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Virginia Supreme Court Refuses to Relax Standard for Tortious Interference with Employment Contract

  • June 17, 2011

An at-will employee must show a customer used “improper methods” beyond merely “actions solely motivated by spite, ill will and malice” to prove her employer’s primary customer tortiously interfered with her employment contract, the Virginia Supreme Court has ruled.  The Court reversed a jury verdict awarding $900,000 in damages to a doctor for tortious interference, finding the pressure inherent in her employer’s relationship with its customer and primary source of revenue cannot rise to the level of “improper methods” needed for an at-will employee to show that the third party tortiously interfered with her employment contract. Lewis-Gale Med. Ctr., LLC v. Alldredge, No. 100457 (Va. June 9, 2011)

The Facts

Dr. Karen Alldredge worked as an emergency room physician for Southwest Emergency Physicians, Inc. (“SWEP”) under an employment contract with SWEP.  The contract was terminable without cause by either party upon 90 days’ written notice.  SWEP’s physician-employees exclusively staffed the Emergency Department of Lewis-Gale Medical Center, LLC, and Lewis-Gale provided SWEP’s primary source of revenue.

In March 2008, Lewis-Gale became concerned that Dr. Alldredge was involved with personnel issues affecting its nursing staff.  The hospital’s chief operating officer campaigned for Dr. Alldredge’s termination; in a meeting with SWEP’s executive board, the hospital’s CEO described Dr. Alldredge as an “organizational terrorist.”  Under pressure from the hospital, SWEP terminated Dr. Alldredge’s employment. 

Dr. Alldredge sued the hospital, alleging it had tortiously interfered with her contract with SWEP. 

“Tortious Interference”

In a “tortious interference” claim, the plaintiff alleges that her contract with another was damaged by a third party (the defendant) who acted in an improper manner to interfere with the contractual relationship. 

Dr. Alldredge claimed that her employer’s customer, Lewis-Gale (the third party), improperly interfered with her at-will employment relationship with her employer, SWEP, when it successfully persuaded SWEP to discharge her.

Lower Court Decision

Lewis-Gale argued that, as an at-will employee, Dr. Alldredge could not maintain an action for tortious interference with her employment contract.  The trial court rejected this argument, finding that Dr. Alldredge’s complaint contained sufficient allegations to suggest that the hospital used “improper methods” to interfere with her contractual rights.  During trial, Lewis-Gale continued to move for dismissal of the lawsuit, insisting that Dr. Alldredge had not identified the alleged “improper methods.”  The court denied these motions.  The jury awarded Dr. Alldredge $900,000 in compensatory damages.  Lewis-Gale appealed.

Supreme Court’s Ruling

The Virginia Supreme Court reversed the jury’s verdict for Dr. Alldredge. Senior Justice Lawrence L. Koontz, Jr., issued the opinion for the Court.
As an initial matter, the Court recognized that the no-cause termination provision in Dr. Alldredge’s employment contract with SWEP rendered her an at-will employee.  In Virginia, an at-will employee can prove tortious interference with contractual expectancy by demonstrating that a third party used “improper methods” to bring about the termination of the contract.  Quoting its decision in Duggin v. Adams, 234 Va. 221, 227-28 (1987), the Court described “improper methods” as “those means that are illegal or independently tortious . . . includ[ing] violence, threats or intimidation … or breach of a fiduciary relationship.”  The Court declined to include “actions solely motivated by spite, ill will and malice” toward the plaintiff within the meaning of the term.

Dr. Alldredge, the Court said, had not shown Lewis-Gale’s actions were “illegal or independently tortious.”  Instead, she had alleged the hospital used “intimidation, duress, and undue influence” based upon its financial influence over SWEP to bring about her termination, which was insufficient for tortious interference.  The Court found:

while the evidence supported the inference that SWEP was concerned about the continuation of its [at-will] contract with Lewis-Gale . . . [t]his status required that SWEP be continually sensitive to the possibility of termination for any reason or no reason …. Thus, the inherent intimidation or duress experienced as a result of the very nature of this at-will contract cannot rise to the level of improper methods necessary to establish a cause of action for tortious interference with contract expectancy.

Referring to its opinion in Chaves v. Johnson, 230 Va. 112, 121 (1985), the Court observed that, where a defendant has its own contractual or commercial relationship related to the plaintiff’s employment, “a balance must be struck between the social desirability of protecting the business relationship” and the interferor’s freedom of action.  (Internal quotations omitted.) 

The Court concluded by pointing out that what might be viewed by some as unfair is not necessarily actionable:

The fact that Virginia recognizes the existence of the tort of intentional interference with a contract does not mean that every contract relationship which is terminated or disrupted through the interference of a third party promoting its own interests will result in tort liability for that party.  Rather, the law provides a remedy in tort only where the plaintiff can prove that the third party’s actions were illegal or fell so far outside the accepted practice of that “rough-and-tumble world” [of the competitive marketplace] as to constitute improper methods.

Implications for Employers

The Court’s decision strengthens at-will relationships in Virginia because it limits the ability of at-will employees to bring suit when their employment is terminated.  The Court’s strong language suggests that such claims will succeed unless the employee has clear evidence of “improper methods.” 

While the Court found the hospital’s financial muscle-flexing did not constitute tortious interference with a contractual relationship in this case, companies should continue to use caution when considering whether to try to influence employment decisions by their contractual partners.  Any such actions can result in liability as a “joint employer” for employment-related claims.

Jackson Lewis attorneys are available to answer inquiries regarding this and other workplace developments.

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