Can a Contract Dispute With An Employee Become a Whistleblower Claim?

By Andrew M. Moskowitz, Esq.
amoskowitz@pashmanstein.com

In a recent case, Powell v. Wachovia Corp. et al., Docket No. A-1727-10T4 (App. Div. Apr. 9, 2012), a panel of the New Jersey Appellate Division reversed a $3.6 million verdict in favor of a former employee of Wachovia Insurance.  The former employee, James Powell, had claimed that Wachovia had fired him in retaliation for his objecting to Wachovia’s plan to change his and others’ commission percentages.  Powell had alleged that his termination violated the Conscientious Employee Protection Act (CEPA), N.J.S.A. 34:19-1 to -14.  However, the appellate court held that, even accepting Powell’s allegations as true, this matter was a mere contractual dispute and that Powell had not demonstrated that he reasonably believed Wachovia’s conduct was fraudulent or in violation of the law.  Accordingly, the appellate court reversed the jury verdict and directed the lower court to dismiss the complaint with prejudice.

Powell began his job as a benefits producer in 1993.  His job involved marketing employee benefits plans such as health, life, and disability insurance to small and medium-size employers.  For approximately thirteen years, his compensation plan was that he would receive 50% of every dollar of commissions that he generated.  However, in early 2006, Wachovia sought to dramatically alter this formula so that Powell and other benefits producers would receive as little as 10% of the commission revenue.

In response, Powell and four other colleagues retained an attorney, who wrote a letter at the end of March 2006 objecting to this proposed new compensation plan.  Ultimately, the parties compromised and agreed to a “a ‘60/40 split’ for new business … and a ‘70/30 [split] for renewals…”  Six months later, Powell and seven other individuals were terminated, purportedly for viewing pornographic emails in violation of Wachovia’s company policy.

The Court noted that, to establish a whistleblower claim under CEPA, a plaintiff must demonstrate either that 1) he or she reasonably believed that the employer’s conduct violated either a law, rule, or regulation promulgated pursuant to law, or a clear mandate of public policy, or 2) he or she reasonably believed the employer’s conduct was fraudulent or criminal.

In reversing the jury verdict in favor of Powell, the Court found that Powell had not demonstrated a reasonable belief that Wachovia’s conduct was fraudulent, deceptive or unlawful.  Rather, as articulated by his attorney at the end of March 2006, Powell believed only that Wachovia had breached his and his colleagues’ contractual right to certain commission percentages.  The Court therefore concluded that, “at its core all that was at stake was a contract dispute,” and that such a dispute “cannot be elevated, as a matter of law, to a CEPA springboard for damages.”

Although it is an unpublished opinion and therefore is not technically binding upon New Jersey courts, the Powell opinion is consistent with New Jersey precedent that private contractual disputes do not give rise to CEPA claims.  See, e.g., Maw v. Advanced Clinical Communications, Inc., 179 N.J. 439 (2004) (New Jersey Supreme Court held that employee fired for refusing to sign restrictive covenant did not state a claim under CEPA).

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