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24945 - Stiles v. American General Life Ins. Co.

Shearouse Adv. Sh. No. 18
S.E. 2d

THE STATE OF SOUTH CAROLINA

In The Supreme Court

C. Kenneth Stiles,Plaintiff,

v.

American General Life

Insurance Company, Defendant.

On Certification from the United States District

Court for the District of South Carolina

Dennis W. Shedd,

United States District Judge

Opinion No. 24945

Heard October 7, 1998 - Filed May 24,1999

CERTIFIED QUESTION ANSWERED

Herbert W. Louthian, Sr. and Deborah R.J. Shupe,

both of Louthian & Louthian, of Columbia, for

Plaintiff.

Leigh M. Nason, Scott T. Justice, and Janis W.

Johnson, all of Haynsworth Baldwin Johnson &

Greaves, of Columbia, for Defendant.





FINNEY, C.J.: This Court accepted the following question

certified by the U.S. District Court:

May an employee who is employed under an employment contract

which provides that either party may terminate the agreement

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Stiles v. American General Life Ins. Co.





"for any reason" with 30-days' notice -- i.e., an at-will contract

with a notice provision -- maintain a tort action for wrongful

discharge in violation of public policy under Ludwick v. This

Minute of Carolina, Inc.?1





FACTS



Plaintiff C. Kenneth Stiles signed two employment agreements

with defendant in 1985. Both agreements, which became effective on

January 1 1986, contained termination provisions which, inter alia, allowed

either party to terminate "for any reason" by giving 30-days' written notice

to the other party. On October 14, 1993, defendant informed plaintiff that

it was terminating these agreements effective November 14, 1993.





Plaintiff thereafter brought this action in circuit court asserting

causes of action for breach of contract and wrongful discharge in violation of

public policy based on defendant's termination of the agency agreements.

Defendant removed the matter to federal court. After discovery, defendant

moved for summary judgment on both causes of action. The District Court

granted the motion as to the breach of contract claim. The District Court

reserved ruling on the motion as to the wrongful discharge claim in order to

certify the question of law set forth above.





Plaintiff's wrongful discharge claim, which was brought

pursuant to Ludwick v. This Minute of Carolina, Inc., and its progeny, is

based on his allegation that defendant terminated the agreements in a

retaliatory manner because he had protested and reported what he

contends to be an illegal practice by defendant. Defendant denies this

contention and asserts that it terminated the agreements for proper

reasons.





ISSUE



Does the public policy exception under Ludwick

apply to an at-will employment contract with a

notice provision?





DISCUSSION


1 287 S.C. 219, 337 S.E.2d 213 (1985).

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Stiles v. American General Life Ins. Co.





This Court established in Ludwick a public policy exception to

the termination at-will doctrine by holding that "[w]here the retaliatory

discharge of an at-will employee constitutes violation of a clear mandate of

public policy, a cause of action in tort for wrongful discharge arises." The

public policy exception is invoked when an employer requires an at-will

employee, as a condition of retaining employment, to violate the law.





Generally, an at-will employee may. be terminated at any time

for any reason or for no reason, with or without cause. Small v. Springs

Industries, Inc., 300 S.C. 481, 388 S.E.2d 808 (1990). An employment

contract containing a notice provision is a contract for a definite term.

Shivers v. Harland, 310 S.C. 217, 423 S.E.2d 105 (1992). An employment

contract containing a notice provision does not provide for a specific

termination date, but is continually in force until notice is given. Id.

Once notice is given the employment contract assumes a definite term

which is the last day of the notice period. Id. A person hired under an

employment contract for a definite term may not be discharged before the

completion of the term without just cause. Id. The measure of damages

when an employee is wrongfully discharged under a contract for a definite

term generally is the wages for the unexpired portion of the term. Id.2





The District Court concluded that plaintiff was an at-will

employee. The ultimate question before us is whether the notice provision

precludes application of the public policy exception to an otherwise at-will

employment. Plaintiff asserts there is no logical basis upon which to

argue that an employee terminated in violation of public policy has any

less right to bring an action for a public policy tort than if the at-will

employment contract required no notice. He reasons that an at-will

employee with a notice provision still faces termination for any reason and

is vulnerable to the possibly illegal motives and/or conduct of his employer.

