Wednesday, March 27, 2013

Huge pay cut may equal constructive discharge

In our jurisdiction, it is difficult to prove constructive discharge. The courts don't like it when people up and leave their jobs and then sue for lost wages. The working conditions have to be so intolerable that any reasonable person would leave his position. That theory can work in sexual harassment cases, but it can also work when professionals suffer a dramatic pay cut.

The case is Scott v. Harris Interactive, a summary order decided on February 20. This is a breach of contract claim. Scott was offered a job that would pay $220,000 per year. He was an at-will employee, which means he could be fired for any reason. But the contract also said that if Harris Interactive fired Scott without cause, he would recover six months' salary and health care benefits. Scott quit his job because, within one year, his pay was decreased to $150,000. If Scott was constructively discharged, he could recover the benefits that come with a termination without cause. Is a pay cut like this equal to a constructive discharge? The district court said no, reasoning that the pay reduction was not so dramatic as to amount to termination. But the Court of Appeals (Raggi, Leval and Livingston) says that Scott has a case, and now we all go to trial.

Insofar as our precedent recognizes that "loss of pay or change in title" may amount to constructive discharge, the question of discharge versus resignation cannot be resolved simply by concluding, as the district court did here, that the reduced amount compares favorably to the earnings of other accomplished persons in the national workforce. The percentage of a reduction and the reasonable expectations of the parties are also relevant to the factual determination whether an employee was forced into an involuntary termination.

(The Second Circuit notes that other cases hold that a $60,000 salary reduced to $26,000, and an $89,000 salary reduced to $25,000, could also amount to constructive discharge)

Since Scott's salary was cut by one-third and management also altered his title and responsibilities, and management also told Scott that he had the option to resign (suggesting that they wanted Scott to leave), the jury can find that he was constructively discharged.

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