Phillips v. Butterball Farms Co.

531 N.W.2d 144, 448 Mich. 239, 10 I.E.R. Cas. (BNA) 729, 1995 Mich. LEXIS 348

• Court: Michigan Supreme Court
• Decided: March 21, 1995
• Docket: 97976, (Calendar No. 14)
• Status: Published

Opinions

AFTER SECOND REMAND

Levin, J.

Plaintiff Teresa Phillips, an employee at will, commenced this action against her former employer, defendant Butterball Farms Company, Inc., claiming that she was discharged for exercising rights under the worker’s compensation act. The circuit court entered orders limiting the damages recoverable, and trial has been deferred to provide Phillips with an opportunity to appeal those orders.

The Court of Appeals held that because Phillips was an employee at will, damages for lost wages will be nominal and the measure of damages for mental or emotional distress will also be limited.

We hold that, although Phillips was an employee at will, recovery is not limited to nominal damages, and, if she can establish that she was discharged for exercising rights under the worker’s compensation act, she may recover compensation for lost wages, back pay and front pay, and mental or emotional distress damages. The parties have not briefed or argued the issues that might arise respecting the length of front pay and mitigation of damages. We remand for trial.

i

Phillips was a probationary employee at Butterball. She injured her wrist on the job, and returned to work on August 19, 1986, five days after the injury. She alleges that she claimed benefits under the worker’s compensation act by requesting that her medical bills be paid by Butterball and was met with a hostile attitude, and, approximately two weeks later, before the end of the probationary period, her employment was terminated.

Phillips commenced this action,¹ and the circuit court entered the orders limiting damages.² The Court of Appeals essentially affirmed the circuit court orders limiting damages.³

The Court of Appeals⁴ ruled that the instant case was factually similar to Dunbar v Dep’t of Mental Health, 197 Mich App 1; 495 NW2d 152 (1992), and that, under Administrative Order No. 1990-6, it was bound to follow Dunbar. The Court, however, criticized Dunbar.⁵

The Court said that, because it was bound to follow Dunbar, it was "compelled to conclude that plaintiff’s cause of action sounds in tort, and, therefore, plaintiff may claim all the damages allowed for that cause of action, including damages for mental or emotional distress.”⁶ The Court, however, limited the amount recoverable:

[T]he measure of damages for her mental or emotional distress necessarily will be conñned to proof of distress arising solely from the retaliatory nature of the discharge, because an at will employee has no reasonable expectation of being continued in employment. Similarly, whether the action be in tort or contract, damages for lost wages will be nominal because an at-will employee cannot show a reasonable expectation of continued employment.

[7] [Emphasis added.]_

II

Phillips was an employee at will. The general rule is that "in the absence of a contractual basis for holding otherwise, either party to an employment contract for an indefinite term may terminate it at any time for any, or no, reason.” Suchodolski v Michigan Consolidated Gas Co, 412 Mich 692, 694-695; 316 NW2d 710 (1982). This Court continued that nevertheless "some grounds for discharging an employee are so contrary to public policy as to be actionable.”⁸ In addition to statutory causes of action for violation of explicit prohibitions,⁹ causes of action have been implied where the employee was discharged for failure or refusal to violate a law in the course of employment.¹⁰

This Court continued in Suchodolski that "the courts have found implied a prohibition on retaliatory discharges when the reason for a discharge was the employee’s exercise of a right conferred by a well-established legislative enactment. See, e.g., Sventko v Kroger Co [69 Mich App 644; 245 NW2d 151 (1976)]; Hrab v Hayes-Albion Corp, 103 Mich App 90; 302 NW2d 606 (1981). Both cases involved allegations of discharges in retaliation for having filed worker’s compensation claims.”¹¹

In Sventko, the Court of Appeals recognized a cause of action for discharge in retaliation for filing a worker’s compensation claim. The lead opinion said that "while it is generally true that either party may terminate an employment at will for any reason or for no reason, that rule is not absolute.”¹² The opinion continued that "the better view is that an employer at will is not free to discharge an employee when the reason for the discharge is an intention on the part of the employer to contravene the public policy of this state.”¹³ The Court of Appeals thus found that, although there was no explicit statutory proscription, the public policy expressed in the worker’s compensation act precluded an employer from discharging an employee for filing a claim.

