Volume II, No. 4

The Supreme Court rendered a controversial decision last month dealing with the right of an employer who is a non-subscriber under the Workers Compensation Act to provide a benefit plan for injured employees in lieu of providing workers compensation insurance. The effect of this decision could result in more employers becoming non-subscribers under the Workers Compensation Act.

In another decision the Supreme Court held that an innocent retailer that has been sued in a products liability action is entitled to complete indemnity from the manufacturer even if there is an independent claim of negligence against the retailer.

The Court also held that in employment discrimination cases a plaintiff has to only show that discrimination was a motivating factor rather than the sole factor in the employment decision in order to prevail.

Finally, the Court announced a new standard for the cause of action for interference with a prospective business relationship.

I. A NONSUBSCRIBER EMPLOYER CAN PROVIDE A BENEFIT PLAN FOR INJURED EMPLOYEES THAT WAIVES THE EMPLOYEES COMMON LAW RIGHT TO SUE THE EMPLOYER

The Texas Supreme Court consolidated two cases to address the issue of whether the Texas Workers Compensation Act prohibits voluntary pre-injury employee benefit plans. In both Lawrence v. CDB Services, Inc. and Lambert v. Affiliated Foods, Inc. (decided on March 29, 2001) the employees voluntarily elected to participate in employee benefit plans that provided specific benefits in lieu of common law remedies. Both plans included an agreement by the employee to waive any common law right to sue the employer or any of its affiliates for on the job injuries or death.

In both cases the first issue decided by the Supreme Court was whether the Workers Compensation Act prohibited pre-injury agreements of the type entered into by the plaintiffs. The second issue decided by the Court was whether the employee benefit plans were void on public policy grounds because they undermined the legislatures workers compensation scheme. In the Lawrence case a third issue was whether or not the waiver signed by Lawrence satisfied the fair notice and express negligence tests.

A. FACTS OF CASE

Gary Lawrence signed an election to participate in an employee benefit plan when he was hired by CDB Services, which was a non-subscriber under the Texas Workers Compensation Act. The form that Lawrence signed acknowledged that he agreed to the plans terms and that he waived any right to recover from CDB Services, Inc. as well as any affiliated employers, directors, officers, shareholders, employees and agents for any injuries he sustained within the course and scope of his employment. The agreement, in bold face, stated as follows:

I understand that by electing to participate in the Plan, I will lose any right that I may have had to sue Employer or any of its Affiliated Employers, directors, officers, shareholders, employees, and agents because of any injuries, illness, or death I sustain in my employment with Employer or any of its Affiliated Employers resulting from their negligence or any other conduct actionable under the common law of the State of Texas, the statutes of the State of Texas, or under any otherwise available equitable relief. My only remedy will be to pursue benefits under the Plan. Executing this election involves the waiver and release of valuable legal rights.

The election further stated that Lawrence did not sign the election under duress and that he had been given a summary plan description. It also stated that no representations had been made to him on behalf of CDB or its employees to influence him to sign the agreement. Mr. Lawrence also admitted that he signed the agreement of his own free will. The agreement advised him that he had the option of seeking professional advice before signing the election and that he had consulted with an attorney to the extent he deemed necessary. The election provided that he understood the language in the election. Less than a month after Lawrence signed the election he was injured on the job. Lawrence received benefits under the plan before and after filing suit against CDB.

Danny Lambert was hired by Affiliated Foods, Inc. in May, 1992. Affiliated, like CDB Services, Inc., was a non-subscriber under the Workers Compensation Act. It did have an employee disability plan which provided medical, disability and death benefits to employees who agreed to release and waive any claims against the employer. The waiver had a paragraph in bold print which stated as follows:

I UNDERSTAND THAT BY EXECUTION OF THIS DOCUMENT, I WILL LOSE THE RIGHT TO SUE AFFILIATED FOODS, INC. AND PEOPLE EMPLOYED BY IT IN CONNECTION WITH INJURIES, ILLNESS OR DEATH SUSTAINED IN MY EMPLOYMENT WITH AFFILIATED FOOD, INC. AS A RESULT OF ITS OR THEIR NEGLIGENCE OR OTHER ACTIONABLE CONDUCT. MY ONLY REMEDY WILL BE TO BENEFITS UNDER THE PLAN.

...

EXECUTION OF THIS DOCUMENT INVOLVES THE WAIVER AND RELEASE OF VALUABLE LEGAL RIGHTS.

