Employers May Not Terminate At-Will Employees To Avoid Paying Accrued Benefits

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December 3, 2010

It is a well settled law in Wisconsin that an at-will employee may be terminated for any reason unless the termination violates public policy as expressed in the Constitution, a statute, administrative rule, or other enactment. Recently, the Wisconsin Supreme Court addressed a situation in which an at-will employee claimed that she was illegally terminated because her employer terminated her to avoid paying her accrued benefits. The Supreme Court issued a 3-3 split decision [1] on whether the employer’s action was actionable.
In Phillips v. U.S. Bank National Association (11/19/10), a U.S. Bank employee, Deanne Phillips, was terminated. U.S. Bank claimed that Phillips was terminated because Bank officials believed that she had lied to her supervisors regarding the plans of another employee, James Janikowski, to end his employment with U.S. Bank and compete with it. Phillips claimed that U.S. Bank used the issue with Janikowski as a pretext to terminate her so that she would not qualify for the payment of accrued benefits that were payable under two separate benefit plans involving incentives. To qualify for the benefits, a participant had to be an employee and be in good standing at the time that the benefits were to be paid. U.S. Bank argued that Phillips could be terminated for any reason because she was an at-will employee. U.S. Bank also argued that Phillips no longer qualified to receive her accrued benefits under the benefit plans because the plans required participants to be employed by U.S. Bank at the time that payments were to be made. At the lower level, the circuit court granted summary judgment to U.S. Bank and dismissed Phillips claims. The Wisconsin Court of Appeals reversed holding that an at-will employee s accrued benefits are not forfeited if the employer terminates the employee to prevent the employee from receiving the benefits. Since the Court of Appeals ruled in favor of the employee, the Wisconsin Supreme Court’s 3-3 split decision resulted in the Court of Appeals ruling being affirmed. Therefore, Phillips prevailed.
Because the Wisconsin Supreme Court did not reach a majority decision on the issue, the Court of Appeals’ ruling stands and is current law. The Court of Appeals’ decision does, however, provide guidance to employers to avoid similar lawsuits. An employer should ensure that when an employee with accrued benefits is terminated either a) the accrued benefits are paid to the employee or b) if the benefits are not paid, the reasons for the termination are well documented to avoid a claim that the employee was terminated to avoid payment. If the termination of the employee is not handled correctly, the employer may face legal action by the employee to recoup the accrued benefits and also incur the legal costs necessary to defend itself.
If you have questions regarding the above, please contact any of the attorneys in the Employment, Benefits & Labor Relations Practice Group of Ruder Ware.
[1] Justice Annette K. Ziegler did not participate in the decision.

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