Sex With Assistant Results in Termination for “Cause” and Denial of Severance Benefits

Here’s yet another reason not to engage in sexual activity with subordinates.

In Scholem v. Acadia Realty Ltd. Partnership (decided August 7, 2014), the court held that an employer established, as a matter of law, that it fired plaintiff (its former Senior Vice President-Director of Property Management) for “cause” after he engaged in sexual relations with his administrative assistant.

The parties’ 2008 severance agreement provided that plaintiff would be entitled to “enhanced severance benefits” if, among other things, he was fired without cause, but that he would not be entitled to such benefits if his employment were terminated for “cause”. The agreement defined “cause” as, among other things, conduct “constituting a material act of willful misconduct in connection with the performance of his duties.”

In 2009, plaintiff engaged in sexual relations with his administrative assistant, a woman whom he directly supervised, in violation of the defendant’s sexual harassment policy. Following its investigation, defendant offered plaintiff the option of resigning with three months’ salary, or being terminated for cause. Plaintiff refused to resign, and the company then fired him for “cause” for engaging in an inappropriate romantic relationship with a subordinate.

In finding that defendant’s termination of plaintiff was for “cause”, the court reasoned:

Although the parties dispute the nature and extent of the plaintiff’s relationship with his administrative assistant, the plaintiff admitted that he engaged in a consensual sexual encounter with her on May 20, 2009, while staying at a hotel in the Rhode Island area and while on business for the defendant. The Employee Handbookclearly provides that sexual relations between supervisors and subordinates, even consensual ones, are a violation of the defendant’s sexual harassment policy and that such violations may result in disciplinary action up to and including discharge from employment. The plaintiff acknowledged receiving the handbook and agreed to abide thereby. …

[U]nder these circumstances, the plaintiff was terminated for cause because he committed “a material act of willful misconduct in connection with the performance of his duties.”

Next, the court rejected plaintiff’s argument that the term “willful misconduct” was ambiguous:

The record reflects that the plaintiff was fully aware of the defendant’s sexual harassment policy, including the prohibition against sexual relations between supervisors and subordinates, and the consequences of violating that policy when he had sexual relations with his administrative assistant in May 2009. The plaintiff, therefore, knew that he was engaging in misconduct, and his actions were not accidental or unwitting. Although the plaintiff contends that the May 2009 sexual encounter was not initiated by him, the record reveals that he did nothing to stop it, nor does he contend that he was under the influence of alcohol or otherwise unable to consent thereto. Moreover, since it occurred while on a business trip to Rhode Island, the court finds that it was in connection with the performance of the plaintiff’s duties.

The court concluded:

An employer’s determination of good cause justifying termination of an employment contract is entitled to deference particularly when, as here, a high-level management employee is involved. Good cause means some substantial shortcoming detrimental to the employer’s interests that the law and sound public opinion recognize as grounds for dismissal. The ultimate criterion of good cause is whether the employer acted reasonably in discharging the employee because of misconduct. A discharge may be upheld as one for cause (1) if it is reasonable to discharge employees because of certain conduct and (2) if the employee had fair notice, express or implied, that such conduct would be grounds for discharge.

The defendant has presented evidence, which the plaintiff does not dispute, that sexual harassment is detrimental to its business interests, as well as being contrary to the law and sound public opinion. The defendant adopted its sexual harassment policy because sexual-harassment claims pose a major risk to employers, exposing them to reputational injury and legal costs even if the claims are found to be without merit. The defendant prohibited sexual relations between supervisors and subordinates because they are implicitly coercive, because they tend to create an intimidating work environment, and because they interfere with the work of the supervisor, the subordinate, and other employees. The plaintiff had fair notice that it was the defendant’s policy to prohibit all forms of sexual harassment, including consensual sexual conduct between supervisors and subordinates, and that such conduct would be grounds for his discharge. The court finds that, under these circumstances, it was reasonable to terminate the plaintiff’s employment for cause. Having put in place a strong policy against sexual harassment, the defendant needed to enforce that policy. To pay the plaintiff the enhanced severance benefits to which he would be entitled only if his termination were without cause would minimize his misconduct, which is clearly contrary to the defendant’s express policies, as well as the public policy of this state.

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