Out of this World: One Employee’s Section 75-1.1 Claim Against His Former Employer
A section 75-1.1 claim that finds a place in an employment dispute is rare—like a comet, a meteor shower, or a total eclipse. When one comes along, we cannot help but wonder at it. Even those of us who take the heavens for granted keep a telescope in the attic for such occasions.
Whether you track celestial motions within the constellation of unfair and deceptive trade practices cases regularly or not, you will want to read Guhne v. Ceridian HCM. In this recent decision from the Middle District of North Carolina, a plaintiff’s section 75-1.1 claim against his former employer survived a pleadings-stage motion. Like any aberration in the night sky, Guhne is worth studying.
The “in or affecting commerce” black hole.
By its own terms, section 75-1.1 regulates conduct that is “in or affecting commerce” only. This is a black hole into which most employment-adjacent section 75-1.1 claims are destined to disappear for all time.
Courts interpret the statute’s orbit to generally proscribe claims in a variety of contexts including securities disputes, zoning board cases, the conduct affecting the services of “learned professionals,” and internal business disputes.
Employment conduct is not usually considered “in or affecting commerce,” either. The polestar for this proposition is Dalton v. Camp.
Employer Claims – Dalton v. Camp
This 2001 North Carolina Supreme Court decision offers many lessons about the universe of claims that can (and cannot) arise out of a garden-variety employment relationship.
Dalton v. Camp arose out of a familiar employee-mobility fact pattern: an employer sued a former employee who had started a competing business. The former employer brought claims for breach of fiduciary duty, breach of loyalty, tortious interference with contract, and unfair and deceptive trade practices. Our Supreme Court rejected each of these claims.
The court reasoned that duties “commonly associated with any employee”—without some special circumstance like self-dealing or acting as an employer’s purchasing agent—are not “in or affecting commerce.” While Dalton v. Camp was clear that “the mere existence of an employer-employee relationship does not in and of itself serve to exclude a party from pursuing an unfair trade or practice claim,” this pursuit has proven to be a moonshot when applied.
Satellite unfair and deceptive trade practice claims brought by individuals against former employers have met the same fate, too. Two decades before Dalton v. