Maness v. Collins

Brief Fact Summary. Maness (P) who had sold his business to SKM, LLC (D) and its owners (D) brought suit against SKM (D) and the owners for breaching the three year agreement for employment he had with them before the end of the specified year. This allegation was argued against by SKM (D) and the owners (D) on the ground that Maness (P) employment was terminated on just grounds and that he was not entitled to damages because he did not make any effort to reduce his damages by seeking comparable employment elsewhere, notwithstanding that a non-competition agreement prevented him from doing so.

Synopsis of Rule of Law. (1) where an employee is actively hindered by the employer from discharging his/her duties; the termination of such an employee, employed under an employment agreement for a specified period of time is of no effect.
(2)An employer may not rely on the defense of mitigation of damages absent evidence that suitable alternative employment was available to the terminated employee where such an employer has breached the employment agreement by terminating the employee covered under the agreement.

Facts. Maness (P) sold his business to SKM, LLC (D) which was co-owned by Mike Smith (D), his son Josh Smith (D) and Collins (D). This sale was made through an asset purchase agreement. The agreement stipulated that Maness (P) would remain in the employment of the company for three years as a production manager and he would also be entitled to annual salary. Also stipulated in the agreement was the provision which stated that Maness (P) was prohibited from competing directly or indirectly with SKM (D) throughout the United States for five years.
The relationship between the company and Maness (P) nosedived as they had issues with his style of management and curtailed his authority to discipline and fire employees. The company even went as far as recalling an employee Maness (P) had fired. Without Maness’s (P) knowledge, Josh Smith (D) later held a meeting with SKM (D) employees in which he informed them that Maness (P) no longer had any authority to correct employees or tell them what to do. Maness (P) also made the drug use of Josh Smith (D) known to the management. Subsequently, Maness (P) observed that his authority had being cut. The employees became disrespectful and belligerent towards him.
Five months after he was employed by SKM (D), his appointment was terminated on the grounds that he failed to fulfill his job duties and that his actions and attitude were detrimental to the company’s success. This led to Maness’s (P) suit against SKM (D) on the ground that his employment contract was breached and asserting that the non-competition agreement was not binding. At trial, the employees at SKM (D) corroborated the testimony of Maness (P) that indeed Josh Smith (D) was using and dealing in drug at the workplace and that Maness (P) was not present in the meeting in which the employees were informed that he had no authority to discipline or terminate employees. The company on the other hand, testified that the authority of Maness (P) was reduced, that he became idle, unproductive and failed to attract new customer for the company, which constituted enough ground for them to terminate his appointment.
The trial court found that Josh Smith (D) was a drug addict and that the performance of Maness (P) waned after his authority was cut by the management. The court also declared that Maness (P) erred by becoming idle, but none the less, he was dealing daily with “a drug-addicted business owner” namely Josh Smith (D). Hence, the court came to the conclusion that the company and its owners did not meet their burden of proof to justify the termination of Maness’s (P) appointment under the employment agreement.
Pertaining to damages, the court found that Maness (P) had the duty to mitigate his damages but did not do so by seeking employment which Maness (P) challenged on the ground that it would have been pointless due to the fact that he was prohibited from doing so by the noncompetition agreement. The court finally held that since Maness (P) failed to seek employment, he failed to mitigate his damages and this precluded any award for damages. The state’s intermediate appellate court granted review to this judgment after both parties cross-appealed.

Issue. (1) where an employee is actively hindered by the employer from discharging his/her duties; does the termination of such an employee employed under an employment agreement for a specified period of time have any effect?
(2) May an employer rely on the defense of mitigation of damages absent evidence that suitable alternative employment was available to the terminated employee where such an employer has breached the employment agreement by terminating the employee covered under the agreement?

Held. (Kirby, J.) (1) No. where an employee is actively hindered by the employer from discharging his/her duties; the termination of such an employee, employed under an employment agreement for a specified period of time is of no effect. The trial court did not err in its findings that Maness (P) was prevented from discharging his duties by Josh Smith (D). Hence, SKM (D) and the owners (D) breached the asset purchase agreement under which the plaintiff is entitled to recover because they did not have cause to terminate his employment. The court affirmed as to this issue.
(2) No. An employer may not rely on the defense of mitigation of damages absent evidence that suitable alternative employment was available to the terminated employee where such an employer has breached the employment agreement by terminating the employee covered under the agreement. The failure of SKM (D) and owners (D) to prove that Maness (P) had suitable employment made it impossible for the court to determine the amount by which the employee’s damages could have reduced. Hence, with the absence of evidence to prove that suitable alternative employment was available to Maness (P), SKM (D) and owners (D) cannot rely on the affirmative defense of mitigation of damages. The court reversed as to this issue, affirmed in part, reversed in part and remanded.

Discussion. The position taken by the court in this case illustrates the general principle that a breaching employer has the burden of proving the availability of substantially equivalent employment as part of its mitigation of damage defense. The employer is relieved of this burden if it can be proved that the employee has not made any reasonable efforts to obtain such work. Due to the fact that the defendants were not able to prove that a substantially equivalent employment was available for Maness (P), the trial court erred in its ruling that Maness’s (P) alleged failure to mitigate precluded him from any award of damages at all, as it had no evidence of how much to reduce his recovery by.