Alaska Employment Law

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Introduction

The Alaska Supreme Court issued a new opinion on Friday, April 30, 2010, in which it apparently broadened the implied covenant of good faith and fair dealing and further expanded constructive discharge claims.  The case is Okpik v. Barrow, ___ P.3d ___, Slip Op. 6473 (Alaska Apr. 30, 2010).  This summary briefly reviews the case and its significance.

The Case

Lucy Okpik began working as an accountant for the City of Barrow in 1994.  In 1997 she was promoted to the position of finance director.  In October 2004 a new mayor, Nathaniel Olemaun, was elected.  Olemaun issued a memo advising all employees that he was placing management level personnel appointed by the mayor (including Okpik’s position as the finance director) in an “acting” status, presumably until he had time to evaluate whether or not he wanted to continue their respective appointments. What happened next is disputed.  According to Okpik, Olemaun gave the finance department a revised personnel action form with an adjusted higher rate of pay for which he was not entitled.  According to Olemaun, all he ever did was tell the finance department to pay him the same rate as the previous mayor was paid. However it happened,  Olemaun wound up being paid $20,000 more than what he was entitled to receive between October 2004 and April 2005.  Okpik never advised anyone.

On April 14, 2005, Olemaun told Okpik that he was going to demote her to a senior accountant position.  He explained that the City had experienced several budget problems during Okpik’s eight-year tenure as the finance director. Olemaun also told Okpik that he wanted to hire a finance director who had better training, education, and experience.  He asked Okpik to remain in the finance department and to help train the new finance director when that person was hired.  Okpik quit.

Okpik met with a city council member in May 2005 and disclosed that Olemaun had been overpaid since October 2004.  A subsequent independent investigation confirmed that Olemaun had been overpaid but did not ascribe fault.

Okpik filed suit in April 2006.  She alleged claims under 42 U.S.C. § 1983 for violation of due process rights, under Alaska’s Whistleblower Act (AS 39.90.0100-.150), and a common law wrongful termination claim.  The wrongful termination claim was premised on two sub-issues:  (1) that Okpik had been constructively discharged when she was demoted, and (2) that the City had breached the implied covenant of good faith and fair dealing and thus had wrongfully terminated her employment.

After some procedural hiccups not germane here, the superior court granted the City summary judgment on all claims.  Okpik’s § 1983 claim was barred because as an at-will employee she had no property interest in continued employment.  Okpik’s whistleblower claim was precluded because she only reported the overpayment after she left the City’s employment.  Okpik’s wrongful termination claim was dismissed because any alleged adverse employment action was permitted under Okpik’s contractual relationship with the City (as memorialized by the Barrow City Code).

The Opinion

The Alaska Supreme Court affirmed in part, but reversed in part.  Only three justices participated.  Justice Christen wrote for the Court, joined by Chief Justice Carpeneti and Justice Winfree.  The Court held that Okpik’s § 1983 claim was properly dismissed because under the City Code she was a confidential or managerial employee who served at the mayor’s pleasure and therefore had no protected property right in continued employment.  The Court also held that Okpik’s whistleblower claim was also properly dismissed because she never blew the whistle when she was still employed.  Instead, she approached a city council member with her report that the mayor had been overpaid only after she had resigned. Consequently, she could not claim protection under the Act.

However, the Court reversed the grant of summary judgment on the wrongful termination claim.   The Court noted that a wrongful termination claim was composed of two elements.  First, the employee had to show that he or she had been discharged.  Second, the employee had to show that the employer breached a contract or committed a tort in connection with the discharge.

The superior court had initially reasoned that the first element was satisfied because Okpik’s demotion constituted a constructive discharge.  The City sought reconsideration and prevailed but never challenged this specific determination.  The Alaska Supreme Court therefore left the superior court’s conclusion regarding the constructive discharge stand without further analysis.

With respect to the second element, Okpik relied on an implied covenant of good faith and fair dealing theory.  She argued that the City breached the implied covenant by demoting her to cover up the fact that the mayor had been overpaid.  Okpik more particularly argued that there were genuine issues of material fact concerning whether or not the implied covenant had been breached because she did not have any control over personnel matters such as pay whereas the mayor had exclusive control over those matters, Okpik had been blamed for the overpayment error, and that Okpik had adequately performed the job as finance director for almost eight years between 1997 and the time of her demotion, thereby undermining the mayor’s contention that she lacked qualifications for the job.

The Court accepted Okpik’s arguments, and reversed the grant of summary judgment on the wrongful termination claim.

Significance

Without appearing to criticize the Court or counsel, the Court’s disposition of the wrongful termination claim is somewhat surprising.  Concerning the first element (whether a discharge occurred), a constructive discharge exists where an employer makes the working conditions “so intolerable that a reasonable person in the employee’s position would have felt compelled to resign.”  Pyramid Printing Co. v. ASCHR, 153 P.3d 994, 999 (Alaska 2007).  This is a difficult standard to meet.  Most federal and state courts examining the subject have concluded that a demotion is simply not enough to establish a constructive discharge claim.  See Poland v. Chertoff, 494 F.3d 1174, 1185 (9th Cir. 2007) (transfer and demotion not enough to establish a constructive discharge); Turner v. Anheuser-Busch, Inc., 876 P.2d 1022, 1027 (Cal. 1994 ((en banc) (demotion and reduction of pay not sufficient to establish a constructive discharge).  It is hard to see how Okpik could claim a viable constructive discharge claim.

Concerning the second element (breach of contract), the implied covenant gives effect to the employee’s and employer’s respective reasonable expectations, but cannot be relied upon to vary or alter those same expectations. See Ramsey v. Sand Point, 936 P.2d 126, 133 (Alaska 1997). The Barrow City Code provided that Okpik (as the finance director) was a confidential employee who served at the mayor’s pleasure.  If she could be terminated at will it is difficult to understand how a lesser form of discipline such as a demotion would support an implied covenant claim.  Moreover, the pretext argument seems unfounded.  According to the Court’s opinion, the mayor never said that Okpik was not qualified.  All he said was that he wanted to find someone who was more qualified. The distinction is subtle but significant.

Ultimately, however, the Court’s opinion provides another example concerning the broad scope of the implied covenant in Alaska employment claims.  Employers should learn that lesson and carefully evaluate all circumstances before taking an adverse employment action.