No Wrongful Discharge Claim for Fired Physician

Daily Labor Report® is the objective resource the nation’s foremost labor and employment professionals read and rely on, providing reliable, analytical coverage of top labor and employment...

By Kevin McGowan

Aug. 20 — An approximately $1 million jury verdict for an Iowa physician against his former practice group for wrongful discharge in violation of public policy can't stand because the physician wasn't an at-will employee, the U.S. Court of Appeals for the Eighth Circuit ruled Aug. 20.

Reversing a district court judgment for Dr. Edward Hagen, the court said under Iowa law, employees who have contractual protection against firing without cause can't assert the wrongful discharge tort.

Instead, the public policy tort is an exception to the traditional doctrine of employment at will and therefore unavailable to individuals such as Hagen, who sued after his medical partners fired him for “cause” under his employment contract with the group.

Hagen's coverage under an employment contract he negotiated upon joining the practice precludes him from invoking the tort, which offers narrow protection to employees lacking such contractual remedies, the court said.

Although the Iowa Supreme Court hasn't ruled on the precise issue of public policy tort protection for contractual employees, the Eighth Circuit said the state supreme court likely would hold the sole remedy for a medical professional in Hagen's circumstances would be a breach of contract claim for wrongful discharge.

Ousted by Partners

After being ousted by his partners in Siouxland Obstetrics and Gynecology P.C., Hagen sued the medical group and his former partners under state law. In addition to breach of contract, Hagen alleged wrongful discharge in violation of Iowa public policy, saying his partners fired him for reporting or threatening to report what Hagen considered a case of medical malpractice by a local hospital and one of his partners.

A jury in the U.S. District Court for the Northern District of Iowa found the defendants liable for the wrongful discharge tort, reasoning that Hagen's protected activities were a “determining factor” in Siouxland's decision to terminate.

While considering Siouxland's post-trial motions, the federal district court certified three questions to the Iowa Supreme Court.

It asked if state law recognized Hagen's conduct as protected activities on which a doctor-employee could base a wrongful discharge claim; if state law allows a contractual employee to bring a claim for wrongful discharge in violation of public policy or if the tort is available only to at-will employees; and if an employer's lack of “an overriding business justification” for firing an employee is an independent element of a wrongful discharge claim.

But the Iowa Supreme Court declined to answer the certified questions, explaining that its justices had deadlocked on the protected conduct issue and therefore never reached whether the public policy tort protects contractual employees.

The federal district court subsequently upheld the $1.05 million verdict, denying Siouxland's post-trial motions and Hagen's petitions for an additional $112,727 in past lost earnings and $4.4 million in future lost earnings.

Crafted as ‘Narrow Exception.'

Although the state supreme court didn't answer if contractual employees may assert the wrongful discharge tort, the Eighth Circuit said based on relevant state court decisions, the Iowa Supreme Court wouldn't find a medical professional covered by an employment contract requiring “cause” for discharge eligible to pursue the public policy tort.

The state supreme court initially recognized the public policy tort as “a narrow exception” to employment at will and “has consistently described the tort in those terms,” Judge James B. Loken wrote.

In Mahony v. Universal Pediatric Servs., Inc., , 643 F.3d 1103, 32 IER Cases 851 (8th Cir. 2011), the Eighth Circuit said Iowa law “provides that an at-will employee may be discharged at any time, without cause, but a well-recognized exception to the at-will doctrine is the tort action for wrongful discharge in violation of public policy”.

Three Iowa Supreme Court decisions addressing the wrongful discharge tort since Mahony have reiterated that the public policy tort is a narrow exception to employment at will, the Eighth Circuit said. In Dorshkind v. Oak Park Place of Dubuque II, LLC, 835 N.W. 2d 293 (Iowa 2013), the state supreme court said the narrow public policy exception is intended to shield “those with a compelling need for protection from wrongful discharge.”

“This focus on the at-will employee's need for protection, and the [state supreme] court's refusal to address the certified question in the abstract in this case, strongly suggest that the district court erred in defining the question as being whether the tort protects ‘contractual employees' in general,” Loken wrote. “There are many types of employment contracts that address the question of termination in various ways.”

For example, a South Carolina court extended the public policy exception to an employee whose written employment agreement allowed either party to terminate without cause on 30 days' notice because that employee lacked a contractual remedy for wrongful discharge, the Eighth Circuit said. “We think it likely that, presented with an employment contract having the same without-cause provision, the Supreme Court of Iowa would agree,” Loken wrote.

No ‘Compelling Need' to Protect 

But the issue is “far different” when an employee is covered by a contract that protects against wrongful discharge, the court said. In Hagen's case, Siouxland invoked a “for cause” termination provision in the comprehensive employment agreement Hagen had negotiated upon joining the practice in 1993, the court said.

Hagen was president and co-owner of a professional corporation in which physicians function as partners in a group practice, the court said. “He was not an employee ‘with a compelling need for protection from wrongful discharge,' ” Loken wrote.

That conclusion is consistent with the Iowa Supreme Court's analysis in public policy tort cases, the court said.

The state supreme court has “consistently and carefully applied its wrongful discharge tort precedents to the specific facts of each case,” the Eighth Circuit said. “Here, we conclude that the [state] court would hold that the exclusive remedy of a medical professional practicing under Hagen's employment agreement is a breach of contract claim for wrongful discharge, a claim that would permit inquiry into the professional conduct the district court concluded was separately protected” by the public policy tort, the court said.

Since Hagen declined to pursue a breach of contract claim at trial, the district court judgment upholding the verdict must be reversed.

Judges William Jay Riley and Bobby E. Shepherd joined in the decision.

Munger & Reinschmidt represented Hagen. The Heidman Law Firm represented the medical group and individual defendants.

To contact the reporter on this story: Kevin McGowan in Washington at kmcgowan@bna.com

To contact the editor responsible for this story: Susan J. McGolrick at smcgolrick@bna.com

Text of the opinion is available at http://www.bloomberglaw.com/public/document/Edward_P_Hagen_DO_Plaintiff__AppelleeCrossAppellant_v_Siouxland_O.