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Iowa Supreme Court Levels the Playing Field for At-Will and Contract Employees

Jill Jensen-Welch, Iowa Employment & Labor Law, Dickinson Law Firm, Des Moines Iowa

Posted on 07/17/2018 at 12:15 PM by Jill Jensen-Welch

In a case of first impression, the Iowa Supreme Court in Ackerman v. State of Iowa, IWD, et al. (June 15, 2018) held that the tort of wrongful discharge in violation of public policy is available to contract employees—here, a government employee covered by a collective bargaining agreement—as well as at-will employees. 

Facts of the Case

Ackerman worked as an administrative law judge (“ALJ”) for the unemployment bureau of Iowa Workforce Development (“IWD”) from 2000 through January 2015, under a collective bargaining agreement.  As such, she was not terminable at will, but could only be discharged for just cause. 

In 2011, Teresa Wahlert was appointed the Director of IWD.  Wahlert terminated the chief ALJ in Appeals Bureau of the Unemployment Insurance Division of IWD, and elevated two ALJs, Teresa Hillary and Devon Lewis, to be lead workers. 

Ackerman came to believe there was a systematic effort by Wahlert, Hillary, and Lewis to pressure employees to render unemployment decisions favorable to employers, and she believed those who did not fall in line with that effort were harassed.  In August 2014, Ackerman testified about her beliefs before the Iowa Senate Government Oversight Committee, as compelled by subpoena.  Approximately five months later, in December 2014, Ackerman was suspended, pending an investigation into allegations of her misconduct.  Ackerman’s employment was terminated in January 2015 over the alleged misconduct. 

Ackerman sued, bringing eight legal claims against the State of Iowa, Wahlert, Hillary, and Lewis, including a claim under Iowa’s Whistleblower statute, and a tort claim for wrongful discharge in violation of public policy.  Defendants moved to dismiss the tort claim, arguing it is only available for at-will employees.  The district court granted the motion to dismiss, but the Court of Appeals reversed.  The Iowa Supreme Court, in a 5-2 ruling, agreed with the Court of Appeals, and remanded the case for further resolution. 

The Majority’s Reasoning

After decades of case law that repeatedly characterized the wrongful discharge tort as a limited exception to the at-will doctrine of employment, Justice Cady, writing for the majority, held that such statements were not stare decisis and did “not confine its common law development or serve as a limitation into the future.”  This decision was “driven by [] factors such as insuring that victims of intentional torts are fully compensated and that legislative schemes and public policy are not undermined.”

The majority reasoned that the purpose of the wrongful discharge tort is to enforce a “communal conscience and common sense” of right and wrong in Iowa and to vindicate the individual as well as the greater harm to society.  It was pointed out that this purpose differed from the purpose of a breach of contract claim, which is to redress private interests and individual promises between parties to the contract.  The majority held that “when an employee is discharged in violation of public policy, the employer commits a wrong both in contract and in tort.” 

The majority also reasoned that remedies for breach of contract (including a grievance under the collective bargaining agreement) are often limited to reinstatement and back pay, but remedies for tort claims cover those damages as well as other compensatory damages, emotional distress damages, and punitive damages.  Speaking to employers of at-will employees, the majority said, “[I]t is incongruous for some employers to be subject to deterrent damages for wrongfully discharging an employee, while other employers are immunized from deterrent damages simply because they wrongfully terminated a contract, rather than an at-will, employee.” 

The majority cited seven jurisdictions that have extended the tort of wrongful discharge for violation of public policy to contract employees (Missouri-2010, Illinois-1986, Utah-1992, Kansas-1988, Hawaii-1992, Oregon-2003, District of Columbia-2008).  The majority recognized three states that decided the issue differently (New Mexico-1987, Pennsylvania-1986, and Wyoming-1997) and was critical of those decisions.  For its part, the dissent cited to those and eight more states that limit the wrongful discharge tort to only at-will employees (South Carolina-2010, West Virginia-2017, North Carolina-1994, Nebraska-2013, Massachusetts-1995, Vermont-1993, Connecticut-1993, Ohio-1995).

A short discussion tip-toed into whether independent contractors (non-employees) would also have a remedy under the wrongful discharge tort.  That issue was not before the Court, so the majority did not decide it.  However, relying on Harvey v. Care Initiatives, Inc., 634 N.W.2d 681 (Iowa 2001), the court suggested that independent contractors also might have such a remedy if the public policy at issue was broad enough to cover independent contractors and not just employees. 

Dissent Accuses the Majority of Hiding the Ball

The dissent, authored by Justice Waterman and joined by Justice Mansfield, boldly accused the majority of “hid[ing] the ball by failing to acknowledge that the source of Ackerman’s public policy claim is the very statute that provides her remedy,” and as such, her tort claim is pre-empted by statute.  The majority said that argument was not raised by the State until its request for further review, so it refused to consider that late-raised argument.   It should be noted that, by remanding the case for “further resolution of Ackerman’s claim,” the majority may have left the defendants an opening to file a new motion to dismiss on the basis that Iowa’s Whistleblower statute pre-empts Ackerman’s wrongful discharge claim. 

The dissenters saw no reason to give Ackerman three remedies for the same wrong—a contract remedy under the CBA and Iowa Code Section 20.7(3) for termination without just cause, statutory remedies for retaliation under Iowa’s Whistleblower law, and a tort remedy for wrongful discharge in violation of public policy.  That is particularly true when the statute containing the public policy at issue already contains a sufficient remedy for the wrong.  “[W]e have no business as a court creating a common law public policy claim [that is] at odds with the statute of origin.  Doing so violates the separation of powers . . .  And the legislature can have the last word here by overruling today’s decision.”

Finally, relying on the Restatement of Employment Law, statements in the Iowa Supreme Court’s decision in Walsh v. Wahlert delivered earlier in 2018, and the law in 11 states, the dissent said there was no basis for giving state civil service employees remedies through public policy torts.

Side Track 1 – The Misconduct Allegation Against Ackerman

For those of you wondering what happened to the misconduct allegation that led to the termination of Ackerman’s employment…it took a somewhat torturous but interesting path.  Ackerman was accused of falsely claiming on insurance enrollment forms that her adult daughter was single so she could be added to Ackerman’s coverage on the State’s health benefits plans. In response to the allegation, Ackerman claimed her daughter was a graduate student going through a divorce, and as such, a state official told Ackerman the daughter could be covered under her state benefit plans.  Ackerman was later charged with criminal fraud over the matter.  The criminal charges were later dismissed as being retaliatory.   

Side Track 2 – Ackerman’s Contract Claim under the CBA

For those of you wondering about Ackerman and her union…AFSCME did grieve her termination.  The grievance went to arbitration which was conducted by a private attorney who had been handling arbitrations for the State since 1998.  The arbitrator upheld Ackerman’s termination, but his ruling was so full of errors that he was suspended from arbitrating for the Public Employer Relations Board (“PERB”) for six months.  Regardless, on review, PERB upheld that arbitrator’s ruling and Ackerman’s discharge.  Ackerman appealed to district court and no decision has yet been rendered in that case.  

The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed. 

- Jill Jensen-Welch

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