The waiver stated that Lambert had signed the document of his own free will and without duress. It also recited that Lambert had not been induced by any representation of an Affiliated employee in signing the waiver and that he had read and understood the document. The waiver recited that Lambert had signed the document of his own free will, with knowledge of the consequences, and that he had consulted with an attorney to the extent he deemed necessary. Nine months after he signed the waiver Lambert was injured on the job. He received more than $57,000 in benefits before suing Affiliated for negligence and gross negligence.

The Supreme Court first pointed out that there was a split of opinion among Texas appellate courts whether plans of these types were prohibited by the Texas Workers Compensation Act, or were void on public policy grounds. The Supreme Court granted the petition in order to resolve the dispute.

B. THE WORKERS COMPENSATION ACT DOES NOT PROHIBIT AN EMPLOYEE FROM WAIVING HIS COMMON LAW RIGHTS AGAINST A NON-SUBSCRIBER EMPLOYER

The initial argument by the plaintiffs was that Section 406.033 of the Texas Labor Code, commonly known as the Workers Compensation Act, denies employers who were non-subscribers most common law defenses from claims brought by an injured employee. The plaintiffs alleged that using waiver as a defense would run contrary to that section of the Workers Compensation Act. The Supreme Court disagreed, finding that the Workers Compensation Act did not reveal a clear legislative intent to preclude an employer from asserting waiver as a defense. Simply put, waiver as a defense was not addressed in Section 406.033 of the Texas Labor Code either as a prohibited or a permitted defense. There are specific defenses which are permitted to an employer, including intoxication of the plaintiff and a willful act by a co-employee.

The Supreme Court found that both plaintiffs made voluntary decisions to receive benefits under the plan. Neither plaintiff was required to release his common law rights against his employer as a condition of employment. The Supreme Court noted that there is a clear difference between providing a voluntary plan which an employee can accept or decline and making acceptance of such a plan a condition of employment. The Supreme Court concluded that such a distinction is decisive. In short, giving an employee an option is lawful. However, making the acceptance of the employee benefit plan a condition of employment is not proper. The Supreme Court concluded that the Workers Compensation Act does not infringe on the constitutional right to contract. Since the Workers Compensation Act did not expressly prohibit the elections signed by the plaintiffs, the Supreme Court was compelled to enforce the elections, unless the elections should be void on public policy grounds.

C. EMPLOYEE BENEFIT PLANS ARE NOT VOID ON PUBLIC POLICY GROUNDS

In discussing the public policy concerns, the Supreme Court noted that there were numerous amicus briefs filed on both sides of the issue. The Supreme Court stated that some of the briefs made the argument that the benefits payable under the employee benefit plans were less than those benefits a person would be entitled to under the Workers Compensation Act if they were employed by a subscriber. The Supreme Court also noted that employees of subscribers were offered the opportunity to decline workers compensation benefits and retain their right to sue their employers. Ultimately, the Supreme Court felt that the freedom to contract outweighed a plan by plan examination of the various employee benefit plans to determine whether they provide more or less benefits than are available under the Workers Compensation Act. As a result, the Court declined to hold the employee benefit packages void on public policy grounds.

D. THE WAIVER SIGNED BY BOTH PLAINTIFFS WAS ENFORCEABLE

Lawrence also argued that his release was unenforceable because it did not meet the express negligence and fair notice tests. In order to decide the issue the Supreme Court employed a two prong test. First, the parties intent that the employer be released from its own negligence must be expressed in unambiguous terms in the four corners of the release. Second, the releasing language must be conspicuous. The Supreme Court found that the release in question met both prongs of the test. The paragraph stating that the plaintiff was releasing CDB was in a paragraph which was in bold print within the release.

The Supreme Court held that the employee benefit plans in these two cases were not prohibited by the Workers Compensation Act and were not void as against public policy.

E. ANALYSIS OF OPINION

This decision has far reaching implications. When the workers compensation statute was rewritten in 1990 it was anticipated that certain large employers, with sufficient assets, would be able to opt out of the workers compensation system if they were able to show that they had sufficient assets to cover potential employees claims. The Supreme Courts decision now makes it possible for all employers to opt out of the workers compensation system and provide a cheaper benefit plan to their employees than the benefits available under the Workers Compensation Act. This could have a potentially crippling effect on the workers compensation fund if a large number of employers decide to opt out of the system in favor of cheaper employee benefit plans.

