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Former DuPont workers transferred to a subsidiary that was later sold could not bring fraud claims under Texas law, Fifth Circuit rules

The claims of 63 former DuPont employees, alleging that they were fraudulently induced to terminate their employment and accept employment with a subsidiary, were properly dismissed on the employer’s summary judgment motion, ruled the Fifth Circuit in a 2-1 decision (Sawyer v E I DuPont de Nemours & Co, April 20, 2012, DeMoss, H). Deferring to state appellate court rulings, the appeals court concluded that because DuPont retained the right to modify the CBA with 60-days notice, covered employees maintained at-will status. Additionally, noncovered employees were subject to at-will employment because they failed to provide evidence of specific language or context of any agreement that showed definite intent to be bound not to terminate the employees, except under clearly specified circumstances. Judge Elrod filed a partial dissent.

Corporate spin off. The employees worked at a DuPont manufacturing facility in Texas. In February 2002, the company announced its intention to spin off the plant’s operations to form a wholly owned subsidiary. Most of the employees in the unit set to be transferred to the subsidiary were represented by a local of the Chemical Workers Union and covered by a collective bargaining agreement. The CBA contained a detailed seniority system and provided that employees could be discharged or suspended for just cause. Four remaining workers were either administrative staff or laboratory technicians not covered by the CBA. In September 2002, the union and DuPont began negotiations on how to handle the labor aspect of the separation. The employees were transferred to the subsidiary and were no longer employees of DuPont.

However, the CBA’s seniority system gave employees with higher seniority the right to other units at the facility. This raised the possibility that some of the employees might exercise that right in order to stay with DuPont when the subsidiary unit transferred. If that happened, DuPont would be forced to train new operators for the subsidiary and could have forced the layoff of lower seniority employees in other units at the plant. To resolve this problem, DuPont and the union agreed to a process whereby unit employees had to choose to either stay with DuPont and transfer to another unit, or stay in the unit and be covered by a new CBA. In October or November 2002, DuPont held meetings to explain the details of the separation agreement. Many long-time employees expressed concerns about protecting their compensation and retirement packages. During these meetings, DuPont repeatedly assured employees that the subsidiary would remain a part of DuPont. Virtually all employees signed agreements voluntarily transferring to the subsidiary.

Ultimately, DuPont did agree to sell the subsidiary to a third party in a deal finalized in May 2004. It was later revealed that DuPont had discussed a possible sale of the subsidiary as early as June 2002. According to the employees, their pensions, pay, and benefits were negatively affected by the sale. Subsequently, they brought state law claims alleging that DuPont fraudulently misrepresented that the subsidiary would not be sold and that they relied on those misrepresentations and suffered damages as a result. The district court granted summary judgment to DuPont on the employees’ claims, concluding that they were at-will employees when they worked for DuPont, so they were unable to assert fraud claims under Texas law. This appeal ensued.

At-will employment. At-will employees in Texas are precluded from bringing fraud claims against their employer for loss of their employment. Thus, the question is whether the employees’ employment at DuPont was sufficiently non-at-will under Texas law to support fraud claims. With respect to covered employees, the Fifth Circuit first noted that employment in Texas is presumed to be at-will. To overcome the presumption, it must be shown that an employer unequivocally indicated a definite intent to be bound not to terminate employees except under clearly specified circumstances. The employees covered by the CBA argued that they were not at-will when they worked for DuPont because the CBA contained a seniority system and it provided that they could be discharged only for just cause.

The Fifth Circuit did not find any Texas Supreme Court opinion addressing the question of whether a CBA that limits an employer’s ability to discharge its employees, but can be cancelled with notice, alters the at-will presumption. However, Texas appellate courts have held that employment agreements that limit the employer’s ability to discharge for just cause, but allow the employer to terminate the agreement at anytime with notice, creates an at-will employment relationship. Thus, the Fifth Circuit deferred to the Texas appellate courts and concluded that the 60-day termination clause in the CBA rendered the covered employees’ employment status with DuPont as at-will for purposes of Texas law.

Noncovered employees. The noncovered employees argued that DuPont made oral agreements restricting its ability to terminate their employment and that these agreements were sufficient to modify their at-will status. Specifically, the employees alleged that DuPont agreed: (1) not to terminate their employment without cause; (2) to adhere to a progressive discipline policy before their employment was terminated; and (3) to provide seniority rights that protected their employment in the event of layoffs.

Here, the Fifth Circuit concluded that the Texas Supreme Court’s ruling in Montgomery County Hosp Dist v Brown makes clear that while an oral agreement can modify an employee’s at-will employment status, to do so, the employer must unequivocally indicate its “definite intent to be bound not to terminate the employee except under clearly specified circumstances.” In this instance, the employees failed to offer any information as to the context of the agreements or the specific language that was used. Nor did they explain when the agreements were made, who they were made with, or whether the person making the agreement had the authority to do so. Consequently, the appeals court determined that the noncovered employees were at-will employees when they worked for DuPont and could not bring fraud claims against the company for loss of their employment.