hi

The Court of Appeals initially determined that an action for retaliatory discharge sounded in tort.¹⁴ Subsequent panels concluded that the action sounded in contract.¹⁵ In Dunbar,16 the Court ruled that an action for wrongful discharge in retaliation for filing a worker’s compensation claim sounds in tort, not contract. The Court continued that the cause of action is now statutorily-based, and that, for breach of the statutory duty, the action sounds in tort not contract.¹⁷

Butterball argues, consistent with the Court of Appeals opinions concluding that the claim sounds in contract, that the contractual employment relationship is what gives rise to Phillips’ cause of action. Implied in every contract, Butterball contends, is a promise not to contravene public policy. Thus, the action for retaliatory discharge is in contract because the right not to be discharged arises out of a promise implied in the contract.

This argument ignores that the source of this right against retaliatory discharge does not stem from any term agreed upon by the contracting parties, but from public policy now expressed in a statute.¹⁸ The duty not to retaliate against an employee for filing a worker’s compensation claim arises independently from the employment contract.¹⁹ In Lathrop v Entenmann’s, Inc, 770 P2d 1367, 1373 (Colo App, 1989), a Colorado appellate court said: "[t]he duty of the employer to refrain from retaliation in violation of a state’s public policy does not find its source in any private contract; it is a duty imposed by the state’s legislative body; and it is one that cannot be adjusted or modified lay the private actions of an employer and a collective bargaining agent.”

Many states now recognize a cause of action for retaliatory discharge of an employee who has filed a worker’s compensation claim.²⁰ The vast majority hold that such an action is grounded in tort on the basis of a public policy exception or express statutory proscription.²¹

The Nevada Supreme Court observed:_

We know of no more effective way to nullify the basic purposes of Nevada’s workmen’s compensation system than to force employees to choose between a continuation of employment or the submission of an industrial claim. In the absence of an injury resulting in permanent total disability, most employees would be constrained to forego their entitlement to industrial compensation in favor of the economics necessity of retaining their jobs.[²²]

In holding that such a cause of action sounds in tort, not contract, the Kansas Court of Appeals observed that "the mere existence of a contractual relationship between the parties does not change the nature of [this] action.”²³

In enacting § 301(11) of the Worker’s Disability Compensation Act,²⁴ the Legislature codified Sventko. While the contractual relationship was "at will,” the contractual relationship is not the source of an employee’s right to protection against retaliatory discharge for filing a worker’s compensation claim. The right stems not from an implied promise by the employer, but from the statute. A cause of action seeking damages from an employer who violates the worker’s compensation act is independent of the contract, and sounds in tort, not contract.²⁵

IV

The Court of Appeals, in holding that because Phillips was an employee at will, she may recover only limited or nominal damages, in effect ruled that there is no meaningful remedy for retaliatory discharge for filing a worker’s compensation claim. Some employees are employed for fixed terms. Others are protected by individual or union contracts providing that the employee may only be discharged for just cause. And still others, perhaps the majority, are "at will.” A fixed-term or just-cause employee is protected by that term of the employment relationship. Unless employees at will are also protected from retaliatory discharge for filing a worker’s compensation claim, almost no employee is protected by the prohibition against discharge of an employee therefor.

