Financial analysis of wrongful termination: Joseph Kidwell.

Berg, M. Douglas ; Stretcher, Robert

CASE DESCRIPTION

The primary subject matter of this case concerns the valuation of economic damages incurred by Mr. Joseph Kidwell upon his wrongful termination from Gilad Lexus of Billings, Montana. A secondary issue examined involves brand specific knowledge which is not transferable to the selling of other automobiles. The course has a difficulty level appropriate for the advanced undergraduate or first year masters students, practicing HR managers or those seeking to become forensic economists. The case is designed to be taught in one and a half class hours and is expected to require two hours of outside preparation by students.

CASE SYNOPSIS

Joseph Kidwell, a talented sales manager for a Lexus dealership, was terminated for refusing to call the police and report a car as being stolen. It was later found that an employee had borrowed the car without permission, but Joseph had already been terminated. Joseph brought a lawsuit against the dealership for wrongful termination, the details of which are presented in this case. The reader is tasked with analyzing the economic loss suffered by Joseph due to the termination.

INTRODUCTION

Joseph Kidwell grew up in Billings, Montana. He graduated from the local high school in 1998 and went to work for Gilad Lexus in October of the same year. Joseph enjoyed his job selling cars. He had a real fascination with the Lexus brand of automobiles and spent hours each day improving his stock of knowledge about the cars.

Two years after starting his j ob with Gilad Lexus, Joseph married his high school sweetheart, Jennifer Paulson. A year later they had their first child, Ryan. It was time to move out of the apartments and into a home of their own. They built a new home in a subdivision close to the dealership. Jennifer joined a number of civic organizations in an effort to integrate the family into the social fabric of the community.

In July of 2003, Joseph and Jennifer had their second child, Lisa. Luckily, Joseph's career at Gilad had been progressing. The existing Sales Manager of the dealership retired in August, and the General Manager, Mike Neddlemeyer, thought Joseph was the perfect choice to fill the opening. The duties of a Sales Manager include supervising the sales staff, directing the advertising, and running the sales department in such a way as to maintain the customers' perception of the Lexus way of doing things.

MANAGEMENT STRUCTURE AND COMPENSATION

The management structure of each Lexus dealership consists of a general manager with a sales manager and a service manager reporting to the general manager. Depending on the size of the dealership, there may be assistant sales and service managers. The general manager of the Gilad dealership, Mike Neddlemeyer, liked Joseph and trained him in the Lexus way of doing things. Lexus dealerships attempt to differentiate themselves from competing car brands by offering a distinctive style of service and attention to detail. It takes time and effort to learn this way of doing things. Joseph excelled in his job.

His compensation as Sales Manager consisted of a $25,000 base salary plus 2 percent of gross sales. In 2003 his total compensation consisted of $130,411. Through the dealership, Joseph was able to purchase health insurance for his family at a group rate of $400 per month. Gilad Lexus offers a defined contribution retirement plan for it's employees. The dealership matches 50% of an employee's contributions to a 401k account up to a maximum of 3% of the employee's total compensation. Joseph made sure that he contributed 6% of his income to his 401k so that he was able to get the maximum 3% match.

EVENTS LEADING UP TO THE TERMINATION

In January of 2006, Mr. Neddlemeyer retired. The owners of the dealership appointed Jack Maguire as the new General Manager. From the outset, Mr. Maguire gave the impression of a person unsure of himself. He had a need to exert his authority and establish his right to call the shots. For the managers who reported to Mr. Maguire, this was annoying. Prior to Mr. Maguire's arrival, the sales and service managers knew what Mr. Neddlemeyer expected of them and they did their jobs without checking first with Mr. Neddlemeyer. Mr. Maguire on the other hand, expected to be consulted on many decisions that Joseph and the service manager considered to be routine.

On June 3, 2006 Larry Robbins, a salesman who had been with the dealership for a year and a half, had car trouble on his way to work (he wasn't driving a Lexus). After having his car towed to a local service station, the tow truck driver dropped him off at the Gilad dealership. That evening, not having a ride home, Larry took the keys to one of the demonstrator cars and drove it home. He did not ask whether this was acceptable, he just did it. Later that evening, Mr. Maguire returned to the dealership after the dealership had closed and noticed that one of the demonstrator cars was missing. He called Joseph to find out who had the car. Joseph didn't know offhand where the car was but didn't think the car had been stolen. Mr. Maguire insisted that Joseph call the police and report the car stolen. Joseph refused to do this on the grounds that it was unnecessarily hasty. Upon his refusal, Mr. Maguire became very angry and fired Joseph immediately.

The next day, Larry returned to work with the car he had borrowed. Learning that Joseph had been fired, Larry went to Mr. Maguire and explained what he had done. Not wanting anyone to question his authority, Mr. Maguire refused to reverse his decision to dismiss Joseph even though he now knew that there had been no theft.

Needless to say, Joseph was in shock. At the time of his dismissal he was earning over $200,000 per year plus benefits. Suddenly he was earning nothing. Trying to find another position in Billings that paid him the same amount of money was going to be difficult. He did not have a college degree, which was often required in management positions. His knowledge of the automobile business was limited to Lexus and the Lexus way of doing things. There was only one Lexus dealer in Billings, Montana and that was Gilad Lexus.

THE LAWSUIT

After several weeks of trying to get Mr. Maguire to change his mind, Joseph concluded that he had no other recourse than to sue Gilad Lexus for wrongful termination. He contacted Peter Copton, an attorney recommended by a friend. Peter explained that the case will revolve around the economic damages suffered by Joseph as a result of the termination. These economic damages will consist of the difference between the expected money and benefits Joseph would have earned if he had not been terminated and the money and benefits he is expected to earn after termination. Any expenses incurred in the process of finding new employment could also be claimed as damages. Peter arranged for a trial date of August 1, 2007.

Of course Mr. Maguire and the attorney for Gilad Lexus had a different view. Mr. Maguire firmly believes that he was within his rights to fire Joseph for refusing to follow a direct order. Joseph was an "at will" employee, which means that he worked at the will of the employer and could be dismissed at any time.

PREPARATIONS FOR THE TRIAL

Joseph's attorney, Peter Copton, has sought your assistance in analyzing the economic damages that form the basis for the lawsuit. He has asked you, in addition, to be sure to assess the effects of inflation in estimating future damages, to justify your chioce of discount rate, and to ascertain the appropriate time frame during which Joseph could attain his previous level of earnings.

Since the time of his dismissal, Joseph has been looking for employment. Unfortunately, Joseph is being forced to consider moving away from Billings. He is currently paying $900 per month for his family's health insurance. Unemployment insurance is paying him $1,500 per week, but that will end after a total of 18 weeks.

Traditionally, damages should be categorized as Past Damages and Future Damages. Past Damages consist of economic losses which occur since the time of dismissal up to the time of the trial. No future value adjustment should be made to these values. Future damages are the losses which occur after the date of the trial and extend into the future for some specified length of time. How long into the future is unclear. Ideally, it would be until the point in time when Joseph is again earning the same money that he was earning at Gilad Lexus. The present value of all future damages should be computed using an appropriate discount rate.

M. Douglas Berg, Sam Houston State University

Robert Stretcher, Sam Houston State University

Table 1: Joseph's W-2 Earnings

  2003        2004       2005        2006

$130,411    $210,056   $225,312   $110,934