Timothy Gilkerson v. Nebraska Colocation Centers
42 I.E.R. Cas. (BNA) 1, 2017 WL 2656073, 859 F.3d 1115 (2017)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
Under Nebraska law, for an agreement to be voidable due to duress, it must not only be obtained through pressure, but the agreement itself must also be unjust, unconscionable, or illegal, with the unjustness determined by considering all relevant circumstances and the presence or absence of economic justification for detrimental changes.
Facts:
- On August 22, 2011, Nebraska Colocation Centers, LLC (NCC) hired Timothy Gilkerson as its Vice President and General Manager under a ten-year employment contract.
- The original Contract included a base salary of $84,000, 2% of gross sales for the first three years and 2.5% thereafter, quarterly sales bonuses, a retirement bonus, and a 'Premature Termination' provision specifying large payouts if Gilkerson was terminated 'without cause'.
- The Contract defined 'cause' for termination as 'willful misconduct... which causes economic harm' or 'persistent failure to perform... not remedied by him within 30 days after... written notice'.
- NCC became dissatisfied with Gilkerson's sales performance, notified him, and later gave him an 'Unsatisfactory' performance review for 'Achieves Sales Goals' and 'Fulfills the terms of his contract', a rating Gilkerson disputed.
- On July 8, 2013, NCC announced the hiring of a new Vice President, informed Gilkerson that the new employee would move into his office, and changed Gilkerson's job title to 'Director: Field Engineering and Channel Services'.
- On July 15, 2013, NCC's president met with Gilkerson and presented him with a 'Mutual Rescission' to cancel his original Contract and a 'Term Sheet' outlining new employment terms, which kept his base salary but significantly altered his bonus structure, eliminated his retirement bonus, and removed the 'for cause' termination provision, making him an at-will employee.
- Gilkerson consulted with an attorney who advised him not to sign the Mutual Rescission and Term Sheet.
- On July 17, 2013, NCC's president criticized Gilkerson's work performance and told him he had a choice: accept the rescission and Term Sheet or be fired for cause, leading Gilkerson to sign the agreements the following day.
Procedural Posture:
- Timothy Gilkerson filed suit against Nebraska Colocation Centers, LLC (NCC) in Douglas County District Court (state trial court) alleging breach of contract and violation of the Nebraska Wage Payment and Collection Act.
- NCC removed the case to federal court (United States District Court for the District of Nebraska - Omaha).
- NCC filed a motion for summary judgment with the district court.
- The district court 'reluctantly' granted NCC's motion for summary judgment, holding that while a genuine issue of material fact existed regarding the threat of termination supporting a duress claim, there was no evidence the Mutual Rescission and Term Sheet were unjust, unconscionable, or illegal under Nebraska law, thus not enough to void the rescission, and summarily dismissed the Wage Payment and Collection Act claim.
- Gilkerson appealed the district court's decision to the United States Court of Appeals for the Eighth Circuit, where Gilkerson was the appellant and NCC was the appellee.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does an employer's threat to terminate an employee for cause if they refuse to sign a new employment agreement, which significantly reduces the employee's benefits and changes their employment status from 'for cause' termination to at-will, constitute sufficient duress to render the new agreement unjust and thus voidable under Nebraska law?
Opinions:
Majority - Beam, Circuit Judge
Yes, an employer's threat to terminate an employee for cause if they refuse to sign a new employment agreement that significantly reduces the employee's benefits and changes their employment status to at-will can constitute sufficient duress to render the new agreement unjust and thus voidable under Nebraska law. The Eighth Circuit reviewed the district court's grant of summary judgment de novo and agreed that a genuine issue of material fact existed regarding whether the threat of termination constituted the 'pressure brought to bear' element of duress under Nebraska law. However, the court disagreed with the district court's conclusion that the Term Sheet was not unjust as a matter of law. Citing Nebraska precedent, the court emphasized that the 'unjust, unconscionable, or illegal' element requires considering all relevant circumstances of the case, and not just the fairness of the terms in isolation. The court specifically compared the Term Sheet's provisions to Gilkerson's original ten-year contract, noting substantial detriments: a demotion, a significantly reduced bonus structure, the elimination of a substantial retirement package and equity potential, and critically, the change from 'for cause' termination to at-will employment. The court found 'no economic justification' for requiring Gilkerson to accept an at-will agreement, concluding that the Term Sheet was unjust because it primarily served to allow NCC to avoid the provisions most favorable to Gilkerson from his original contract. Consequently, the court reversed the grant of summary judgment on both the breach of contract claim and the Nebraska Wage Payment and Collection Act claim, remanding the case for further proceedings to determine the factual issue of duress.
Analysis:
This case provides crucial clarification on the application of Nebraska's two-part duress test, particularly concerning employment contracts. It establishes that courts will meticulously examine the fairness of new contractual terms when an existing employee is pressured into accepting them, especially if there's an imbalance of power. The ruling highlights that significantly detrimental changes without clear economic justification, especially those that reduce job security or benefits, can render an agreement 'unjust' and thus voidable, even if the terms might seem fair for a new employee. This reinforces protections against employers exploiting an employee's vulnerable position to evade prior contractual obligations, offering a pathway for employees to challenge contract modifications made under duress.
