Case Analysis # 2
Mitchell Kuhn, Siyu (Alex) Sun, Oliver Filutowski

Summary of the Facts:

James Coulter founded Colter and Co., a food processor with over 200 employees. James Colter owns 51% of the shares, which allows him to control the company.

James Coulter, Mr. C as he likes to be called, is a man of deep convictions and beliefs about how a business should be run. He believes more in handshakes and people than legal contracts. He shared a written statement of the values for Colter and Co. with all who work for or deal with the company. The values include: honest and fair dealings, trust, and the duty to obey the law. Because of its reputation for fairness and honesty, Colter and co. became successful and well respected in its industry.

A few years ago James Colter Jr., or JC as he likes to be called, started working for the company and began to question the wisdom of his father’s values. He found them to be outdated and only useful as a public relations tool. He did not see their usefulness in day-to-day managing of the business.

JC is the Vice-President of Marketing. One of their divisions works with various government procurement agencies including the National School Lunch Program (NSLP). The USDA has jurisdiction over this program and purchases commodities from food processors such as Colter and Co.

About nine months ago JC hired Pat Bednarick to head up the Government Commodities marketing group. Like almost all managers of Colter and Co., Pat does not have a contract of employment, and there is nothing contained in Colter and Co.’s Employee Handbook that protects Pat in any way from being discharged. Pat had been with a competitor for about 10 years prior to approaching Colter and Co. for a job. Pat discussed how important the reputation of Colter and Co. had been to him when he applied.

After about three month of employment, Pat discovered some documents from internal auditors describing discrepancies. In order to earn a bonus offered by Mr. C, Fred Meyer falsely stated the lentils used in filling an order for the NCLP were of US origin. The NCLP required all products to be sourced from the US and the USDA required any discrepancies to be reported to the appropriate agency for resolution.

Mr. C did not become aware of this incident until a year after the sale. He was shown a copy of this audit report along with a proposed response from the VP of marketing at that time, George. George made quite a case for not reporting the incident. First, he told Mr. C about Smith’s Wholesale, who had voluntarily reported a similar violation and been bared from participating in the program for 12 months. Then he explained that no one had gotten hurt. In fact, the government had saved money. Colter and Co. did not make and more money than if they would have used American lentils. Mr. C ordered a thorough audit of all other orders and did not find any other discrepancies. Mr. C. also did some asking around and heard that companies who voluntarily reported were severely punished.

Mr. C was concerned that Colter and Co. would be barred from the NSLP for a year and be forced to lay off at least three employees. He didn’t think it was fair to those employees and their families to suffer for mistakes they did not make. Mr. C moved Fred to a new position and made him pay back the bonus.

When JC told Mr. C that Pat had discovered these files, he explained the whole story to JC and said that he did not see what good it would do to drag the company’s name through the mud and demoralize employees five years after this incident had been dealt with internally and resolved.

JC told Pat what his father had said and Pat became quite upset and said that it was wrong and he would go talk to Mr. C himself. JC told him that was fine and never hear anything else about it. JC assumed that Pat dropped the issue.

Soon afterwards an article was published in the local paper accusing Colter and Co. of fraud and claiming numerous incidents of misrepresenting the origin of food products sold to the NCLP. Pat told JC that he called the Inspector General’s hotline at the USDA and reported the violation to them. Pat said that he told the truth when he reported the violation and did not know where these false accusations about multiple incidents came from. JC wasn’t sure if he believed Pat or not.

Colter and Co. called an emergency meeting, which was heated and divided over how to respond. Mr. C spoke up after a while and said, “Given Our Values I’m somewhat ashamed and sorry about the decision I made five years ago, but I thought it was best to just let it be. Five years ago I ignored my beliefs that made this company strong. I’m not going to make that mistake again. We will tell the USDA the truth.”

The USDA undertook a review of all the contracts and found the company had filed only the one fraudulent statement of origin. The company was fined a small amount and barred from participation in the NCLP for two months.

JC was initially angry with Pat, feeling he had betrayed the company. Eventually, however, he forgave Pat. In time, it came out that it had been an employee of the USDA who had given the report, complete with exaggerations and lies, to the newspaper.

The rest of the people who worked with Pat in the Government Commodities area were not as tolerant. They would not forgive pat for exposing the company to the bad press that had arisen and the damage the scandal had caused to the reputation of the firm. At one point, things got so bad that someone painted, “snitch” on Pat’s car. Pat was completely ostracized by his co-workers, and any work that needed Pat’s involvement simply didn’t get done. Productivity plummeted.

Because of the way his co-workers felt about Pat, he could no longer do the job he had been hired to do, and JC had to do something about it. JC has two options, support Pat and hope things get better, or fire Pat and end all of this mess. More than anything JC wanted this to end.