Accordingly, if the public policy does not apply to at-will contracts with

notice provisions, employers will be able to avoid the potential liability

associated with a public policy tort by giving the employee a contract with

a stated notice period, of any duration, before termination.







Defendant urges the Court to continue to limit the Ludwick


2 We note that Shivers v. Harland involved purely a breach of

contract claim and there was no allegation of bad faith.

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Stiles v. American General Life Ins. Co.





exception to at-will employees who have no alternative remedy. Defendant

contends that an employee employed under a contract for a definite term

is in a different position than an at-will employee because the employee

has a protection from wrongful discharge that is unavailable to at-will

employees: a contractual remedy for termination for cause without notice

and the right to retain employment for the notice period after receiving

notice of termination without cause. Essentially, defendant contends the

contract notice provision protects the employee from wrongful discharge.

We disagree. The at-will employee with a notice provision does not have

an alternative remedy for wrongful discharge, but merely is entitled to

notice of termination.







In this case, the employee does not have an alternate remedy

based on an allegation of wrongful discharge. The employee with a notice

provision is in the same position as an at-will employee with the only

difference being that the employer is required to give the employee notice

prior to terminating employment. In considering the purpose behind the

public policy exception, the "mere encouragement that one violate the law

is unsavory; the threat of retaliation for refusing to do so is intolerable

and impermissible." Ludwick, supra. To hold that because an at-will

employee is employed under a termination notice provision, the employee

is not entitled to bring an action for retaliatory discharge in violation of

public policy violates the spirit of the public policy exception. Accordingly,

the public policy exception is extended to at-will employees under notice

provisions.





The certified question is answered in the affirmative: an

employee under an at-will contract with a 30 day notice provision may

maintain an action for wrongful discharge in violation of public policy

under Ludwick. Whether the specific facts of this case present an

applicable claim under Ludwick should be determined based upon the

evidence presented to the district court.





CERTIFIED QUESTION ANSWERED.

MOORE, WALLER, and BURNETT, JJ., concur. TOAL, A.J.,

concurring in a separate opinion.

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Stiles v. American General Life Ins. Co.





TOAL, A.J. (concurring):





In his majority opinion, the Chief Justice holds that the Ludwick public

policy exception should be available to the plaintiff in the present case. I agree

completely with this result. Moreover, I believe that the opinion correctly

anchors its conclusion on the finding that the plaintiff was without an alternate

remedy. I write separately because I believe to fully understand when and why

the exception will apply in future situations, it is necessary to outline the policy

considerations behind the Ludwick exception as well as its history. Because it

is important to view any application of the doctrine in the context of its

historical development and policy considerations, I concur with the majority

opinion and add to it the following analysis.





Employment in South Carolina has been classified as either for a definite

term or at-will. Young v. McKelvey, 286 S.C. 119, 333 S.E.2d 566 (1985).

Employment for a definite term has two important characteristics: (1) it exists

for a fixed period of time; and (2) the employment may only be terminated

before the end of that term by just cause. Id. If an employee is wrongfully

terminated under a definite contract, the measure of damages is determined by

the contract and is generally the wages for the unexpired portion of the term.

Shivers v. John H. Harland Co., Inc., 310 S.C. 217,423 S.E.2d 105 (1992). This

measure of damages allows an employee to receive the benefit of the bargain by

placing the employee in as good a position as if the contract had been

performed. Id.





At-will employment diff6rs from employment for a definite term in two

important respects: (1) there is no fixed period of time; and (2) employers can

discharge employees for good cause, no cause, or even cause that is morally

wrong. Ludwick, 287 S.C. at 221-222, 337 S.E.2d at 214. In employment at

will, the employee is also free to terminate the employment relationship at any

time. Shealy v. Fowler, 182 S.C. 812 188 S.E. 499 (lP36).





Although, in South Carolina, an at-will employee may be discharged for

any reason, this Court has recognized two important exceptions to that rule.

