Archive for July, 2012

July 6, 2012

8th Cir. upholds breach of contract claim filed by former executives against ONEOK and awards attorneys fees under NWPCA

The 8th Circuit Court of Appeals upheld a breach of contract verdict in favor of two former executives of  ONEOK  who were  denied deferred compensation in the form of company stock when they refused to transfer to Tulsa when ONEOK shut down their Omaha office. The 8th Circuit also reversed the District Court and found that the plaintiffs in the case were entitled to a 25 percent attorney fee on the amounts awarded because the payments were wages as defined by the Nebraska Wage Payment and Collection Act. 

The two plaintiffs in the case had an agreement with the defendant that they would be paid deferred compensation in the form of company stock after three years. The shares would be pro-rated if the employees retired before the end of the three years or were involuntary terminated for certain reasons.  When ONEOK sold its Omaha office to TransCanada before the end of the three year period, the plaintiffs were given the option of transferring from Omaha to Tulsa. One plaintiff refused the plaintiff  other commuted to Tulsa for a short time but stopped commuting because of a pending divorce. Both plaintiffs were denied pro-rata shares of their ONEOK stock.

ONEOK relied on the proposition that a company’s decision on compensation is due deference absent of any evidence  of fraud or misrepresentation. However the 8th Circuit ignored this proposition because no deference was due to ONEOK’s decision because ONEOK did not follow their own procedures in awarding deferred compensation. The Executive Compensation Committee (ECC) of the Board of Directors had the sole authority to make the determination on deferred compensation. However the decision not to pay pro rata compensation to the plaintiff’s was made by an executive who was not a member of or a fiduciary of the ECC.

The court then determined whether the plaintiff’s retired from ONEOK. Noting that ONEOK allowed retirement at age 50 and the plaintiff’s were 49 and 47, the court interpreted the terms of the contract against ONEOK to find that the employees had retired from ONEOK. One helpful fact for the plaintiffs was that other high-level employees of ONEOK’s former Omaha office that had gone to work for TransCanada received pro-rata deferred compensation.

On the issue of attorneys fees under the NWPCA, the Court of Appeals cited to language from the company stating “the purposes of the deferred compensation plan was
to provide competitive incentives that will enable the Company to attract, retain, motivate, and reward eligible key employees” to find the deferred compensation was wages. Though the Court ruled under the NWPCA prior to the 2007 and 2010 Amendments, the court stated in a footnote that the results of this case would not change under the current language of the statute.

The court also rejected ONEOK’s argument that the decision on compensation should be referred back to the ECC to determine compensation. The court rejected that argument becaue the deferred compensation plan was not covered by ERISA.  In an interesting side issue, the court rejected a judicial estoppel argument made by ONEOK against one of the plaintiffs based on statements he made in a divorce proceeding. The plaintiff had denied in a divorce case that he was entitled to deferred compensation from ONEOK. However the court dismissed this argument because at the time of the divorce proceeding, the plaintiff’s property interest in the deferred compensation was speculative rather than actual.

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July 2, 2012

8th Circuit gives broad interpretation to unforeseeable business circumstances defense in WARN Act

The 8th Circuit Court of Appeals gave broad protection to employers  from liability under the WARN Act who lay off employees due to general economic conditions in a case decided today.

The United Steel Workers of America sued U.S. Steel for notifying them on Decmeber 3, 2008 that layoffs would begin at some of U.S. Steel plants in the Midwest that produced steel for the automotive and building industry starting on Decmeber 7, 2008. The WARN Act normally requires that employers give 60 day notice for mass layoffs. However employers can avoid liability under the WARN Act for layoffs with less than 60 days notice if they can prove “unforeseeable business circumstances”.

The Union relied on the common sense proposition that the economic crash that caused the layoffs was apparent more than 60 days before the layoff. The Union’s case was bolstered by a press release from U.S. Steel investor relations in late October 2008 stating their was a decrease for demand steel due to the downturn. However the court relied on affidavits from U.S. Steel management that the impact of the sudden downturn wasn’t fully apparent until late November 2008. In support of this proposition the downturn was unexpected the court cited to the undisputed proposition that U.S. Steel had records profits and revenue for the first three quarters of 2008. It also relied on the fact that U.S. Steel revised its business plan for four consecutive months in late 2008  and early 2009, whereas U.S. Steel typically made plans on a quarterly basis.

This case follows the overarching proposition that the 8th Circuit will defer to the business judgment of management — even if that business judgment is flat wrong. This should somewhat reassure Nebraska employers who might have to layoff employees because of a crash in commodity prices and/or a double dip recession that looks possible. Employees looking to pursue WARN Act cases will likely need to dig up evidence in the form of e-mails and other electronic documents produced by the defendant that management knew or should have reasonably known the extent of the deterioration of business conditions for their company.