Employee’s misconduct results in both termination and loss of nearly $2M contingent payment

This case has received some attention because it involves an employee “mooning” two superiors. However, it is interesting in that it is one of the rare state court cases that determines what actions by an employee may be “cause” for termination, relying on the Illinois Unemployment Insurance Act.

Jason Selch was hired by Wanger Asset Management, L.P. (“WAM”) as an investment analyst. WAM was eventually bought out and Selch obtained the right to a percentage of the proceeds from the sale of WAM to Liberty Financial Companies, Inc. (in this discussion, we skip discussing a number of corporate transactions, for simplicity).

A partnership created a non-qualified profit sharing plan (“Plan”) to provide contingent payments to Selch and others in his position. The participants in the Plan could lose their rights to the contingent payments if they were terminated for “cause” or for “good reason.”

Liberty also provided Selch an employment agreement. The agreement stated that employees could be terminated for “cause” or “good reason” and that if this occurred they would sacrifice their severance packages. The agreement defined “cause” for termination as a:

“conviction of a felony, engaging in misconduct that injures the Company, performing your duties with gross negligence or any material breach of your fiduciary duties as an employee of the Company.”

The agreement defined “good reason” for termination as:

“(i) a reduction in your base compensation, (ii) a material change in your level of work responsibilities which has not been remedied within 30 days after you have given written notice of such claimed event or (iii) a requirement that you be based at a location more than 50 miles outside the Chicago metropolitan area.”

In April, 2005, Selch learned that a friend and colleague, Chris O’Dea, had been terminated. Roger Sayler and Charles McQuaid, Selch’s direct boss, had fired O’Dea earlier that day.

Selch was upset. He entered a conference where Sayler and McQuaid were sitting and asked if he had a noncompete agreement. Sayler and McQuaid said “no.” Selch unbuckled his pants, and “mooned” Sayler and McQuaid. Selch also said he hoped Sayler would not return to the Chicago office. Selch left.

Chris Hamilton, a human resources manager, and McQuaid issued a letter constituting a Formal Warning. In the letter, McQuaid and Hamilton said that they hoped that further disciplinary actions would not be necessary and that Selch would continue to be a productive staff member of Columbia Wanger. However, CEO Keith Banks later decided to terminate Selch. As a result of his termination, Selch forfeited his contingent payments, which were worth nearly $2 million.

Selch sued, but the circuit court ruled against him. On appeal, Selch contended that the circuit court erred in granting summary judgment in favor of defendants because a genuine issue of material fact existed as to whether Selch was terminated for “cause,” as set forth in the Plan.

As noted above, in the agreement, “cause” for termination was defined as: “conviction of a felony, engaging in misconduct that injures the Company, performing your duties with gross negligence or any material breach of your fiduciary duties as an employee of the Company.”

According to the court of appeals, in Illinois, employers have a right to expect a certain standard of conduct from their employees in matters that concern their employment. The legislature, in the Unemployment Insurance Act, defined a violation of this standard of conduct, or “misconduct,” as “the deliberate and willful violation of a reasonable rule or policy of the employing unit, governing the individual’s behavior in performance of his work, provided such violation has harmed the employing unit or other employees.” 820 ILCS 405/602. An employer need not present direct evidence of the existence of a reasonable rule or policy; instead, a court can simply determine that such a policy exists through a common-sense realization that some behavior intentionally and substantially disregards the employer’s interest. Using such a commonsense interpretation, Selch’s behavior in “mooning” Sayler and McQuaid, injured the company.

Under the agreement, Selch’s duties included observing “all rules and regulations which the Company may establish governing the conduct of its business and that of its affiliates.” The employee handbook stated that “insubordination” and “conduct unbecoming an associate” were prohibited and that:

“Disruptive, unruly or abusive behavior by associates in the workplace***is not tolerated. Inappropriate conduct includes verbal or physical threats, fights and obscene or intimidating behavior, as well as any other abusive conduct. *** Associates who violate any provision of this policy are subject to disciplinary action up to and including immediate termination of employment.”

In the view of the court of appeals, Selch violated the rules and regulations in the handbook by behaving in a disruptive, unruly, and abusive manner — “mooning” Sayler and McQuaid and also by telling Sayler that he was not welcome in that office and that Selch hoped he would never return to the Chicago office.

Selch’s behavior also injured the company because it diminished McQuaid’s authority and because Selch disregarded company policies. Selch’s misconduct justified his termination for cause.

Selch argued that a question of material fact remained as to whether defendants breached a contractual agreement when they terminated him for cause after issuing him the Formal Warning.

Selch maintained that the Formal Warning was a contract, which provided that he would retain his employment with the company, so long as he did not commit any further violations of the company’s standards.

Defendants, however, protested that the Formal Warning did not contain any specific promises of future employment. The Formal Warning did not have specific and mandatory language constituting an offer. Nor did the Formal Warning outline a specific course of action for dealing with potential future misconduct. It only said that if there was any future violation of the company’s standards in any aspect of plaintiff’s job, he would be subject to further disciplinary action, up to and including termination.

The appeals court noted that the Formal Warning contained only a “hope”—that no further disciplinary action would be required. Also, there was no legal consideration related to the Formal Warning; Selch simply signed the letter, attesting to the fact that he had read and understood the contents of the warning.

Selch took the position that since he and McQuaid both signed the Formal Warning, it must have been a contract. This argument was for naught. Under Rudd v. Danville Metal Stamping Co., 193 Ill. App. 3d 1009, 1010-12 (1990), requiring an employee to sign a document, in order to acknowledge his receipt, does not transform the document into a contract.

Selch v. Columbia Management, 2012 IL App (1st) 111434 (2012). ■