JC requested a legal memorandum from Colter and Sons’ attorney. This memorandum explained that their state recognized at-will employment and all of the contractual, statutory, and public policy exceptions that might constitute wrongful discharge in Texas. However, one court in the state in which Colter and CO. resides has addressed one additional public policy exception. In a recent case, a trail court held that a bank employee who was fired because he had reported violations of state and federal consumer credit and protection laws was wrongfully discharged. However, this case has not been reviewed by an appellate court, either intermediate or high, and there are no other similar trial court decisions.

Issues:

The question at hand is whether or not Pat has a legitimate case to sue Colter and Co. for wrongful discharge. We will assume that Pat is fired and sues for wrongful discharge to conduct our analysis.

Legal Considerations:

The state in which Colter and Co. resides recently had a trial court rule that a bank employee who was fired because he had reported violations of state and federal consumer credit and protection laws was wrongfully discharged. This can be used to establish a precedent for protecting whistleblowers from retaliation from employers.  However, Colter and Co. may argues that the termination of employment is only because Pat lost his ability to work.

To prevail in his case, Pat must show that Colter and Co. exhibited retaliatory conduct, had retaliatory motive, and that the retaliation was materially adverse. The timing of the events must be considered and the “but for” test applied to try and discern the motive of Colter and Co.

Pat argues that Colter and Co. retaliated by firing him and that this is materially adverse. There is no dispute that being fired is materially adverse. The more important questions pertain to motive.

Regarding motive, Pat argues that but for his reporting this violation to the USDA, he would not have been fired. There are no comments about poor performance on his part prior to this incident. The drop in productivity is not due to Pat’s quality of work on the job, but rather the bad attitude of his co-workers. His co-workers are unwilling to forgive Pat and refuse to do work when he must be involved. Co-workers are essential to produce the results expected, and without their support, it is in fact, impossible for Pat to perform! JC, VP of Marketing, has not properly supported and defended Pat either, which likely would have remedied the problems with his co-workers poor productivity and stopped the retaliation. His lack of leadership has indirectly contributed to Pat’s recent and unsatisfactory performance.

Additionally to drive home that the motive was, in fact, retaliatory, Pat points to the timing of all of these incidents being very close to the reporting of the violation. Pat’s co-workers were clearly upset with his decision to report Colter’s violation and went so far as to write “snitch” on his car. Pat’s co-workers also ostracized Pat. JC was aware of these actions and did not take any steps to remedy the situation, which could be viewed as tacit approval of the action. Pat will argue that Colter’s lack of actions implies retaliatory motive for his discharge.

Pat also points out that JC did not think that his father’s strong belief in Our Values was relevant any longer to business practices. JC agreed with the decision to not report to the USDA. JC was initially angry with Pat when the news paper story first appeared, feeling that Pat has betrayed the company. All of this suggest that JC could have retaliatory motives for firing Pat.

Colter and Co. argues that the reason for Pat’s firing is due to his inability to perform the essential job functions for which he was originally hired. His firing would be because he is incapable of  effectively managing the Government Commodities marketing group, and is not based on his decision to report the violation to the USDA. Productivity has recently plummeted and Pat is no longer able to do the job he was hired to do.

After the newspaper incident, Mr. C. came out and admitted that he had been wrong to not report the USDA violation. Mr. C said, “I’m somewhat ashamed and sorry about the decisions I made five years ago, but I thought it was best to just let it be. Five years ago I ignored my own beliefs that made this company strong. I’m not going to make that same mistake again. We will tell the press and the USDA the truth.” This suggests that Colter and CO. had no issues with Pat’s reporting, and was a strong affirmation of his high ethical standards. JC was initially angry, but after he learned that a USDA employee had given the exaggerated report to the news paper, he forgave Pat.

Colter and Co. argue that they have moved on from the reporting incident, and are simply dealing with productivity issues in the business when Pat is involved. They are argue that Pat is an at will employee and that they can terminate him at their discretion.

Pat does not have an employment contract and does not have any rebuttal to this argument. His only protection will be prevailing in the wrongful discharge claim for retaliation.

Ethics Considerations

Using the utilitarian theory we will consider if it is ethical for Colter and Co. to fire Pat under the given circumstances.

Colter and Co. has made their values a centerpiece of their business for years. They have become known in their industry for integrity and honesty. This excellent reputation was a major reason that Pat approached Colter and Co. about a job. Pat likely would have never approach Colter and Co. had he known about this past incident and their cover-up.

Pat will obviously be negatively effected by losing his job. This incident may also discourage him from having a high standard of ethical behavior in the future because he may fear retaliation from an employer, or at least a lack of support for doing the right thing. Pat will likely feel betrayed by Colter and view them as hypocrites.

