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Texas: At-Will Employees Could Not Bring Fraud Claim over Lost Jobs
 

By Susan R. Heylman  6/9/2014
 

At-will employees could not bring an action against their employer for fraud in inducing them to move to a job with a subsidiary because their claim was predicated on the loss of an employment relationship that could be terminated at will, the Texas Supreme Court ruled. “No one can claim recovery of damages for the loss of an employment relationship he had no right to continue,” the court said.

Background

DuPont, the employer, announced to employees its plan to spin off a unit of its operations in La Porte, Texas, into a wholly owned subsidiary, DuPont Textiles and Interiors (DTI). Many of the unit employees—who had worked for DuPont for many years—feared that DuPont would sell the subsidiary, affecting their compensation and retirement packages. Moreover, most of the unit employees were covered by a collective bargaining agreement (CBA) that gave them the right to transfer to other jobs rather than move to DTI.

To persuade the employees to move to the DTI jobs, DuPont allegedly assured them that it would keep DTI, even though it had already discussed a sale with a potential buyer.

Almost all of the unit employees agreed to move to jobs with DTI. A few weeks later, DuPont announced the sale of DTI. After the sale, the new owner reduced the compensation and retirement benefits of the former unit employees.

Sixty-three of the employees then sued DuPont for over $23 million for fraudulently inducing them to accept employment with DTI by misrepresenting that DTI would not be sold.   

The lawsuit reached the Fifth Circuit Court of Appeals, which asked the Texas court for clarification of whether, under Texas law, at-will employees and employees subject to a CBA could sue their corporate employer for fraudulently inducing them to move to the subsidiary.

No Claims for Fraud

Writing that it was reluctant to impose new common law duties that would alter or conflict with the at-will relationship, which was an important and long-standing doctrine in the state, the Texas Supreme Court ruled that an at-will employee cannot bring an action for fraud that is dependent on continued employment.

“To recover for fraud, one must prove justifiable reliance on a material misrepresentation. A representation dependent on continued at-will employment cannot be material because employment can terminated at any time,” the court explained.

The court then addressed whether the employees, subject to a CBA that allowed discharge only for just cause, could sue for having been fraudulently induced to transfer jobs, resulting in a change in their benefits. If the employees were fraudulently induced to terminate their employment with DuPont, the court said, they were complaining of constructive discharge without just cause. However, the employees had agreed in the CBA to the remedies for discharge without just cause—reinstatement and up to six months’ lost wages—and that agreement foreclosed an action for fraud.     

“To allow a fraud action when the employees had a contractual remedy would not only be unnecessary, it would defeat the parties’ bargain,” the court said. “An employee discharged for refusing to go to DTI would clearly have been limited to his remedies under the CBA. To allow an employee fooled into going to DTI to recover for fraud would defeat the CBA.”

The court concluded that whether the employees’ right to complain about an unjust discharge under the CBA was timely or not was a matter for the 5th U.S. Circuit Court of Appeals to resolve.  

Sawyer v. E.I. Du Pont de Nemours & Co., Texas, No. 12-0626 (April 25, 2014).

Susan R. Heylman, J.D., is a freelance legal writer and editor based in the Washington, D.C., area.

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