II. THE TEXAS PRODUCTS LIABILITY ACT REQUIRES A MANUFACTURER TO INDEMNIFY A SELLER AGAINST A LOSS ARISING OUT OF A PRODUCTS LIABILITY ACTION EXCEPT FOR ANY LOSS FOR WHICH THE SELLER IS INDEPENDENTLY LIABLE

In Meritor Automotive, Inc. f/k/a Rockwell International Corporation d/b/a Rockwell International Plastic Products v. Ruan Leasing Company (decided on March 29, 2001) the Texas Supreme Court addressed whether a sellers reasonable cost to defend a negligence claim, asserted independently of a products liability claim, is properly included as part of the loss arising out of a products liability action so that it is within the manufacturers indemnity duty under Texas Civil Practice and Remedies Code, Sec. 82.002 (a). The Court held that a products liability action includes not only products liability claims but also other claims joined with the product liability claim. The court also held that while a manufacturers duty to indemnify the seller is invoked by the plaintiffs pleadings and the joiner of the seller as a defendant, the exception to that duty is established by a finding that the sellers independent conduct was a cause of the plaintiffs injury.

A. FACTS OF CASE

Plaintiff, Paul Hampton, a truck driver, was injured while attempting to open the hood of his leased Freightliner tractor. The truck design required Hampton to stand on the front bumper and pull a handle to open the hood. As he pulled the handle, it broke free and he fell. Hampton filed a products liability claim against Freightliner Corp., the trucks manufacturer, and Meritor Automotive, Inc., the hood manufacturer. He also joined the trucks owner, Ruan Leasing Company, which had leased the truck to Hamptons employer.

The manufacturers agreed to defend their product and defendant Ruan Leasing tendered its defense to them. However, months later, the plaintiff amended his petition to add an allegation that Ruan Leasing was independently negligent in failing to maintain the hood. Obviously, the filing of this allegation created a conflict of interest between Ruan and the manufacturers, causing Ruan to hire its own attorney to defend against the negligence claim. Ruan then filed a cross-claim against the manufacturers, seeking indemnification for all damages and expenses.

On the eve of trial, plaintiff Hampton settled with both manufacturers, and the trial court signed an agreed judgment dismissing plaintiffs claims against Freightliner and Meritor. Plaintiff Hampton then non-suited his claims against Ruan, leaving only Ruans indemnity claim against the manufacturers in controversy. Both sides moved for summary judgment. The manufacturers took the position that '82.002 (a) did not obligate them to pay for Ruans defense of the negligence claim because the negligence claim was not part of the products liability action. Ruan responded that the negligence claim against it remained a part of the products liability action because the negligence claim against Ruan was never established to be a cause of the Plaintiffs injury. Ruan further asserted that it was entitled to summary judgment because the evidence conclusively established that it was not negligent and that its costs of defense were reasonable.

The trial court denied the manufacturers motion and granted Ruans Motion for Summary Judgment. The Judgment entered by the trial court reimbursed Ruan for attorneys fees and expenses in defending itself against Hampton and in enforcing its indemnity rights against the manufacturers. The Court of Appeals affirmed. The Supreme Court granted the manufacturers petition for review to consider the scope of the manufacturers statutory indemnity obligation under Chapter 82 of the Civil Practice & Remedies Code.

B. AN ALLEGATION OF NEGLIGENCE AGAINST A SELLER IS PART OF A PRODUCTS LIABILITY ACTION AS THAT TERM IS DEFINED BY '82.002 OF THE TEXAS CIVIL PRACTICE & REMEDIES CODE.

The Supreme Court first distinguished its opinion in Fitzgerald V. Advanced Spine Fixation Systems, Inc., 996 SW 2d 864 (Tex. 1999), by recognizing that Fitzgerald dealt with the Courts ruling on the construction of the statutory term seller. The Court reasoned that Fitzgerald did not control the present case, as this case involved what products liability action means and when the exception to this statutory indemnity duty applies. These questions did not arise in Fitzgerald because no independent allegations of negligence were raised against the seller. In Ruan, the plaintiff asserted an independent negligence claim against Ruan. The Supreme Court, in construing the language of the statute, outlined its legislative history and intent and held that the mere allegation by a plaintiff against an innocent seller of an independent claim of negligence does not absolve a manufacturers duty to indemnify unless the exception to that duty is established. The exception is a finding that the sellers independent conduct/negligence was in fact a cause of the plaintiffs injury.

C. ANALYSIS OF OPINION

The fact that a plaintiff alleges a claim of negligence against a seller (as plaintiffs typically do) will not absolve the manufacturer of its duty to indemnify the seller for the sellers costs of defense of the negligence action. The duty to indemnify, however, will not arise if there are independent findings of negligence against a seller, which can only occur in a trial on the merits.

