Nonrenewal of Contract After Whistle-Blowing May Be Illegal — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily

Nonrenewal of Contract After Whistle-Blowing May Be Illegal

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Don't assume that just because you hire people as independent contractors, you can't be liable for wrongful termination if you don't renew their contracts. As a new court ruling shows, if an employee blows the whistle about some potentially illegal activity at your workplace, you could trigger a retaliation lawsuit by failing to renew his or her contract.

If you're a public employer, such as a state or local government, your liability may be based on the contractor's "free speech" rights. If you're a private employer, your liability may rest on the idea that the whistle-blower is serving "the greater public good" by pointing out alleged law violations.

Recent case: David Springer worked as a contract psychiatrist for the Delaware Psychiatric Center, which is run by the state health department. He worked under a series of one-year contracts that said he could be terminated without cause on 15 days' notice.

When Springer began complaining that patients were being mistreated, management turned cold on him. Soon after, his employer decided against renewing his contract for the next year, even though it renewed the contracts of every other psychiatrist. In nine years, Springer's contract was the only one not renewed.

He sued for retaliation, and a jury awarded him $285,000 in back pay and $600,000 in lost future pay. The court also said the manager in charge of contracting was personally liable for retaliation. It ordered him to pay $25,000 to Springer. The 3rd Circuit upheld the award. (Springer v. Henry, No. 04-4124, 3rd Cir., 2006)

Final tip: Periodically review your independent-contracting process for prejudice. Make sure you document each nonrenewal with a legitimate business reason, just as you would any other employment decision. That way, if you are sued, you have documentation.

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