RETALIATORY DISCHARGE AND EMPLOYEES WITH CONTRACTS FOR A DEFINITE TERM - THERE IS A DIFFERENCE

Tennessee law protects employees who report illegal acts by their employers from retaliation.   In addition to the statutory protection (Tenn. Code Ann. § 50-1-304), there is a “common law” protection.  But, that common law protection does not apply to all employees. 
In Tennessee, the common law protection against retaliatory discharge applies only to “at-will” employees.  If the employee has an employment agreement for a definite term (e.g., one year), the employee is not an “at will employee.”  He or she is not protected from retaliatory discharge.  
     
What if the employment agreement gives the employer the right to terminate at any time without cause?  That was the question in Petschonek v. TheCatholic Diocese of Memphis.  W2011-02216-COA-R9-CV (Tenn. Ct. App., May 23, 2012).  The contract at issue provided a one year term and stated that the principal could terminate the contract at any time for any reason.  The contract granted the employee 30 days of compensation as liquidated damages if the principal exercised this right.  Likewise, the employee could terminate the contract prior to the end of the term if the employee paid liquidated damages to the employer. 

The court of appeals held that the inclusion of a right to terminate the contract before expiration of its term does not change the essence of the agreement.  It remains a contract for a definite term.  The court emphasized that the contract at issue included “mutual” rights to terminate the contract and mutual obligations. 

Now, the unanswered question.  What if the contract did not allow the employee to terminate the contract?  What if the contract did not provide for “liquidated” damages to the employee upon termination by the employer without cause?  In those instances, would the employee have a common law protection from retaliatory discharge.

MORAL OF THE STORY.  Often, the inclusion or exclusion of language in a contract often has important legal consequences.  In this case, the employer’s willingness to give 30 days pay probably avoided a bundle of attorney’s fees.