In Dunbar, supra, the Court of Appeals held that, because a claim for retaliatory discharge sounds in tort, the employee can claim damages for mental distress and loss of pay resulting from the improper discharge.²⁶

Butterball contends that the Dunbar panel erred, and argues that decisions of this Court have limited the circumstances in which an employee can obtain mental distress damages when there has been no evidence of physical injury. Butterball cites this Court’s decisions in Valentine v General American Credit, Inc, 420 Mich 256; 362 NW2d (1984), concerning mental distress damages for breach of an employment contract, and Roberts v Auto-Owners Ins Co, 422 Mich 594; 374 NW2d 905 (1985), concerning the tort of intentional infliction of emotional distress.²⁷

In Kewin v Massachusetts Mutual Life Ins Co, 409 Mich 401, 419; 295 NW2d 50 (1980), this Court held that mental and emotional distress damages were not ordinarily available in an action for bad-faith breach of contract. The Court also declined to recognize a tort for bad-faith breach because it would "open the door to recovery for mental pain and suffering caused by breach of a commercial contract.”²⁸ The Court said, however, that damages for mental and emotional distress may be awarded where there was allegation and proof of tortious conduct independent of the breach of contract.²⁹

Valentine, an action for breach of contract for termination of employment without just cause, followed Kewin.30 Valentine did not address an action in tort that arose independently of the employment contract.³¹ Because this action sounds in tort, the available "damages are not limited by contract principles.”³²

Other courts that recognize an action in tort for worker’s compensation retaliatory discharge have allowed recovery for mental and emotional distress, as well as lost wages.³³ The Iowa Supreme Court said:

While it is not a crime or an act requiring a malicious motive or outrageous conduct, wrongful discharge offends standards of fair conduct and normally will cause the employee damages in lost income. In addition to his monetary loss of wages, the employee may suffer mentally. . . . We know of no logical reason why a wrongfully discharged employee’s damages should be limited to out-of-pocket loss of income, when the employee also suffers causally connected emotional harm. Distressful emotions not involving bodily injury are compensable in actions for the infringement of some other interest. . . . We believe that fairness alone justifies the allowance of a full recovery in this type of tort.[34]

Butterball contends that allowing Phillips to recover emotional and mental distress damages would contravene Roberts, supra. There, this Court declined to recognize an action in tort for intentional infliction of emotional distress for breach of an insurance contract.³⁵

Phillips was not required to plead a separate claim for intentional infliction of emotional distress to recover damages for mental and emotional distress, nor must she meet the burdens requisite to establishing that cause of action.³⁶ In pleading a cause of action for worker’s compensation retaliatory discharge, Phillips stated a separate and independent basis for recovery of mental and emotional distress damages.

The Court of Appeals stated that to permit Phillips to recover full compensatory damages would transform her "at will” employment contract into a "just cause” contract.³⁷ Again, we disagree.

The Court of Appeals in Sepanske³⁸ said that "either party to an at will employment contract for an indefinite term may terminate it at any time and for any reason, unless the employer has violated a specific public policy in discharging the employee.”³⁹ The Court found that an employee at will could only recover nominal damages for lost wages because "[t]here is no tangible basis upon which damages may be assessed where plaintiff’s expectation was for an at will position which could have been changed or from which he could have been terminated without consequence.”⁴⁰ The claim in Sepanske, however, was premised on breach of contract, not a separate tort.

We hold that Phillips may recover lost wages.⁴¹ Phillips had a reasonable expectation that she would not be terminated for filing a worker’s compensation claim, despite the at-will nature of the employment relationship. Recovery under the public policy exceptions to the employment at will doctrine arises independently of the employment contract. Phillips should be compensated for lost wages to give effect to the mandate now expressed in § 301(11). Nominal damages would not compensate Phillips for her loss of employment, nor would it provide sufficient deterrence to employers who would violate the statute.

Reversed and remanded to the circuit court for trial.

Cavanagh, Boyle, and Mallett, JJ., concurred with Levin, J.

1 The circuit court granted summary disposition in favor of Butterball dismissing Phillips’ claims of handicap discrimination and breach of implied contract.

2 The circuit court ruled that Phillips could not recover punitive damages or damages for mental or emotional distress.

3 The Court of Appeals affirmed in an unpublished opinion per curiam, issued February 22, 1991 (Docket No. 118024). This Court vacated the judgment of the Court of Appeals and remanded for reconsideration. 439 Mich 895 (1991). On remand, in an unpublished opinion per curiam, issued May 14, 1992 (Docket No. 147501), the Court of Appeals found that Phillips’ cause of action was in contract. This Court again vacated and remanded, this time for reconsideration in light of Dunbar v Dep’t of Mental Health, 197 Mich App 1; 495 NW2d 152 (1992). 442 Mich 911 (1993).

