Employment Law Due DiligenceFor many employers, investigating and documenting poor employee performance issues is about as fun as going to the dentist. But a recent Michigan Court of Appeals decision illustrates the importance of both because it often becomes a critical defense against claims that the employee was disciplined or terminated for unlawful or discriminatory reasons.

Worker’s Compensation and Retaliation

In Larue v Gary P. Mulnex DDS, PLLC, the plaintiff was employed as a dental hygienist. She worked at this practice for 26 years before the defendant, Mulnix, purchased the practice. About a month after Gary Mulnix bought the practice, plaintiff was injured after she tripped on equipment at work. Co-workers assisted her in getting back on her feet and took her to a an urgent care facility. A workers’ compensation claim was filed and a month later, plaintiff was terminated.

At trial, the plaintiff relied on circumstantial evidence to show retaliation, which included that she was terminated from employment by a letter dated 12/13/10, which was soon after her 11/17/10 injury and subsequent workers’ compensation claim.

The trial judge disagreed and found that the plaintiff could not demonstrate a “causal link” between filing for workers’ compensation and her termination from employment. The judge reasoned that a “correlation between the time of the protected activity and time of the adverse employment action does not demonstrate a causal relationship.” The trial judge also concluded that the defendant employer met its burden of demonstrating a legitimate business reason for terminating plaintiff’s employment.

On this point, the employer offered evidence that plaintiff was terminated for job performance issues observed between the time the new owner purchased the practice and plaintiff’s injury. Such performance issues included on more than one occasion finding poor tarter cleaning and failure to timely provide x-rays. Bolstering the employer’s position, the dentist reviewed about 10 patient records for patients treated by plaintiff between 10/22/10 and 12/3/10, which showed “plaintiff’s poor job performance, including poor calculus cleaning and failure to timely provide x-rays.” Adding to this, another hygienist who worked for the defendant employer stated in an affidavit that she had also noticed tarter accumulation that was never treated on a number of plaintiff’s patients.

On appeal, the Court found the trial court did not make a mistake in determining that the defendant employer established a legitimate business reason for the plaintiff’s discharge, and that it was not a pretext. Accordingly, the court affirmed the trial court’s order granting the defendant employer’s summary disposition motion.

The Take-Away for Employers

This case illustrates two important points for employers. First, terminations are, unfortunately, a part of the employment relationship. And ideally if it becomes necessary to terminate and employee, your company will have documented the nondiscriminatory and legitimate reasons for that termination. It is this documentation that will become invaluable if the terminated employee later claims that determination was unlawful for any number of reasons, including retaliation or discrimination under federal or Michigan employment laws. In sum, sloppy documentation, like sloppy teeth cleaning, can cause significant problems.

Second and not as obvious, when it comes to purchasing a business, one of the most important areas of due diligence should focus on employee and HR issues. This is often where problems tend to fester and this is especially true where the the value of the business being purchased is derived from the quality of services provided or good will.

Returning to the purchase of the dental practice, in supporting the employer’s position that it terminated the plaintiff for legitimate reasons, the employer went back and examined prior patient records relative to cleanings performed by the plaintiff to find proof of subpar performance. Certainly that information was available prior to the purchase, but the purchaser had not examined it. Otherwise, the purchaser could have made an informed decision to not continue the hygienist’s employment or used the discovered deficiencies in patient care to negotiate a lower purchase price from the seller.

From our law firm’s experience in representing both sellers and buyers, deficiencies in employee matters or anticipated employment litigation can significantly lower the purchase price in negotiations or make it completely unattractive.

For more information about federal and Michigan employment law or conducting employment related due diligence when buying a business, contact attorney Jason Shinn. Since 2001, Jason has represented employers in complying with federal and Michigan employment laws. He also routinely collaborates with purchasers and their legal and financial teams as an employment law specialist when it comes to evaluating human resource and employeee issues involved in the purchase of a business or making HR related improvements to a seller’s business to increase its value.