III. IN EMPLOYMENT DISCRIMINATION CASES THE PLAINTIFF DOES NOT HAVE TO SHOW DISCRIMINATION WAS THE SOLE MOTIVATING FACTOR FOR THE ADVERSE EMPLOYMENT DECISION

The Supreme Court in Quantum Chemical Corporation V. Toennies (decided on March 8, 2001) held that pursuant to the Section 21.125 of the Texas Commission on Human Rights Act, in order for a plaintiff to recover the plaintiff does not have to prove that discrimination was the sole motivating factor for the plaintiffs termination.

A. FACTS OF CASE

Plaintiff Toennies was an engineer for DuPont at its La Porte facility when Quantum Chemical bought the facility in 1987. Two years later Quantum promoted Plaintiff to Senior Chemical Engineer. Before 1994, plaintiffs employee evaluations were satisfactory, but early in 1994, a few months after he began reporting to a new supervisor, his performance evaluations were below expectations. Quantum terminated the plaintiff in late 1994 when he was 55 years old. Plaintiff filed his lawsuit alleging that Quantum had violated Texas Labor Code Sections 21.001 through 21.556 in that Quantum had fired him due to age discrimination. Quantums contention was that it had terminated the plaintiff for poor job performance.

Mr. Toennies had relied upon circumstantial evidence to make his case and to disprove that Quantum had terminated him for poor job performance. During the trial in this case the jury inquired of the trial court whether they had to find that age discrimination was the sole determining factor in the dismissal or whether discrimination was a determining factor. The trial court declined to answer their question and the jury found in favor of Quantum. The Plaintiff appealed to the court of appeals arguing that age discrimination does not have to be the sole determining factor but rather a motivating factor in improper termination.

B. CHAPTER 21 OF TEXAS LABOR CODE DOES NOT REQUIRE PLAINTIFFS TO PROVE THAT DISCRIMINATION IN AN ADVERSE EMPLOYMENT ACTION WAS THE SOLE MOTIVATING FACTOR.

The Supreme Court compared the Texas statute under the Texas Labor Code to federal law which recognizes two types of employment discrimination cases, each requiring different elements of proof. The first type is the pretext case in which the plaintiffs ultimate goal is to show that the employers stated reason for the employment action was a pretext for discrimination. The second type of case is the mixed motive case in which the plaintiff has direct evidence of discriminatory acts. This direct evidence shifts the burden of proof to the employer to show that legitimate reasons would have led to the same decision regardless of any discriminatory motives.

The Court concluded that how a case is classified depends entirely upon the presence or absence of direct evidence. In a pretext case the complainant must establish a prima facie case of discrimination. Once the plaintiff has done so, the burden shifts to the employer to prove some nondiscriminatory reason for an adverse employment action. The burden then shifts back to the employee to show that the employers reason was a pretext for discrimination. In the pretext cases, a complainant has to prove that but for the impermissible discrimination the employer would not have taken the action against the complainant. The Court also noted that in mixed-motive cases the plaintiff only needs to show that an employers discriminatory intent was a motivating part in the employment decision.

The Court noted that in this case there was only circumstantial evidence regarding the discrimination by Quantum Chemical against Plaintiff. Consequently, the court found that this was a pretext type of case. However, the Court stated that if Section 21.125 of the Texas Labor Code did not apply to pretext suits, the proper standard of causation for plaintiffs would be the but for test originally used for pretext claims. If the Texas Labor Code applied to employment discrimination claims then the plaintiff needed only to prove that the age discrimination was a motivating factor in Quantums decision to terminate him. The Court concluded that Section 21 of the Texas Labor Code in its plain language established a motivating factor as the plaintiffs standard of causation in an unlawful employment practice claim regardless of how many factors influenced the employment decision.

In reversing the trial court due to the improper jury instructions regarding sole motivating factor the Court found that Section 21.125 of the Texas Commission on Human Rights Act requires an employment discrimination plaintiff to show that the discrimination was a motivating factor but not the sole motivating factor in an adverse employment decision. There is no distinction between pretext and mixed-motive cases. The Court applied the plain meaning of the statute and reversed the trial court and remanded the case to the trial court for further proceedings. The Court found that there was more than a scintilla of evidence presented by the plaintiff that could support a judgment finding the company had discriminated against plaintiff because of his age.

C. ANALYSIS OF OPINION

The Texas Supreme Court has lowered the burden for plaintiffs alleging causes of action based upon discrimination. Plaintiffs will no doubt be filing causes of action based solely upon Texas statutes as plaintiffs do not have to prove that discriminatory actions were the sole motivation in any adverse employment action. Plaintiffs just have to prove that the discriminatory action was a motivating factor in order to prevail.