4 201 Mich App 663; 506 NW2d 606 (1993).

5 The Court said:

Furthermore, the Dunbar majority has presented no rationale for distinguishing between retaliatory discharge for filing a workers’ compensation claim and other types of retaliatory discharge that are equally offensive to public policy. The mere fact that the Workers’ Disability Compensation Act has codified the public policy against retaliatory discharge for filing a workers’ compensation claim is not a sufficient basis for ignoring the underlying basis for the cause of action, i.e., that some grounds for discharge are so contrary to public policy as to give rise to an action for wrongful discharge, even though the employer-employee relationship is "at will.” . . . The majority in Dunbar acknowledged that a retaliatory discharge is a type of wrongful discharge, but did not explain how the explicit statutory codification of public policy against retaliatory discharge in workers’ compensation cases transforms such activity into a tort action while other types of retaliatory discharge apparently give rise to contract actions. [Id. at 668.]

6 Id. at 669.

7 Id. at 670.

8 Id. at 695.

9 The Court adverted to the following statutes:

MCL 37.2701; MSA 3.548(701) (Civil Rights Act); MCL 37.1602; MSA 3.550(602) (Handicappers’ Civil Rights Act); MCL 408.1065; MSA 17.50(65) (Occupational Safety and Health Act); MCL 15.362; MSA 17.428(2) (The Whistleblowers’ Protection Act). [Id. at 695, n 2.]

10 The Court cited cases in which an employee was discharged for failure to file a false report, give false testimony, and participate in illegal price fixing.

11 Id. at 695-696.

12 id. at 646-647.

13 Id. at 647.

14 Goins v Ford Motor Co, 131 Mich App 185, 198; 347 NW2d 184 (1983).

15 In Watassek v Dep’t of Mental Health, 143 Mich App 556; 372 NW2d 617 (1985), another panel of the Court took a different approach in a case involving the discharge of an employee in retaliation for reporting abusive practices at a state mental health facility. Relying on Toussaint v Blue Cross & Blue Shield of Michigan, 408 Mich 579; 292 NW2d 880 (1980), the Court stated that "an action for wrongful discharge is one mainly ex contractu. An action claiming retaliatory discharge is an action asserting a specific type of wrongful discharge and thus constitutes a contract action.” Watassek, supra at 564-565. The panel rejected the decision in Goins, finding that the previous panel’s reliance on Sventko was misplaced because Sventko did not specify the nature of a retaliatory discharge action. Id. at 565. The Court concluded that, because the wrongful discharge occurred in the context of an employment relationship, the employment contract formed the basis of the action.

In Lopus v L & L Shop-Rite, Inc, 171 Mich App 486; 430 NW2d 757 (1988), a Court of Appeals panel addressed this issue in the context of a retaliatory discharge that occurred before the filing of a worker’s compensation claim. The Lopus panel agreed with the Watassek panel and rejected the ruling in Goins. Id. at 490-491. In addition, the panel found both Sventko and Goins factually distinguishable.

In Mourad v Auto Club Ins Ass’n, 186 Mich App 715; 465 NW2d 395 (1991), a Court of Appeals panel ruled that retaliatory discharge actions were contract actions. In an action for wrongful termination of a just-cause employment contract, it was held that a claim for retaliatory demotion is an alternative theory of recovery from a breach of just-cause contract because both actions depend on the same facts. Id. at 726. Thus, the two could not be pleaded in the same action. In addition, the Court reaffirmed that a wrongful discharge action was in contract, not tort, citing Watassek and Lopus. Id. at 727.

16 See text accompanying n 5.

17 A claim for retaliatory discharge under the wdca is statutorily provided, MCL 418.301(11); MSA 17.237(301X11). Thus, a statutory duty is created on the part of the employer not to discharge an employee in retaliation for the employee’s filing of a workers’ compensation claim. A breach of this statutory duty by an employer sounds in tort, not contract. [Dunbar, supra at 10.]

