By Joe Forward, Legal Writer, State Bar of Wisconsin

Aug. 4, 2010 – Home improvement giant Menard, Inc. (Menard) paid just over $1.7 million to resolve employment discrimination claims by Dawn Sands, former Menard Vice President and Executive General Counsel. Now, the Wisconsin Supreme Court says Menard, which objected to an arbitration award of employment reinstatement, must pay more.

An arbitration panel ordered that Menard pay compensatory damages, back pay, liquidated damages, punitive damages, and attorneys fees to Sands. It also ordered Sands reinstated as Vice President and Executive General Counsel at Menards.

In Sands v. Menard, Inc., 2010 WI 96 (July 21, 2010), the supreme court ruled 4-3 that reinstating Sands would force her to violate ethical obligations contrary to public policy. That is, hostility between Sands and Menard executives would prevent an amicable working relationship and force her to violate rules of professional conduct.

Rather than reinstatement, the court ruled that Menard must pay Sands “front pay” to make her whole. It remanded the case for a determination of an appropriate front pay amount.

Dissenting, Chief Justice Shirley Abrahamson (Bradley, J. and Crooks, J. joined) argued that the majority exceeded powers and disregarded the law in its decision to vacate the arbitration panel’s reinstatement award. The dissent noted the court’s limited role in reviewing arbitration decisions, and the expertise of the arbitration panel.

Whether a reinstatement ordered under federal employment law violates a state’s attorney-client law “touches on a question of first impression,” Abrahamson wrote. “The place to resolve novel and emerging questions of law is not in a court’s review of a private arbitration award.”

Facts

John Menard, founder and president of Menard, Inc., hired Sands in 1998. Two months later, Sands took over the duties of outgoing Vice President and General Counsel David Coriden. At the time of his termination, Coriden earned a base salary of about $105,000. Sands started around $56,000.

In 2001, her pay increased to approximately $64,000. Through 2005, John Menard rejected Sands’ requests for increased compensation. In 2006, Sands demanded a pay increase when Charlie Menard, the chief operating officer, asked her to sign a new employment agreement. The compensation proposal did not offer Sands an increased base pay.

Hostilities ensued when Sands invoked compensation discrimination law and did not immediately accept the terms of the new employment agreement.

Shortly thereafter, the record reveals that John Menard effectively terminated Sands in an intimidating and hostile manner.

Sands asserted that she was the victim of gender-based discrimination and retaliation for claiming discrimination. The parties mutually agreed to binding arbitration.

Arbitration award

In 2007, an arbitration panel found that Sands was the victim of pay discrimination under both state and federal employment discrimination laws.

The panel – consisting of three attorneys with a combined 51 years experience in employment law – ordered that Menards pay close to $1.7 million and ordered that Sands be reinstated to her position at Menard.

In particular, the panel found that Sands was the victim of pay discrimination under the Equal Pay Act (EPA), and was wrongfully discharged in retaliation for asserting statutory rights under the EPA, Title VII and the Wisconsin Fair Employment Act. Under the EPA and Title VII, reinstatement is a remedy, but front pay is an alternative when reinstatement is inappropriate.

Sands did not request to be reinstated, instead seeking two years of front pay. However, the arbitration panel concluded that not reinstating Sands “would, in some sense, reward the company for its mistreatment of her, and moreover, would tend to send the wrong message to company employees who otherwise might be inclined to make meritorious complaints about unlawful conduct occurring within the company.”

Menard paid the full amount of the monetary award but refused to reinstate Sands. In turn, Sands filed suit in the Circuit Court for Eau Claire County. Menard filed a motion to vacate the award in full or in part. The circuit court affirmed the arbitration award in full.

On appeal, the appeals court affirmed the circuit court, holding that the arbitration panel did not manifestly disregard the law in making its decision because awarding reinstatement versus front pay is “discretionary.” Menard petitioned the supreme court.

Majority

The majority (Gableman, J., Prosser, J., Roggensack, J., and Ziegler, J.) – in an opinion written by Justice Michael J. Gableman – held that the arbitration panel exceeded its authority in ordering that Sands be reinstated as Menard general counsel.

First, the court held that reinstatement is not appropriate where the level of hostility between an employer and employee is high, “or where the position is a sensitive one requiring a high degree of trust between management and the employee.”

Second, noting that arbitration awards are rarely vacated on public policy grounds, the court nevertheless held that the arbitration’s decision violates strong public policy. That is, ordering reinstatement would force Sands to violate her ethical obligations as attorney.

“We cannot countenance an award that forces an attorney to represent a client when it is clear that the complete disintegration of mutual goodwill, trust, and loyalty renders ethical representation by that attorney impossible,” the court wrote.

Attorneys owe a fiduciary duty to the client, and the rules of professional conduct enforce this duty, the court explained. The court pointed to Supreme Court Rule (SCR) 20:1.7(a)(2), which provides that attorneys may not represent clients when “there is a significant risk that representation … will be materially limited by … a personal interest of the lawyer.”

Given the level of hostility between Sands and Menard executives, the court stated, “we see no way Sands could now return to Menard and serve the company in conformity with her ethical obligations” under the circumstances.

Reinstatement of an in-house counsel won’t always be inappropriate when the employer-employee relationship becomes stressed, the court noted. It depends on the circumstances.

Dissent

Where a public policy question is debatable, the dissent explained, judicial intervention in arbitration awards is unwarranted. In addition, review of arbitration awards is not the “place to resolve novel and emerging questions of law,” the dissent wrote.

“The majority’s result undermines the goals and practice of arbitration in Wisconsin and defeats the intent of the parties who entered into this arbitration in particular,” the dissent wrote. “What other ‘strong public policies’ may be lurking, not previously articulated, that this court could use to vacate an arbitration award …?”

Though attorneys undoubtedly have ethical obligations, the dissent explained, the majority failed to pinpoint the particular obligation that will be violated in reinstating Sands. And, the dissent noted, there is no reason to believe “the arbitration panel did not consider the applicability of Sands’ ethical obligations as an attorney,” the dissent wrote.

The dissent argued that the majority assumed the arbitration panel – with 51 years combined experience in employment law – failed to consider ethical rules or the attorney-client relationship when assessing the feasibility of a reinstatement award.

Further, SCR 20:1.7(a)(2)’s discussion of “personal interests” refers to substantive material conflicts of interest, the dissent explained. “The majority seems to stretch the meaning of ‘personal interest’ to the subjective and amorphous area of Sands’s ‘feelings’ toward Menard.”

The conclusion that Sands cannot ethically represent Menard is not tied to any legal standard, and is little more than “speculation about the facts that would result from reinstatement,” the dissent wrote.

Nothing stops the parties from negotiating a different result. Here, the court overstepped its authority to change the outcome of arbitration, the dissent explained.

The dissent concluded that Menard did not meet the burden of proving that reinstatement would violate a clear and obvious public policy.

Attorneys

Charles Maier, Daniel Shulman, Julie Boehmke, and Jeremy Johnson of Gray Plant Mooty Mooty & Bennett P.A., Minneapolis, and John Richie of Richie Wickstrom and Wachs LLP, Eau Claire, represented Dawn Sands.

Beth Hanan and Shawn Stevens of Gass Weber Mullins LLC, Milwaukee, and Webster Hart and Terry Moore of Herrick & Hart S.C., Eau Claire, represented Menard, Inc.