The Texas Supreme Court has given important guidance in the area of punitive damages in employment cases.  Punitive or exemplary damages are damages awarded in civil cases in order to punish bad behavior or make an example to others as to what can happen when the bad behavior is exposed.

The Texas Supreme Court in Safeshred, Inc. v. Martinez (Tex. 2012) examined punitive damages in relation to a cause of action in Texas commonly referred to as a “Sabine Pilot” action.  This name comes from the case, Sabine Pilot Service, Inc. v. Hauck, 687 S.W.2d 733 (Tex. 1985) in which the Supreme Court created a public policy cause of action that created an exception to the employment at will rule in Texas.  This cause of action made it illegal to terminate an employee for the sole reason that the employee refused to perform an act that was criminally illegal.  Up until the Safeshred case the Supreme Court had not ruled on whether punitive damages were available in such a case.

In Safeshred, the Court held that an employee could recover any reasonable tort damages, including punitive damages.  The Court held that punitive damages were an available remedy for an employee wrongfully discharged for refusal to commit an illegal act provided the employee could prove that the discharge involved malice.  The malice involved must be “actual malice” and something more than the intentional firing.  The firing must involve “substantial injury” and something “independent and qualitatively different from the compensable harms associated with the cause of action.”  To illustrate, the Court gave examples of  this type of malice:

•    where the employer circulates false or malicious rumors about the employee before or after the discharge or actively interferes with the employee’s ability to find other employment.
•    The Court referred to another case where a nursing home made the employee’s conduct look worse than it was before the state nursing board.
•    Another example is damage to the employee’s reputation or future employment prospects, which is a qualitatively different injury from the firing itself, and conscious indifference to a risk of    that injury.
•    Harassment in connection with a wrongful firing.
•    Malice might exist when an employer knows the retaliatory firing is unlawful and does it anyway (e.g., in Texas Commission on Human Rights cases where an employer retaliated against        employee with specific intent or gross negligence regarding the employee’s right to be free from such practices.  Also, if employee demonstrates that the employer engaged in a discriminatory practice with malice or reckless indifference to the state protected rights of the employee).

In the Safeshred case, the Court specifically held that, “…malice could be shown in the Sabine Pilot case by evidence that Safeshred, in firing Martinez, consciously ignored a risk of some additional serious harm, such as interference with his future employment, harassment, or terminating his employment knowing the reason for doing so is unlawful.”

The Court specifically refused to consider the dangerousness of the specific illegal acts that Safeshred ordered him to perform in assessing punitive damages.  The Court held that “…the employer’s illegal directive to the employee (and any malice that might have accompanied that directive) cannot form the basis for a punitive damages award.”

The Court stated that a plaintiff may not bring a Sabine Pilot claim immediately after being asked to perform an illegal activity, but must first refuse and be fired.  In reviewing other cases, the Court confirmed that in retaliatory termination cases, the only malice relevant to allowing punitive damages is that surrounding the actual termination itself.

In examining the evidence of malice in the case, the Court stated that the only evidence relevant to the inquiry was that Safeshred designated Martinez as ineligible for rehire in its employment records and the reason given on an internal report for Martinez’s firing was that he abandoned his job, with no mention of the dispute over the safety regulations.  The Court held that this evidence was insufficient to support a firm conviction that Safeshred was consciously indifferent to a risk of interfering with Martinez’s future employment prospects or causing some other serious harm stemming from the firing itself.  Additionally, the Court mentioned that there was not evidence of harassment in connection with the firing or that the firing of Martinez was unlawful.  The Court stated that the Court of Appeals relied primarily on evidence that the managers knew that driving the unsafe truck loads was illegal.  Importantly for future cases, the Court said that:

“…a malice finding based on Safeshred’s knowledge of illegality would require a showing that the company was aware that the law did not permit it to fire an employee for refusing to perform    an illegal act, but did so anyway.”(emphasis added)

Note:  This is the type of question that you must ask the manager that fired the employee, “when you fired my client, you knew, didn’t you, that it was illegal to fire my client for (whatever the alleged wrongful act was).”  Failure to ask this type question may doom your punitive damages and should always be a “starred and underlined” question in your list.

The Court further stated that in evaluating an employer’s actual malice in worker’s compensation retaliation cases, the Court has never looked to the employer’s conduct surrounding the workplace accident as proof of malice in the retaliation claim.  The same is true in whistleblower cases.  A whistleblower action involves both illegal conduct by the employer (which the employee reports) and a retaliatory employment action for blowing the whistle.  The Court only looks to the malice surrounding the employment action, but not in the underlying illegal act reported by the employee.

In examining the evidence, the Court found that the comments of Safeshred in the employment records of the employee did not constitute evidence of malice since there was no evidence that Safeshred subjectively knew or intended that the remarks in the employment records would interfere with the employee’s future employment or otherwise cause him harm.  Further, there was no evidence that Safeshred ever communicated the remarks in the record to other companies in the industry.

The Court reversed the punitive damages but not the actual damages.