18 A person shall not discharge an employee or in any manner discriminate against an employee because the employee filed a complaint or instituted or caused to be instituted a proceeding under this act or because of the exercise by the employee on behalf of himself or herself or others of a right afforded by this act. [MCL 418.301(11); MSA 17.237(301)(11).]

19 Phillips cites Lingle v Norge Div of Magic Chef, Inc, 486 US 399; 108 S Ct 1877; 100 L Ed 2d 410 (1988), to clarify this distinction. In Lingle the question was whether a union employee’s worker’s compensation retaliatory discharge claim was preempted by § 301(a) of the Labor-Management Relations Act of 1947, 29 USC 185(a). The United States Supreme Court held that the claim was not preempted because, under Illinois law, there was an independent means for ascertaining whether there had been a violation other than from the contract itself. Although the Court looked to state law to determine whether there was preemption, the point is well taken that, at least as how Illinois has chosen to define it, the worker’s compensation retaliatory discharge claim does not depend on an interpretation of the employment contract.

20 See Love, Retaliatory discharge for Sling a workers’ compensation claim: The development of a modern tort action, 37 Hastings L J 551, 554-555 (1986); anno: Recovery for discharge from employment in retaliation for Sling workers’ compensation claim, 32 ALR4th 1221.

21 See Lathrop, supra (public policy); Buckner v General Motors Corp, 760 P2d 803 (Okla, 1988) (statute); Springer v Weeks & Leo Co, Inc, 429 NW2d 558 (Iowa, 1988) (statute); Hansen v Harrah’s, 100 Nev 60; 675 P2d 394 (1984) (public policy); Firestone Textile Co v Meadows, 666 SW2d 730 (Ky, 1983) (public policy); Lally v Copygraphics, 85 NJ 668; 428 A2d 1317 (1981) (public policy and statute); Murphy v City of Topeka-Shawnee Co Dep’t of Labor Services, 6 Kan App 2d 488, 492; 630 P2d 186 (1981) (public policy); In re Axel v Duffy-Mott Co, Inc, 47 NY2d 1; 416 NYS2d 554; 389 NE2d 1075 (1979) (statute); Kelsay v Motorola, Inc, 74 Ill 2d 172; 23 Ill Dec 559; 384 NE2d 353 (1978) (public policy); Frampton v Central Indiana Gas Co, 260 Ind 249, 252; 296 NE2d 425 (1973) (public policy).

22 Hansen v Harrah’s, n 21 supra at 64. See also Murphy, n 21 supra at 495; Kelsay, n 21 supra at 181; Frampton, n 21 supra at 251.

23 Murphy, n 21 supra at 493.

See also Burk v K mart Corp, 770 P2d 24, 28 (Okla, 1989) ("An employer’s termination of an at-will employee in contravention of a clear mandate of public policy is a tortious breach of contractual obligations”); Lally, supra at 670 ("The statutory declaration of the illegality of such a discharge underscores its wrongful and tortious character for which redress should be available”).

24 See n 18 for text.

25 See Foley v Interactive Data Corp, 47 Cal 3d 654, 668; 254 Cal Rptr 211; 765 P2d 373 (1988).

26 Id. at 10; see also Goins, n 14 supra at 198 (affirming an award of future damages for lost wages).

27 Butterball also relies on Daley v LaCroix, 384 Mich 4; 179 NW2d 390 (1970), in which this Court considered the availability of mental distress damages in a negligence action. Daley is inapposite because Phillips states a claim for violation of public policy. Although this Court required evidence of physical injury in Daley’s negligence action to support an award of mental distress damages, that limitation does not necessarily apply to intentional misconduct. See Niblo v Parr Mfg, Inc, 445 NW2d 351, 354-355 (Iowa, 1989).

