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Employment Agreements Under (Dis)Stress G THE B IN EN V C R H E S A N 8 D 8 B 18 AR CE WWW. NYLJ.COM SIN VOLUME 263—NO. 93 THURSDAY, MAY 14, 2020 Outside Counsel Employment Agreements Under (Dis)stress any businesses are facing Employment Agreements sharply lower revenue And Constructive Dismissal and the need to reduce costs as a result of the To answer this question, we look coronavirus and social- to a body of law concerning the doc- Mdistancing mandates. For some busi- trine of “constructive dismissal” or nesses, that pressure means cutting By And “constructive discharge.” Although Jonathan S. A. Dennis salaries and laying off or furloughing Sack Dillon the doctrine comes up most often in employees. For an employee at will employment discrimination cases (to without an employment contract or address circumstances when work- offer letter that specifies compensa- the cut as so severe that it amounts to ing conditions become so intolerable tion or benefits, the employee likely has a de facto or constructive termination as to justify resignation), federal and no choice but to accept the cut or look of the agreement. Depending on the state courts in New York have relied for another job. But, for an individual definition of termination and other pro- on the doctrine to decide claims of de with an employment contract which visions in the contract, termination— facto termination under employment specifies compensation levels, a cut in agreements—in particular, claims for pay would ordinarily implicate rights Under what circumstances will a benefits that are contingent on termina- under that contract. tion of the agreement. See, e.g., Scott On the most basic level, if an agree- cut in pay amount to a de facto v. Harris Interactive, 851 F. Supp. 2d ment sets a compensation amount, termination which supports a 631, 645 (S.D.N.Y. 2012), aff’d in part, a reduction in compensation could claim for benefits under an em- vacated in part, remanded, 512 F. App’x give rise to an employee’s claim of ployment agreement? 25 (2d Cir. 2013) (mem.); Robinson v. breach of contract. The employee and Kingston Hosp., 55 A.D. 3d 1121, 1122-23 employer would need to consider the constructive or actual—could in turn (3d Dept. 2008). merits of renegotiating their agree- trigger rights of employees such as Morris v. Schroder Capital Manage- ment or possibly engaging in litigation. severance, vesting of equity or options, ment International, 859 N.E.2d 503 (N.Y. For an employer and employee who and other benefits, and impose added 2006), is the only New York Court of wish to maintain a good relationship, obligations on employers. Appeals case to address application of litigation would not make sense. In this article, we consider a ques- the constructive discharge doctrine in However, when faced with a substan- tion that may have great salience dur- the context of an employment agree- tial cut in pay, an employee may regard ing the present strained economic ment. In that case, the court answered conditions: Under what circumstances in the affirmative a certified question JONATHAN SACK is a member of Morvillo Abramow- will a cut in pay amount to a de facto which asked whether the constructive itz Grand Iason & Anello. He is a former chief of the termination which supports a claim discharge test, as developed under fed- criminal division in the U.S. Attorney’s Office for the Eastern District of New York. A. DENNIS DILLON is for benefits under an employment eral law in the context of employment an associate at the firm. agreement? discrimination, also governed the state- THURSDAY, MAY 14, 2020 law question of whether an employ- compel a reasonable person to leave. In that case, the plaintiff was hired ee was bound by a non-competition Morris v. Schroder Capital Mgmt. Int’l, at a salary of $220,000. His offer let- agreement triggered by resignation. Id. 859 N.E.2d at 507; see Robinson v. Kings- ter entitled him to severance of six at 507-08. This application of the con- ton Hosp., 55 A.D.3d at 1123; Romano v. months’ salary upon termination structive discharge doctrine is consis- Basicnet, 238 A.D.2d 910, 911 (4th Dept. without cause. After a relatively brief tent with holdings of other courts that 1997); accord Terry v. Ashcroft, 336 F.3d time, Scott was demoted and his salary have considered the issue. See Scott 128, 151-52 (2d Cir. 2003). The central reduced to $150,000. He subsequently v. Harris Interactive, 851 F. Supp. 2d question of whether the conditions resigned and brought a claim for dam- 631, 645 (S.D.N.Y. 2012) (citing cases); were intolerable is thus an objective ages based on his employer’s failure see also Aslin v. Univ. of Rochester, test: “working conditions are intoler- to pay the severance and continued 2019 WL 4112130, at *16-17 (W.D.N.Y. able when, viewed as a whole, they are health insurance benefits set out in Aug. 28, 2019) (“Much of the case law so difficult or unpleasant that a reason- his offer letter based on a theory of regarding the constructive discharge able person in the employee’s shoes constructive dismissal. Applying New doctrine deals with Title VII, but the would have felt compelled to resign.” York law, the district court dismissed theory can apply equally to breach of Morris v. Schroder Capital Mgmt. Int’l, the claim, in part on the basis that an contract.”). 