Salary Reduction May Support Claim for Constructive Discharge

In a recent Summary Order, the Second Circuit vacated a summary judgment, holding that the reduction of the plaintiff’s salary may have amounted to a “constructive discharge” without cause which would entitle plaintiff to severance payments under his employment contract/offer letter.  The case is Scott v. Harris Interactive, Inc., 12-1414 (2d Cir. Feb. 20, 2013).

Facts

Within the first year of plaintiff Berkeley S. Scott’s employment at defendant Harris Interactive, Inc., his job responsibilities were reduced, purportedly because of Harris’s dissatisfaction with his work. Later in the first year, his salary was also reduced to $150,000 per year (with the possibility of higher earnings through commissions). Scott refused to confirm his acceptance of these changes and informed his employer (through counsel) that he deemed himself constructively discharged.  Shortly after that the employer advised plaintiff’s counsel that it considered Scott’s communication to be notice of resignation.

Scott had an employment contract that defined him as an “at will” employee, but that entitled him to six months’ severance if he was terminated for any reason other than “cause”.   Additionally, if Scott resigned or was terminated for cause within his first year, he would be required to return his signing bonus.

The trial court awarded the defendant summary judgment, holding that as a matter of law Scott could not show that he was constructively terminated without cause.

The Second Circuit disagreed.

Analysis

The court reaffirmed the rule that “[a]lthough an employer in New York is generally free to change the employment terms of an at-will employee … this latitude is necessarily cabined by the terms of any employment agreement.”  Therefore, “[w]here, as here, the [contract] specifies benefits payable on discharge, the employee is entitled to those benefits if the termination amounts to a constructive discharge.”

It held that, on the facts presented, it was error to conclude, as a matter of law, that the reduction of plaintiff’s salary could not amount to a constructive discharge:

Insofar as our precedent recognizes that “loss of pay or change in title” … may amount to constructive discharge, the question of discharge versus resignation cannot be resolved simply by concluding, as the district court did here, that the reduced amount compares favorably to the earnings of other accomplished persons in the national workforce. The percentage of a reduction and the reasonable expectations of the parties are also relevant to the factual determination whether an employee was forced into an involuntary resignation. …

Here, the evidence viewed in the light most favorable to Scott shows that his salary was reduced by $70,000, approximately one third of his original salary. That reduction, moreover, occurred despite the Offer Letter, which Scott contends reflects the parties’ agreement to a $220,000 salary for at least a year. While not every breach of a salary agreement necessarily equates to constructive discharge, it is a fact that may lend support to a constructive discharge termination depending on the seriousness of the breach. The reduction in Scott’s salary was also accompanied by what a factfinder could conclude were adverse changes in his title and responsibilities, again contrary to the Offer Letter. Further, evidence that Harris managers repeatedly told Scott that he had the option to resign could, when viewed in context, support a finding that the employer sought to compel Scott to take such action.

The court thus concluded that there were enough questions of fact on the “disputed issue of whether Scott was constructively discharged or resigned” that a jury must decide.

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