Teter v. Republic Parking System, Inc.
| Decision Date | 29 November 2005 |
| Citation | 181 S.W.3d 330 |
| Parties | Eric TETER v. REPUBLIC PARKING SYSTEM, INC. |
| Court | Tennessee Supreme Court |
John C. Harrison and William H. Horton, Chattanooga, Tennessee, for the appellant, Republic Parking System, Inc.
B. Stewart Jenkins, Chattanooga, Tennessee, for the appellee, Eric Teter.
WILLIAM M. BARKER, C.J., delivered the opinion of the court, in which E. RILEY ANDERSON, ADOLPHO A. BIRCH, JR., and JANICE M. HOLDER, JJ. joined.
The dispute in this case arises out of an employment contract which provides severance pay for an employee who is terminated for reasons "other than gross misconduct, fraud, embezzlement, theft or voluntary termination." The defendant employer ceased providing severance pay to the employee after the employer discovered that the employee had engaged in gross misconduct while still employed by the company. The employee sued for breach of contract, seeking the severance pay due under the contract; the employer responded that had it known previously of the gross misconduct, it would have fired the employee, thus absolving it of any duty to provide severance pay. The trial court granted summary judgment for the employee, after concluding that the employee had been involuntarily terminated, thus triggering the severance pay provision, and that there was no clear and convincing evidence that the employer would have fired the employee had it known of the gross misconduct. The employee was awarded $795,037.35, less thirty days severance pay already paid, plus prejudgment interest. The Court of Appeals affirmed. We hold that after-acquired evidence of employee misconduct need only be shown by a preponderance of the evidence in order to avoid liability in a breach of contract action, and because there is a genuine issue of material fact as to whether the employee would have been fired had the employer discovered the gross misconduct, we remand the case for trial. On the remaining issues raised by the employer, we affirm the Court of Appeals: the employee did not voluntarily resign from his position but was involuntarily terminated; the payment schedule found in the "Employment Protection Plan" regarding severance pay was incorporated into the employment contract; and the severance pay provisions did not constitute an illegal penalty.
Republic Parking System, Inc. ("RPS") is a Tennessee corporation with its principal place of business in Chattanooga, Tennessee. It operates numerous parking facilities throughout the United States. James Berry ("Mr. Berry") is the majority stockholder and Chief Executive Officer of RPS. The plaintiff, Eric Teter ("Mr. Teter"), previously worked for Central Parking System, which was one of RPS's main competitors, and by 1994, was the General Manager and Vice President of European Operations for Central Parking System.
In 1995, Mr. Teter resigned his position with Central Parking System and began working for RPS as a regional vice president. His duties included the management of existing business as well as solicitation of new business. Mr. Teter and RPS entered into an employment agreement dated November 27, 1995, containing a severance pay provision under which Mr. Teter would receive 12 months base salary plus twelve months bonus and commission payments if he were "discharged for any reason other than gross misconduct, fraud, neglect of job responsibilities or voluntary termination."
Mr. Teter was later promoted to vice president of RPS's nationwide urban parking operations, at which time he and RPS entered into a new employment contract with an effective date of January 1, 1997 ("the 1997 contract"). This contract included the following provisions:
EMPLOYER agrees to pay EMPLOYEE for said services the sum of One Hundred Thousand dollars gross per years base ($100,000.00), plus a sum equal to Fifteen (15.0%) of the monthly profits generated from the Urban Class "A" Operating Cities above ... The bonus will be computed and paid each month within ten days of closing the accounts.
....
(4) This contract may be terminated by either party upon One Hundred Twenty (120) days written notice unless EMPLOYEE is discharged or resigns as a result of the commission by him or her of an act involving theft, embezzlement, fraud or intentional mishandling of Company funds, in which event such termination will be effective immediately. In the event EMPLOYEE is discharged for any reason other than gross misconduct, fraud, embezzlement, theft or voluntary termination, EMPLOYEE will be entitled to severance pay under the terms of the "Employment Protection Plan-Change in Ownership Structure" provision attached.
