McNaughton v. Charleston Charter School for Math and Science, Inc.
411 S.C. 249 (2015)
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Rule of Law:
An employment contract clause making employment 'contingent on funding' does not permit termination when the employer has sufficient funds but chooses to reallocate them for other discretionary purposes. Such a clause is only triggered by an actual lack of funds, not by a simple reallocation of an existing and adequate budget.
Facts:
- Cynthia McNaughton, a participant in the state's Program of Alternative Certification for Educators (PACE), signed a one-year employment agreement to teach art at The Charleston Charter School for Math and Science for the 2010-2011 school year.
- The school was aware that McNaughton's completion of the PACE program and her ability to become a certified teacher depended on her completing this 'induction' teaching year.
- McNaughton's employment agreement contained a clause stating the contract was 'contingent on funding and enrollment.'
- McNaughton performed her job well, receiving positive feedback from students and parents, and was never subject to disciplinary action.
- On December 1, 2010, the school's principal terminated McNaughton's employment mid-year.
- The principal stated that McNaughton's salary funds were being reallocated to hire a new math teacher in response to students' poor test scores.
- At the time of McNaughton's termination, the school's budget had available funds, including money in line items for 'teacher salary supplement' and 'administrative staff services,' which could have covered her salary.
Procedural Posture:
- Cynthia McNaughton filed a complaint against The Charleston Charter School for Math and Science in a South Carolina trial court, alleging wrongful termination/breach of contract and other claims.
- During a jury trial, the court granted the school's motion for a directed verdict on three of McNaughton's four claims but denied the motion for the breach of contract claim.
- The jury returned a verdict in favor of McNaughton on the breach of contract claim, awarding her $20,623 in actual damages and $74,112 in special damages.
- The trial court denied the school's post-trial motions for judgment notwithstanding the verdict (JNOV) and for a new trial.
- Following a separate hearing, the trial court awarded McNaughton $37,894 in attorney's fees.
- The Charleston Charter School for Math and Science (Appellant) appealed the trial court's adverse rulings to the court of appeals, and the Supreme Court of South Carolina certified the appeal for its own review before the lower appellate court could hear it.
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Issue:
Does an employer breach a one-year employment contract that is 'contingent on funding' by terminating an employee mid-year to reallocate her salary funds to hire a different teacher, when the employer's overall budget has sufficient, albeit differently designated, funds to continue paying the terminated employee?
Opinions:
Majority - Chief Justice Toal
Yes. An employer breaches an employment agreement by terminating an employee under a 'contingent on funding' clause when the termination is based on a discretionary reallocation of available funds rather than an actual lack of funds. The evidence, viewed in the light most favorable to McNaughton, showed that the school had funds available to pay her salary but chose to use them to hire a new math teacher. This reallocation does not constitute a lack of funding under the contract's contingency clause. The court also affirmed the award of special damages, finding it was foreseeable to the school that terminating an induction teacher mid-year would have significant negative career consequences, as the school knew of her participation in the PACE program. Finally, the court upheld the attorney's fees award, ruling that a charter school is a 'state actor' under the relevant statute because it is a public school funded by state money and created by state law, and that the school's defense lacked substantial justification.
Concurring-in-part-and-dissenting-in-part - Justice Pleicones
No, on the issues of special damages and attorney's fees. While concurring that there was sufficient evidence to support the jury's finding of a breach of contract, this opinion dissents from the majority's decision to uphold the special damages and attorney's fees. There was no evidence that the school had reason to foresee the extent of McNaughton's losses beyond her salary for the contract term, and her potential future earnings were purely speculative. Furthermore, the school's defense was substantially justified, particularly since it prevailed on three of McNaughton's other claims at trial, making an award of attorney's fees unjust.
Analysis:
This decision clarifies that 'contingent on funding' clauses in employment contracts are not a tool for employers to exercise discretionary termination rights similar to at-will employment. The ruling establishes that such clauses require an objective, actual shortfall of funds, not just an internal, discretionary reallocation of an existing budget. The case is also significant for its holding that charter schools are 'state actors' for the purposes of the South Carolina attorney's fees statute, subjecting them to greater accountability. This precedent reinforces protections for fixed-term employees and expands the legal responsibilities of quasi-public educational institutions in the state.
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