By Joe Forward, Legal Writer, State Bar of Wisconsin

June 9, 2010 – The narrow exception to Wisconsin’s employee-at will doctrine does not apply to a termination over unearned wages, the appeals court recently held. In addition, an employee’s claims for infliction of emotional distress and defamation are barred by the Worker’s Compensation Act, regardless of whether those claims arise after termination.

In Farady-Sultze v. Aurora Medical Center of Oshkosh, Inc., 2009AP2429 (June 2, 2010), Aurora fired social worker Mary Farady-Sultze after discovering they overpaid her during a four-month period, and she never brought the error to Aurora’s attention. Farady-Sultze sued for wrongful termination, intentional infliction of emotional distress, and defamation. The Winnebago County Circuit Court dismissed the complaint. This appeals court affirmed.

Wages must be earned  

Wisconsin’s employee at-will doctrine allows employers to terminate employees for any reason, without cause, and with no judicial remedy, the court explained. However, a narrow exception applies if the termination violates public policy.

Aurora violated public policy, Farady-Sultze claimed, because the firing violated Wis. Stat. section 103.455, which prohibits an employer from deducting from the “wages due or earned by an employee for faulty workmanship, lost or stolen property or damage to property.”

Farady-Sultze likened the facts to Wandry v. Bull’s Eye Credit Union, 129 Wis. 2d 37, 384 N.W.2d 325 (1986), a case in which a credit union cashier cashed a customer’s stolen check and was fired after refusing to reimburse the credit union. The supreme court held in favor of the employee based on the section 103.455 public policy exception argument.

However, this appeals court held that the statute has no application here. Unlike the employee in Wandry, the court held, Farady-Sultze never earned the overpayments, and the statute only protects an employee for “earned wages taken away.”

Emotional distress and defamation claims barred

Farady-Sultze also claimed that Aurora intentionally inflicted emotional distress, and defamed her because Aurora’s policy is to disclose the reason for termination to potential employers.

The circuit court held that both claims were barred by an exclusivity provision in the Worker's Compensation Act – Wis. Stat. section. 102.03.

The exclusivity provision only applies, Farady-Sultze argued, when an emotional distress claim arises “within the scope of employment,” not when they arise after termination. She cited a 1984 federal district court case to support this argument.

With regard to the emotional distress claim, the appeals court disagreed, noting that it was not bound by federal court decisions construing state law, and it must follow Jenson v. Employers Mutual Casualty Co., 161 Wis. 2d 253, 486 N.W.2d 1 (1991), even though the employees claims in Jenson arose when the employee was still employed, not after termination. Even if a distinction to Jenson exists, the appeals court wrote, “it is not found on the facts here.”

With regard to the defamation claim, the appeals court noted other Wisconsin cases holding that a defamation claim was barred by the Worker’s Compensation Act despite arising after discharge. Regardless of the case law, the court noted, “there is no evidence that defamation has occurred yet.” In other words, there is no evidence that Aurora has, or ever will, disclose to a potential employer the reason that Farady-Sultze was terminated despite its policy to do so.