28 Id. at 423.

29 Id. at 420-421; see also Wiskotoni v Michigan Nat’l Bank-West, 716 F2d 378, 388 (CA 6, 1983).

This Court cited Harbaugh v Citizens Telephone Co, 190 Mich 421, 428; 157 NW 32 (1916), in which the Court held that the plaintiff had stated a tort claim independent of the breach of contract for which "[h]is actual damages may, however, include just compensation for such annoyance and inconvenience as he may be able to show he suffered by reason of defendant’s unlawful act.”

30 In Valentine, supra at 259, this Court ruled that a plaintiff may not recover mental distress damages for breach of an employment contract. The Court observed that Toussaint, n 15 supra, did not create rights that would be actionable in tort. Toussaint only dealt with a right that was enforceable because of a promise not to terminate except for cause arising out of the employment contract. Id. at 258. Thus, the "obligation which gave rise to this action is based on the agreement of the parties; it is not an obligation imposed on the employer by law.” Id. at 259. In contrast, the obligation not to discharge an employee for filing a worker’s compensation claim is imposed on employers by law and does not stem from any term of the agreement between the employer and the employee.

31 The Court of Appeals reliance on Sepanske v Bendix Corp, 147 Mich App 819, 829; 384 NW2d 54 (1985), in resolving Phillips’ damages claim was misguided. In holding that the plaintiff was only entitled to nominal damages for the defendant’s breach of a contract providing employment at will, the Sepanske panel stated, "This is not a case of wrongful discharge.” Id.

32 Wiskotoni, n 29 supra at 388; Pratt v Brown Machine Co, 855 F2d 1225, 1242 (CA 6, 1988).

In tort cases, "actual damages now include compensation for mental distress and anguish.” Veselnak v Smith, 414 Mich 567, 574; 327 NW2d 261 (1982); see also Wiskotoni, n 29 supra at 389. A plaintiff claiming damages for mental and emotional distress would not be entitled to exemplary damages if mental and emotional distress damages are included as part of compensatory damages. Veselnak, supra.

Absent legislation regarding damages, a plaintiff claiming mental and emotional distress damages for breach of a statutory mandate will only be able to recover therefor as part of compensatory damages. Eide v Kelsey-Hayes Co, 431 Mich 26, 54-57; 427 NW2d 488 (1988).

33 See Scott v Otis Elevator Co, 572 So 2d 902, 903 (Fla, 1990); Niblo, n 27 supra at 354-356; Cagle v Burns & Roe, Inc, 106 Wash 2d 911, 915-917; 726 P2d 434 (1986); Malik v Apex Int’l Alloys, Inc, 762 F2d 77, 80-81 (CA 10, 1985) (applying Oklahoma law); Harless v First Nat’l Bank in Fairmont, 169 W Va 673, 689-690; 289 SE2d 692 (1982); see also Wiskotoni, n 29 supra at 388; Pratt, n 32 supra at 1242.

34 Niblo, n 27 supra at 355.

35 Id. at 611.

This Court said that "[t]he mere failure to pay a contractual obligation, without more, will not amount to outrageous conduct for purposes of this tort.” Id. at 605. Plaintiff’s anger did not establish severe emotional distress, absent some additional evidence of grief, depression, disruption of lifestyle, or treatment. Id. at 610-611.

36 See Cagle, n 33 supra at 917; Malik, n 33 supra at 81; Harless, n 33 supra at 689-690 ('.'We believe that the tort of retaliatory discharge carries with it a sufficient indicia of intent, thus, damages for emotional distress may be recovered as part of compensatory damages”). The Iowa Supreme Court stated:

[The tort of wrongful discharge] is distinct from the tort of intentional infliction of emotional harm, which established an independent ground for liability for damages for mental anguish caused by intentional or reckless extreme and outrageous conduct. The requirements of proof are greater, so that the law will not intervene in every case where someone’s feelings are hurt or where the mental distress is not severe. [Niblo, n 27 supra at 357.]

37 201 Mich App 670.

38 N 31 supra.

39 Id. at 826.

40 Id. at 829; see also Environair, Inc v Steelcase, Inc, 190 Mich App 289, 294; 475 NW2d 366 (1991).

41 As the parties have not briefed or argued the length of front pay or the mitigation of damages, we express no opinion on these issues.