IV. THE COURT ANNOUNCED A NEW STANDARD FOR A CAUSE OF ACTION FOR INTERFERENCE WITH A PROSPECTIVE BUSINESS RELATIONSHIP

The Supreme Court in Wal-Mart Stores v. Harry W. Sturges, III et al. (decided on March 13, 2001), determined the elements of the cause of action for interference with a prospective contractual or business relationship. The Court concluded that to establish liability for interference with a prospective contractual or business relation the plaintiff must prove that it was harmed by the defendants conduct that was either independently tortious or unlawful. By independently tortious we mean conduct that would violate some other recognized tort duty. The Court explained that no cause of action exists if a defendant competes legally for a customers business.

A. FACTS OF CASE

The plaintiffs had entered into a contract to purchase a tract of land that was located next to a Wal-Mart in Nederland, Texas. Wal-Mart had the power through easements and covenants on the tract at issue to control and approve what would be built on the tract of land. As a result, when the plaintiffs contracted to purchase the land, they were given a 60 day time period to opt out of their contractual purchase if they were not able to secure the approval of Wal-Mart for their intended use of the property.

The plaintiffs got in touch with the property management department at Flemings Foods who expressed an interest in leasing the property from the plaintiffs in order to build a Flemings Food Store. However, Fleming Foods wanted to construct a store that was 51,000 sq. feet. According to the easements and covenants, any structure in excess of 36,000 sq. feet had to be approved by Wal-Mart.

The property management officials at Wal-Mart ultimately refused to give approval for the construction of a store in excess of 36,000 sq. feet. In fact, the property management department at Wal-Mart contacted the Fleming Food officials who were negotiating the proposed lease-purchase and advised the officials at Fleming Food that Wal-Mart was going to move its store which was located next to the tract of land at issue. Because Fleming Foods was only interested in the tract of land if it had a Wal-Mart located next to it, the property management department at Fleming Foods refused to lease the property. The plaintiffs then opted out of their contract to purchase the property. Wal-Mart subsequently purchased the property and expanded its store onto the tract of land at issue.

The plaintiffs then sued Wal-Mart for tortious interference with their prospective lease with Fleming Foods. A jury determined that Wal-Mart did interfere with the plaintiffs prospective agreement to lease the property to Fleming Foods. The jury awarded $1 million dollars in actual damages and $500,000 in punitive damages on the interference claim.

B. WHAT HARM MUST BE PROVEN TO CONSTITUTE TORTIOUS INTERFERENCE

The Court first acknowledged that while Texas case law clearly recognized ..a cause of action for tortious interference with prospective business relations, [no case] attempts to state the elements of tortious interference with prospective business relations or to define precisely what conduct is culpable. After reviewing the cases, the Court concluded that:

To recover for tortious interference with a prospective business relation a plaintiff must prove that the defendants conduct was independently tortious or wrongful. By independently tortious we do not mean that the plaintiff must be able to prove an independent tort. Rather, we mean only that the plaintiff must prove that the defendants conduct would be actionable under a recognized tort.

By way of example, a plaintiff can recover against a defendant who attempts to prevent a party from entering into a prospective business relationship with the plaintiff if the defendant makes fraudulent statements about the plaintiff, threatens a person with physical harm if that person engages in business with the plaintiff, or attempts to use an illegal boycott to prevent a person from engaging in business with the plaintiff. The Court held that conduct which is unfair is not actionable as the losing party to a prospective business relationship will always feel that it has been treated unfairly.

C. NO EVIDENCE OF INTERFERENCE

The Court found that Wal-Mart did not improperly interfere with the prospective business relationship between the plaintiffs and Fleming Foods. The Court concluded that there was no evidence that Wal-Mart acted unlawfully or committed a tort in refusing to approve the request to build a 51,000 sq. foot store. Even though the result of this refusal was that Fleming Foods would not lease the property and build a store, Wal-Mart had a contractual basis for this refusal. As such, the Court found that Wal-Mart could interfere with the prospective business relationship between the plaintiffs and Fleming Foods.

D. ANALYSIS OF OPINION

The Court clarified the basis for a cause of action for tortious interference in a prospective business relationship. As such, the Court held that harm that results only from lawful competition is not compensable by the interference tort. The Court therefore recognized someone is going to get hurt when two businesses compete. So long as competition is not based upon an independent tort or a wrongful act no cause of action will exist for interference with a prospective business relationship.

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