859 N.E.2d at 507 (quotation and cita- employee paid a salary of $150,000 in tion omitted). such circumstances could not genu- The Constructive Dismissal inely face “intolerable” conditions. Id. Doctrine Reductions in Compensation at 649. As a threshold matter, to pursue A cut in pay, under some circum- The Second Circuit reversed in a a constructive dismissal claim, an stances, may make further employment summary order, holding that “the employee must resign—as evidence intolerable and amount to constructive percentage of a reduction and the rea- that the terms of employment were so dismissal. A mere delay or one-time sonable expectations of the parties are intolerable as to amount to a de facto reduction would not ordinarily con- also relevant to the factual determina- termination. However, a delay between stitute constructive dismissal, but a tion whether an employee was forced the creation of the intolerable circum- substantial, ongoing reduction in com- into an involuntary resignation.” 512 stances and the resignation may not pensation very well could. While the F. App’x 25, 28. The court looked to be determinative, for example, if an case law is sparse, we would expect a both the documents showing that Scott employee stays in an effort to improve spectrum of results, with a very large had a reasonable expectation his salary conditions without resigning or collect cut (say, 50 percent or more) likely to and duties would remain constant for additional compensation or benefits. be seen as a constructive dismissal, at least a year, and suggestions in the See, e.g., Stokes v. City of Mount Vernon, and a smaller cut (say, 25 percent or record that the company had in fact N.Y., 2015 WL 4710259, at *7 (S.D.N.Y. less) not likely to support such a claim wanted him to resign. On this basis, the Aug. 4, 2015); see also Green v. Bren- absent other adverse circumstances. court held that Scott had established nan, 136 S. Ct. 1769, 1778 (2016); see In specific cases, courts have found a genuine issue of material fact as to generally Fogarty v. Near N. Ins. Broker- reductions in pay of more than one- whether he had been constructively age Co., 1997 WL 799112, at *2 (S.D.N.Y. third—especially when combined with terminated. Id.; see also Fogarty v. Near Dec. 30, 1997) (“[T]his Circuit has not other circumstances such as a reduc- N. Ins. Brokerage Co., 1997 WL 799112, adopted any time limits within which tion in rank or duties—to be sufficient at *2 (declining to set aside a jury ver- a plaintiff must have left a defendant’s to defeat summary judgment and go to dict that an employee had been con- employ.”), aff’d on other grounds, 162 a jury. The claims and defenses in Scott structively discharged and was entitled F.3d 74 (2d Cir. 1998). v. Harris Interactive, 851 F. Supp. 2d 631 to severance under an employment To establish constructive dis- (S.D.N.Y. 2012), aff’d in part, vacated in agreement when the employer had charge, an employee must prove that part, remanded, 512 F. App’x 25 (2d Cir. “unreasonably” withheld a portion of the employer “deliberate[]ly and 2013) (mem.), illustrate how a court is a bonus equivalent to about one-half intentional[ly]” created a workplace likely to view a constructive dismissal the total compensation and the facts, “atmosphere … so intolerable as to claim based on a substantial cut in pay. including a reduction in duties and title, THURSDAY, MAY 14, 2020 suggested the plaintiff was likely to be In short, the viability of a construc- For example, in Robinson, discussed terminated soon). tive discharge claim based on a pay cut above, the Appellate Division noted the In contrast, in Robinson v. Kingston will likely depend chiefly on following absence of evidence that the defendant Hosp., the Appellate Division held that considerations: (1) contract language had specifically sought to provoke a plaintiff was not entitled to summary that bears on when an event of termina- resignation, and held that the plain- judgment when she claimed that she tion has occurred; (2) the size of the tiff-employee was not entitled to sum- had been constructively discharged by pay cut; and (3) the presence of other mary judgment, partly on that basis.
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