First, employee's, at-will status can be altered by the promulgation of an

employee handbook. See Small v. Springs Indus., Inc., 292 S.C. 481,357 S.E.2d

452 (1987). Second, employee's at-will status can be altered where the discharge

violates a clear mandate of public policy. See Ludwick, 287 S.C. at 225, 337

S.E.2d at 216. In Ludwick, an employer asked an employee to violate a

criminal law. Since Ludwick, this Court has expanded the public policy

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Stiles v. American General Life Ins. Co.





exception. See Garner v. Morrison Knudson Corp., 318 S.C. 223,456 S.E.2d 907

(1995); Culler v. Blue Ridge Elec. Coop., Inc., 309 S.C. 243,422 S.E.2d 91(1992);

see also C.F.W. Manning, II, Note, Public Policy Exception Open to Possible

Expansion in Employment At-Will Situations, 48 S.C. L. Rev. 133 (1996). In

Garner, we recognized the exception's development and noted, " [w]hile we have

applied the public policy exception to situations where an employer requires an

employee to violate a criminal law, and situations where the reason for

termination was itself a violation of criminal law, we have never held the

exception is limited to these situations." Id. at 266, 456 S.E.2d at 909.





While the Ludwick public policy exception has expanded, this Court has

also noted that the exception will not apply where the employee has a statutory

remedy. See Dockins v. Ingles Markets, Inc., 306 S.C. 496, 413 S.E.2d 18

(1992)(finding the Fair Labor Standards Act provided a remedy to the employee

and that he was limited to pursuing that statutory remedy); Epps v. Clarendon

County, 304 S.C. 424,405 S.E.2d 386 (1991)(refusing to expand Ludwick where

Title 42 U.S.C. ยง 1983 allows a civil action for damages against a government

official who deprives an individual of a constitutionally protected right). As

these cases make clear, the Ludwick exception is not designed to overlap an

employee's statutory or contractual rights to challenge a discharge, but rather

to provide a remedy for a clear violation of public policy where no other

reasonable means of redress exists.





The Ludwick public policy exception, is designed to serve two important

policy goals: (1) the vindication of the state's interest by prohibiting termination

in violation of the clear mandate of public policy; and (2) the protection of at-will

employees who are often without a remedy when terminated in violation of

public policy. For the current case, we must decide whether the notice provision

provides a remedy sufficient for both the employee and the state to obviate the

need for a Ludwick action.





The nature of the employment contract between Stiles and American

General is important in determining whether the Ludwick exception should be

available. In Shivers v. John H. Harland Co., 310 S.C. 217, 220, 423 S.E.2d

105, 107 (1992), we held that:



Under South Carolina law, an employment contract containing a

notice provision is a contract for a definite term. An employment

contract containing a notice provision does not provide for a specific

termination date, but is continually in force until notice is given.



p.6


Stiles v. American General Life Ins. Co.





Once notice is given, the employment contract assumes a definite

term, this being the last day of the notice period. (Citations

omitted)(emphasis added).





This analysis makes it clear that an employment agreement with a notice

provision is basically an at-will agreement that, subject to a contingency, may

become a contract for a definite term. Unlike the usual contract for a definite

term, the worker is not guaranteed a specific term of employment, only that at

a minimum he will have work for the term of the notice provision. Without a

Ludwick exception, the employer could choose any reason to trigger the notice

provision, regardless of whether the reason violated public policy.





Also, whatever protection there would be under such a contract would not

occur until the employer decides to provide notice. The notice provision in such

contracts provides no protection from the discharge itself, but simply makes an

employer wait longer before the termination of an employee is complete. If an

employer can avoid the possibility of damages associated with a public policy

violation by simply giving the employee a written contract with a stated notice

period before termination, the public policy exception would become ineffectual

at achieving its policy goals. As such, the notice provision in such a contract

does not provide an alternate remedy similar to those in Epps and Dockins.





Unlike a definite term contract containing mandatory "for cause"

termination provisions, a notice provision in an at-will contract does not

vindicate either the state's interest in preventing an employee discharge in

violation of public policy or the employee's rights to be protected from

retaliatory discharge in violation of public policy. Under a contract for a

definite term the employee can only be fired for cause, whereas the at-will

employee with a notice provision can quickly find himself jobless even if he is

a model employee. In situations where the only protection from termination for

reasons which violate public policy is a notice provision, the purposes served by

Ludwick cannot be achieved through any other means than the application of

the public policy exception allowing a suit in tort.



p.7