July 2014 Volume XIII No. 7 Taking Care of Business
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Supreme Court Holds That Testimony by Public Employee May be Protected Speech Under the First Amendment

When a government employee testifies, pursuant to subpoena, outside the course of his ordinary job responsibilities, the testimony is protected speech under the First Amendment, and adverse employment actions based on the speech may be unlawful if the speech addresses a matter of public concern and the government/employer has no justification for taking the adverse action against its employee. The Supreme Court recently clarified the line between speech as a citizen and speech as a public employee, and has provided precedent in the form of a specific example: speech compelled by subpoena as an individual citizen. Government employees may give such testimony without fear of retaliation by their employers when they do so as individuals on matters of public concern.

When a government employee testifies, pursuant to subpoena, outside the course of his ordinary job responsibilities, the testimony is protected speech under the First Amendment, and adverse employment actions based on the speech may be unlawful if the speech addresses a matter of public concern and the government/employer has no justification for taking the adverse action against its employee.

In a recent opinion on this issue, the Supreme Court of the United States held that an employee of the state of Alabama, subpoenaed to testify regarding a second employee’s activities in the second employee’s trial for fraud and theft, was protected from retaliation by the employer when he testified truthfully and the testimony was given outside the scope of his ordinary job duties and was a matter of public concern. On June 19, 2014, in Lane v. Franks, a director of a community college program in Alabama fired an Alabama State Representative, who was also an employee of the college, for non-performance of job duties. The director later testified, under subpoena, at the State Representative’s trial for mail fraud and theft of public funds. The director was later terminated, and filed suit claiming that his testimony was protected by the First Amendment and that his termination was in retaliation for the testimony he gave against the State Representative. Both the trial court and the Eleventh Circuit Court of Appeals held that the director’s speech was not protected.

The Supreme Court explained that its long standing precedent required an analysis of whether the director’s speech was made in his capacity as a citizen; whether the speech addressed a matter of public concern; and whether the government employer had an adequate justification for taking the adverse action. Citing to its prior precedent in Pickering v. Board of Ed. of Township High School Dist. 205, Will Cty., 391 U.S. 563 (1968), and Garcetti v. Ceballos, 547 U.S. 410 (2006), the Court first analyzed whether the director’s speech was made in his role as an employee of the state or as a citizen. The Court reiterated its long-held position that public employees do not relinquish their citizenship when they accept public employment. The Court also held that when a person testifies under oath in court, he is bound by the obligation to speak the truth. This obligation binds all citizens who testify, including public employees, and it is an independent obligation from any imposed on an individual by his status as a public employee. In the Lane case, although the subject matter of the director’s testimony was acquired in the course of his employment, his testimony was given under subpoena binding him individually, and was therefore not given within the scope of his employment duties. In a concurring opinion, several justices specifically explained that the Lane opinion does not extend to situations where an employee is subpoenaed in his or her official capacity.

Finding that the director’s testimony was given in his capacity as a citizen, the Supreme Court next addressed whether the subject matter was of public concern. Finding that the content of the testimony, corruption in a public program and misuse of public funds, involved a matter of significant concern to the public, the Court held that the director’s speech was protected by the First Amendment absent a showing of adequate justification by the government in taking action against the director for his testimony. The Court reiterated the requirement that where a government employee’s speech involves a matter of public concern, a government employer must make a strong showing of the need to protect its interest in effective and efficient fulfillment of their responsibilities in order to take action based on the employee’s speech. In the Lane case, there was no evidence that the state’s interest in effectively administering its community colleges and programs outweighed the director’s interest and obligation to testify truthfully as a citizen under subpoena in a judicial proceeding. There was no showing that the director’s testimony was untruthful or contained confidential or privileged information. As a result, the Court held that the director’s testimony was protected speech under the First Amendment, and that his employer could not take adverse employment action against him for making that speech.

In sum, the Supreme Court has further clarified the line between speech as a citizen and speech as a public employee, and has provided precedent in the form of a specific example: speech compelled by subpoena as an individual citizen. Government employees may give such testimony without fear of retaliation by their employers when they do so as individuals on matters of public concern. It remains to be seen, however, whether the same is true when the witness is subpoenaed in their capacity as a government employee to testify about subject matter directly within the scope of their job duties.