This in turn will damage the reputation of Colter as word gets out that they do not stand behind people in their organization that follow Colter’s own values. The very thing that made this company great will destroyed. A good reputation is the most valuable asset a business can have. It is much easier to replace bad employees than it is to repair a bad reputation. Mr. C. stated this quite well himself in his statement of values, “Relationships, like the products we sell, do not spring into being. They are grown and developed over time in the soil of honest and fair dealings, and fertilized by respect and trust.” If Colter fires Pat, they will doing the exact opposite of this statement. They will be destroying trust, and trampling on respect.

If JC decides to fire Pat, he will only be thinking about short term profit/benefit and not considering the impact this will have on his business in the long run. He will be discouraging any worker in the company from reporting illegal or unethical behavior for fear of retaliation and no protection from Colter. Colter may lose clients that have chosen to work with Colter in the past due to their high ethical standards. This could have a serious impact on the long term value of the company, and in turn seriously harm the financial situation of the shareholders of Colter.  The 20 shareholders comprise 49% of ownership of Colter and Co. so a financial damage to the company could be demonstrating

Additionally, this could potentially impact the USDA and in turn the NCLP because there is a greater likelihood that Colter will commit future violations because employees will be less likely to report. The intent of sourcing products from the USA is to support local US farmers. If future violations increase, this will send tax payer money to other countries rather than keeping it in the USA.

If Colter does decide to support Pat and fire anyone who continues to harass him and perform poorly, some people could possibly lose their jobs. This is obviously a negative impact on the people fired. JC will also have to suffer through the short term discomfort of doing the right thing and fixing the situation. It could lead to a short term drop in productivity and profits for Colter while they iron out these problems and possibly replace some workers. This will cause a short term loss in value for all shareholders of the company.

If JC just decides to address his employees that are “bothering” Pat, there is the risk that they will refuse to cooperate and potentially harm even JC’s productivity. The employees could even walk out on Colter and Co. and refuse to work for JC.

If Colter can prevail in this case and be found not liable for wrongful discharge, it would be shortsighted to focus only on this legality and not the long term impact on the reputation and future revenues of the business.

JC could be dealing with a conflict of interest between his own desire for short term income and comfort versus the long term success of the business.  Furthermore, there is a conflict of interest between JC’s values and the values Mr. C has established, the values that make Colter and Co. so reputable. JC believes the “purpose of business is profit, nothing more” while Mr. C believes in shaking hands are acting with integrity, even though he didn’t five years ago. Without internal alignment, there is confusion between leadership and lack of direction on how to act in this case.

Conclusion

The first priority in this case is for JC to speak to everyone he can about this issue. He needs to speak to his father, Mr. C, explain the situation, and seek guidance on how he should act. He must also speak to Pat and explain the difficult situation in which he has been placed. He supports Pat; however, due to the productivity issues, he may need to terminate Pat. He needs to ask him, “Why is this occurring; what can I do to remedy this; would you be happier at another position within the company?”  Finally, speaking to the employees troubling Pat would be crucial. He can tell them what he has heard about their actions, ask of its truth, and then delve into the companies values. Colter and Co. espoused, “to our employees we have the duty to treat them with respect and dignity,” and therefore we must act in this manner. Certain actions are acceptable and what has been done to Pat is not. He can also ask, “Where do these issues stem from; how can they be remedied?” and finally drive home that everyone is there for the company and its success.

If JC decides to fire Pat, Pat has quite a strong case for wrongful discharge. Precedent has been established to protect whistleblowers, and Pat clearly falls into that category by reporting directly to the USDA. It will be quite difficult for Colter to argue that there was any other justifiable reason for Pat’s firing other than his reporting to the USDA, and the ensuing hostility from Pat’s co-workers.

We suggest that JC and Colter support Pat for his decision to report to the USDA and take the actions necessary to resolve the productivity issues with is co-workers. It is very likely that Colter will be liable for wrongful discharge, thus making a current bad situation even worse. If JC thinks he has problems now, just wait until he’s in the middle of a lawsuit. By adopting this position, JC saves himself from some potentially devastating legal issues and from ethical pitfalls that may have tremendous long-term detriment to Colter and Co.

If Colter and Co. decide to not terminate Pat and do not address the behavior issues of the other employees, Colter and Co. could be liable for constructive discharge if Pat decides to quite due to the behavior of his co-workers. JC was well aware of the employees poor treatment of Pat; therefore, Pat has a strong case that he was constructively discharged. If Colter decides to keep Pat, they must also address the other employees behavior to avoid this liability.

From an ethical perspective, the most number of people in the long run are benefited by Colter standing firm on their values and properly dealing with employees who oppose those values. The benefits gained from firing Pat are very short term at best, and will be completely overshadowed, even in the short run, if he files a wrongful discharge suit. Just the bad PR from a lawsuit with an employee who did the right thing will be such a massive blow to Colter. The media will have a feeding frenzy and plaster them all over the front page. It makes it look like Colter is trying to hide something if they fire Pat.  Everyone would suffer: Pat, Mr. C, JC, the shareholders, the workers, the USDA, the NSLP, and even the children they feed.