Labor & Employment Law Daily Deloitte’s separate state court lawsuit could be retaliation against ex-employee’s USERRA suit
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Friday, November 1, 2019

Deloitte’s separate state court lawsuit could be retaliation against ex-employee’s USERRA suit

By Joy P Waltemath, J.D.

The court did not have to decide, on motion for leave to amend the employee’s federal court complaint, whether Deloitte’s state court suit was in fact baseless.

Granting leave to amend, a federal district court in Tennessee ruled that an ex-employee’s allegations that his former employer, Deloitte, filed a separate state court lawsuit against him—after mediation had taken place in his federal court USERRA lawsuit against Deloitte—adequately alleged that Deloitte’s lawsuit was objectively baseless to state a USERRA retaliation claim. Thus, amendment would not be futile. Mediation took place in February and Deloitte did not file suit until June, a month after the deadline to amend pleadings had passed; plus, Deloitte could have raised its claims as either permissive or mandatory counterclaims in federal court (Sanchez v. Deloitte Services, LP, October 28, 2019, Trauger, A.).

USERRA suit. The former employee sued Deloitte in federal court claiming discrimination under USERRA because the company had failed to reemploy him in the same position he had occupied before his employment was interrupted by his military service. During early mediation, one issue was whether the employee was making the same salary as individuals in the senior manager position in which he claimed he should have been placed after he returned from service. He revealed at mediation that he had salary information pertaining to some senior managers, which he claimed he obtained legally while he was still employed and shared only with his counsel, Deloitte, and the mediator. This evidence, he said, established that Deloitte was being dishonest about his comparative salary.

State lawsuit. Mediation took place in February. In June, one month after the deadline to amend pleadings had expired, Deloitte filed a lawsuit against the former employee in state court for breach of contract and violation of the Tennessee Personal and Commercial Computer Act of 2003, alleging that it learned for the first time during the mediation that the employee had improperly accessed and copied confidential information without authorization.

Seeking leave to amend. Claiming the state court lawsuit was retaliatory, the employee sought leave to amend his federal court complaint. Not only did he want to add a USERRA retaliation claim distinguishing it from his USERRA discrimination claim, he also sought to add conspiracy in violation of 42 U.S.C. § 1985(2). Deloitte opposed amendment on futility grounds—neither of the new claims for relief could withstand a motion to dismiss, it argued.

Futility. Deloitte specifically contended that the USERRA retaliation claim is futile because (1) the filing of a counterclaim cannot be retaliatory unless it is both baseless and filed in bad faith, which the employee hadn’t shown; (2) the amended complaint “expressly admits that Plaintiff engaged in the very conduct on which the State Lawsuit’s claims are based”; and (3) the state lawsuit was not an adverse employment action under USERRA or even under the Title VII retaliation standard explained in Burlington Northern & Santa Fe Railway Co. v. White.

Does USERRA retaliation reach as far as Title VII retaliation? The court would not accept the employee’s argument that White governed the anti-retaliation provisions in USERRA. Appellate courts that have considered the question unanimously recognize that White does not apply to USERRA, because the statutory language of USERRA, unlike Title VII, unambiguously prohibits “discrimination in employment” and “any adverse employment action”—not the broader language of Title VII.

But separate lawsuit may be retaliatory “adverse employment action.” USERRA does not define the term “adverse employment action,” but courts have generally held that the definition of “adverse employment action” applied in Title VII and other similar employment discrimination lawsuits also applies to USERRA claims. Although the employee was no longer working for Deloitte when he sued or when Deloitte filed the state lawsuit, USERRA’s legislative history makes clear that “employee” is intended to include former employees asserting claims based on post-employment events. Also, acts that affect an employee’s future job prospects may qualify as an adverse employment action.

Counterclaim? The court here reasoned that a number of courts have found that “the filing of lawsuits, not in good faith and instead motivated by retaliation, can be the basis for a claim under Title VII.” Deloitte countered that federal courts have generally held either that counterclaims cannot, as a matter of law, be retaliatory or, that filing a counterclaim in response to an employee’s discrimination lawsuit can’t support a retaliation claim unless the counterclaim is baseless or filed in bad faith.

Allegations adequate. But the court took these arguments apart. As for Deloitte’s claim that the employee never alleged facts that the state lawsuit was filed in bad faith (Deloitte claimed the amended complaint admitted to “accessing and copying Deloitte’s confidential information”), what the amended complaint actually alleged was that the employee disclosed his knowledge of senior manager salaries to his attorney and the mediator during mediation and that he obtained the information with Deloitte’s express or implied permission. He also alleged the state lawsuit was filed to purposefully impede his federal court USERRA discrimination claim.

On motion to amend, the court said it was in no position to determine whether the state law claims were baseless or not. But it could determine that the employee’s amended complaint adequately alleged that Deloitte brought an objectively baseless lawsuit, in bad faith, with a retaliatory motive. And the court took the time to note that although Deloitte continuously characterized its lawsuit as a “counterclaim,” in fact, it was a separate lawsuit, in state court.

Separate lawsuit, not counterclaim. The separate state court lawsuit forced the employee “to litigate in two fora rather than one,” which was not a trivial distinction. Plus, the claims Deloitte raised in the state lawsuit “clearly could have been asserted within the context of the lawsuit in this court, whether they would have been considered permissive or mandatory,” stressed the court. Deloitte learned of the basis for its claim well before the deadline to amend expired—but did not file the state court lawsuit until after that deadline expired. To the court, “the fact that Deloitte filed the State Lawsuit without seeking to bring counterclaims in this court, thus forcing the plaintiff to litigate in both state and federal court, standing alone, smacks of vindictiveness.” Without deciding whether the lawsuit had to be baseless to be retaliatory, the court allowed the motion to amend.

No conspiracy claim. However, the employee would not be allowed to add his Section 1985 conspiracy claim. In brief, he alleged that Deloitte’s Director of Federal Contracts met with “unknown John and Jane Does” after the mediation to talk about his lawsuit, and together they agreed (outside the scope of their employment) to impede and deter his prosecution of the USERRA suit. The factual content of his allegations was “utterly insufficient to state with plausibility the elements of a conspiracy claim under § 1985(2).” On that basis, the court denied leave to amend.

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