If you have questions regarding a government employer’s limitations with regard to testimony provided by its employees, or other similar issues, please contact your HWE relationship attorney or visit us at http://www.hwelaw.com.

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Indiana Supreme Court Explains That Statutory Restrictions on Punitive Damages Do Not Extend to Exemplary Damages Under the Indiana Sales Representative Act

In Indiana, employers that terminate sales representatives may be liable under the Indiana Sales Representative Act for both compensatory and exemplary damages if the employer fails to pay the representative the commissions owed. However, employers liable for exemplary damages under the Indiana Sales Representative Act, unlike other defendants found liable for general punitive damages in civil actions, do not receive the benefits of limitations placed on punitive damages by the punitive damages statute.

In Indiana, wholesale sales representatives and the companies they represent are governed by the Indiana Sales Representative Act, which requires, in part, that when a sales representative’s contract is terminated the representative be paid all accrued commissions within fourteen days of the termination of that relationship. Ind. Code § 24-4-7-5. When a principal fails to pay those commissions, and does so in bad faith, it is liable to the sales representative for “exemplary damages in an amount no more than three (3) times the sum of the commissions owed to the sales representative.” Ind. Code. § 24-4-7-5(b).

Generally, punitive damages in Indiana are subject to a number of statutory restrictions, including limitations on the amount of punitive damages and a requirement that a portion of the award go to the state itself. More specifically, punitive damages must be proved by “clear and convincing evidence” and are capped at three times the amount of compensatory damages awarded or $50,000.00, whichever is greater. Ind. Code. §§ 34-51-3-2, 34-51-3-4. Additionally, 75% of the punitive damages paid by a defendant are given to the state treasurer for deposit in the violent crime victims compensation fund, with the remaining 25% going to the plaintiff.

Until recently, Indiana’s courts had not addressed the statutory limitations on punitive damages in the context of a suit for unpaid commissions under the Sales Representative Act. In Andrews v. Mor/Ryde International, Inc., Andrews, a sales representative, was terminated by Mor/Ryde and filed suit for unpaid commissions. The trial court ruled for Andrews, but held that the punitive damages statute imposed limitations on the exemplary damages available to Andrews under the Sales Representative Act. The Court of Appeals affirmed the ruling, but the Supreme Court reversed, holding that Andrews was entitled to the full exemplary damages provided by the Sales Representative Act, with no reduction.

The basis for the Supreme Court’s opinion was an analysis of the backdrop of the punitive damages statute and the legislature’s apparent intent to avoid that statute with the Sales Representative Act. The punitive damages statute was enacted in the mid-1990s as part of a comprehensive reform designed to limit what the legislature perceived as improperly inflated and frequent awards of punitive damages in civil lawsuits. The limitations on the amount of punitive damages and the requirement that 75% of the award be paid to the state was designed to restrict excessive punitive damages awards. The punitive damages statute thus restricted the scope of damages otherwise available at common law.

By contrast, the Sales Representative Act specifically expanded the damages available at common law by including the entitlement to exemplary damages in the amount of three times the commissions owed when the failure to pay was in bad faith. The Supreme Court held that the specific inclusion of these damages in the Sales Representative Act, without a corresponding limitation as appears in the general punitive damages statute, indicated that the legislature intended for sales representatives who prevail in such suits to receive the full exemplary damages without limitation.

Employers that employ sales representatives subject to the provisions of the Sales Representative Act should be aware of this ruling, as it impacts their potential exposure in litigation for failure to pay commissions. Although a finding of bad faith in failure to pay is necessary to trigger the exemplary damages provision of the Act, if such a finding is made, the employer will not have the benefit of the limitation placed on punitive damages by the general punitive damages statute.

If you have questions regarding damages under the Indiana Sales Representative Act, or other similar issues, please contact your HWE relationship attorney or visit us at http://www.hwelaw.com.

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