Employment Law Report

Kentucky Court Rejects Wrongful Discharge Claim

By Kristie Alfred Daugherty

On August 14, 2009, the Court of Appeals of Kentucky handed down a decision in the case of Welsh v. Phoenix Transportation Services, LLC, No. 2007-CA-001231, 2009 WL 2475206 (Ky. App. Aug. 14, 2009), holding that absent an affirmative request by the employer for an employee to violate the law, the employee’s wrongful discharge in violation of public policy claim fails. 

Welsh was employed as controller of Phoenix and acted as its chief financial officer.  Phoenix had an unwritten agreement with Pilot Fuel in which Pilot provided rebate checks to Phoenix when it used Pilot’s fuel.  On August 6, 2002, Kevin B. Warren (“Warren”), the owner of Phoenix, sent an email to a Phoenix employee, Mark Harmon, asking that he give the rebate checks to Warren to deposit into his personal account.  Welsh and the company vice-president were copied on the email.  Welsh believed the proposed plan constituted tax evasion, tax fraud and fraud on the company books and told Warren he could not do that.  Welsh admitted that Warren never indicated her job would be jeopardized if she did not go along with the scheme.  The company’s financial records indicated both Phoenix and Warren ultimately declared the rebate checks as income and paid any taxes due.  Neither Phoenix o Warren were ever investigated or charged with tax crimes due to the checks.

In September 2002, Phoenix hired an independent consulting firm to evaluate its business and as a result of the review, the firm issued a report describing Welsh as incompetent and recommending her immediate termination.  On October 3, 2002, after being asked to, Welsh resigned from Phoenix.  She alleged she was terminated due to her refusal to participate in the alleged conspiracy to commit tax fraud and filed a complaint for wrongful termination in violation of public policy against Phoenix and Warren.  The circuit court granted summary judgment to Phoenix and Warren, finding that she was never asked to violate the law and there was no nexus between her termination and the alleged wrongdoing. 

The Court of Appeals of Kentucky found that while Welsh was copied on the email message, she was not asked to act or refrain from acting.  Therefore, the court found that there was no proposed illegal activity or request from Warren that Welsh violate the law.  Specifically, the court held “an employee claiming wrongful discharge due to a refusal to violate the law must show an affirmative request to him/her by the employer to violate the law….[A] claim of wrongful discharge will not stand when an employee has never been instructed to violate the law by her employer.”