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North Carolina Court Says Employee Claiming Termination for Reporting Financial Misconduct Can Sue for Wrongful Discharge

    Client Alerts
  • March 26, 2010

North Carolina is an employment at will state, meaning that employees generally cannot sue an employer because they believe that a termination decision is unfair or unethical. Apart from the statutory civil rights and anti-retaliation laws, the main exception to the employment at will doctrine is a wrongful discharge claim by a terminated employee. In North Carolina, wrongful discharge claims are limited to circumstances where the employee can demonstrate that the termination violated some clear public policy.

In recent years, North Carolina courts have restricted the wrongful discharge tort to situations where there is a very clear statutory basis for the public policy claim. Absent a specific law prohibiting the employer's behavior that led to the termination, courts have rejected plaintiffs' attempts to base wrongful discharge claims on general allegations of unethical conduct.

Last week however, the North Carolina Court of Appeals reminded employers that the wrongful discharge tort remains available to discharged employees in appropriate situations. In Combs v. City Electric Supply Company, the plaintiff was an accounts receivables manager who alleged that he was terminated after he disputed the employer's practice of not reimbursing or crediting customer accounts for overpayments or other negative receivables balances. After the close of evidence during a jury trial on his wrongful discharge claim, the trial judge entered a directed verdict for the defendant, concluding that the plaintiff had not provided adequate evidence for a valid wrongful discharge claim.

The Court of Appeals reversed this verdict, remanding the claim for a new trial. The court stated that the plaintiff's allegations basically involved the employer stealing from its customers, and cited a number of specific criminal statutes that prohibit the behavior that formed the basis of his complaints. The court also found that the plaintiff produced adequate accounting records and other information to allow a jury to determine if his termination was in fact related to his complaints.

This case points out the need to carefully manage discipline and discharge of employees who can claim possible "whistleblower" protections. Even if the complaints do not involve discrimination, securities or accounting irregularities, or other matters covered under specific employment laws, any allegation of illegal behavior can form the basis for a possible wrongful discharge lawsuit.