Recent Tennessee Breach of Employment Agreement and Constructive Discharge Case

In a very recent breach of contract case, a former employee of the defendant was held not to have been constructively discharged from employment, and, therefore, was not entitled to a bonus provided for in his employment agreement.  The Court of Appeals of Tennessee determined that the former employee voluntarily terminated his employment based on the totality of the facts.

Here are the key facts:

  • The former executive employee (“Executive”) signed a two- year contract (“Employment Agreement”) with the Defendant, a real estate business, to be an executive vice-president
  • In addition to his salary of $275,000 per year, the Employment Agreement provided that Executive would receive a “minimum annual bonus” of $275,000 per year
  • As the Employment Agreement was interpreted by the court, the annual bonus was payable even if Executive was unable to work, for any period (even one longer than thirty days), so long as he did not voluntarily terminate his employment
  • As the Employment Agreement was interpreted by the court, if the Executive became sick and unable to work, he was only entitled to receive his base salary for thirty days, e., he only had thirty days of paid sick leave
  • Executive began work in late February of 2017
  • Within weeks of beginning work, Executive suffered a heart attack and had to stop working
  • On April 27, 2017, Executive entered a twelve-week cardiac rehabilitation program
  • Executive was paid his full salary through May 18, 2017 (well beyond the thirty-day sick leave period provided for in the Employment Agreement)
  • After May of 2017, Executive and Defendant engaged in discussions about his continued employment, his entitlement to a bonus, and the amount thereof
  • In the above discussions, there was disagreement between Executive and Defendant
  • After June of 2017, Executive did not respond to Defendant
  • On July 28, 2017, Executive filed a beach of contract suit against Defendant requesting that the court award him, among other items, the $275,000 bonus

On appeal, one of the determinative issues was whether or not the Executive had terminated his employment with Defendant voluntarily or whether, on the other hand, he had been constructively discharged from employment, as he alleged. If it was determined that he was constructively discharged, he was entitled to the $275,000 bonus.

Constructive discharge, under Tennessee law, occurs when an employer engages in conduct which is intended to cause an employee to quit. The constructive discharge theory recognizes that some voluntary terminations of employment are, in fact, involuntary terminations.  Tennessee law requires a court to consider the “totality of facts” related to the termination of an employee’s employment in deciding whether there was a constructive discharge.

The court found that Executive had not been constructively terminated. In reaching that decision, the court reviewed the facts and holdings in the, or one of the, seminal Tennessee cases on constructive discharge, Guiliano v. Cleo, Inc. (Tenn. 1999). It also considered a later case, Teter v. Republic Parking Systems, Inc. (Tenn. 2005).  In both of those cases, it had been held that the employees were constructively discharged.

The court found that the facts of the case before it were quite different than those in Guiliano and Teter.  Of critical importance, the court found that Defendant never advised Executive that he was fired and that Defendant had reached out repeatedly to Executive and his lawyer to find out whether Executive would return to work. In response to these inquiries, the only response Defendant received was that Executive would not return to work unless Defendant agreed to pay his full salary beyond the thirty-day paid sick leave period provided for in the Employment Agreement.

Also of importance to the court was an email the Executive had improvidently sent to a competitor of Defendant in which he communicated his intent to start work with it as soon as his lawyer approved him doing so.

Executive argued that Defendant’s request that he return his laptop computer and its termination of his health insurance evidenced that he was constructively discharged. With respect to the request to return Executive’s laptop computer, the court found this circumstance inconsequential as the laptop contained expensive software and Executive was not using it. With respect to the cancellation of Executive’s health insurance, the court stated such a circumstance would normally support a constructive discharge argument. It reasoned, however, that it did not in the case before it because of the length of time during which Executive failed to respond to Defendant’s inquiries about whether he planned to return to work with Defendant.

For Tennessee lawyers who handle breach of contract cases, the opinion also contains a helpful analysis of the provisions of the Employment Agreement and an insightful discussion on how the trial court erred by not considering all of its provisions in light of each other.


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