The "Employment Protection Plan" referred to in the 1997 contract includes the following:
A. In the event that James C. Berry is no longer the active Chairman and CEO of EMPLOYER or EMPLOYER is sold to an outside interest, then in such event EMPLOYEE has the option of voluntarily resigning, provided that such resignation becomes effective within one hundred eighty (180) days from date of change or sale with said lump sum payment as provided below being made on the date that such voluntary resignation become effective.
Change in Ownership Structure Employment Protection Plan
Years 1-2 of Employment 1.0 times previous years salary and bonus
Years 3-4 of Employment 2.0 times previous years salary and bonus
Years 5+ of Employment 3.0 times previous years salary and bonus
The division of RPS of which Mr. Teter was in charge was profitable in 1998, 1999, and 2000. As a result, Mr. Teter received significant bonuses under his employment contract during those years.
In March 2001, Mark Huth ("Mr. Huth") became president and Chief Operating Officer of RPS. Mr. Berry continued as the Chief Executive Officer and remained the company's majority stockholder. Mr. Berry and Mr. Huth decided that the region of which Mr. Teter was in charge should be restructured and divided into two regions — one east of the Mississippi River and one west of the Mississippi River. It was their intention to reduce Mr. Teter's region to only that part located east of the Mississippi River.
On August 10, 2001, Mr. Huth presented Mr. Teter with a proposed new employment contract. Under this new contract, Mr. Teter's base salary would increase from $100,000 per year to $160,000 per year, but the formula by which his bonuses would be calculated would be changed so as to be less favorable to Mr. Teter. Additionally, the proposed employment contract did not contain any provision for severance pay. Mr. Teter met with Mr. Berry and Mr. Huth on August 13, 2001, at which time he rejected the proposed employment contract. Mr. Berry and Mr. Huth presented Mr. Teter with other alternative new contracts, none of which provided for a severance package as favorable as under the 1997 contract. Mr. Teter rejected each of the new proposals.
On September 5, 2001, Mr. Berry told Mr. Teter to take the next two days off from work, as other urban executives were coming to Chattanooga for a meeting and Mr. Berry believed it would be best if Mr. Teter was not present because his contract issue had not been resolved. Between September 5, 2001, and September 10, 2001, when Mr. Teter returned to work, the locks to the RPS executive offices had been changed, and Mr. Teter was unable to access the offices.
On September 11, 2001, Mr. Berry delivered an inter-office memorandum to Mr. Teter which provides, in pertinent part:
I am disappointed in that we have been unable to reach a mutually acceptable agreement for your continued employment and association with Republic Parking System....
....
In conclusion, I want to emphasize again, that I feel that we made you a good and honorable proposal, and it was a mistake for you not to have given it the serious consideration it deserved. From what I detected in our conversation yesterday, you were taking the position and made your decision based upon "it's just the principle" without giving credit to the overall fairness and merits of the offer.
Having said all the above, since you have no desire to continue with RPS which you indicated, I guess we should part company and get on with life. Although under the circumstances we do not feel that we are required to provide any severance pay, we will pay you up to six (6) months the same as we paid Mark Pratt. This will be paid to you in the same manner in which you were being paid presently, twice monthly, including 50 percent of your estimated monthly bonus.
After Mr. Teter received the above memorandum from Mr. Berry, he began cleaning out his office in preparation for leaving RPS.
On September 12, 2001, one of RPS's employees noticed that the central processing unit of Mr. Teter's office computer was missing. Mr. Teter returned it the next day, stating that he had taken it in an attempt to delete some personal files. Apparently concerned that Mr. Teter had downloaded proprietary information belonging to RPS from his office computer, RPS sent the central processing unit of the computer to a data company for examination. Analysis of Mr. Teter's computer indicated that it had been used during business hours for viewing pornographic sites on the internet. Mr. Teter's internet use left at least 30,000 image files on the hard drive, the vast majority of which were sexually-oriented photographs.
Mr. Berry sent Mr. Teter a letter on October 24, 2001, stating:
As I told you during our discussion [of October 19, 2001], I was very disappointed and shocked at the material that was discovered on your computer hard drive.... Inasmuch as it was obtained during working hours, it certainly falls under the "Gross Misconduct" category of your employment agreement dated April 16, 1997. If I had known this material existed before or during the time of our employment contract...
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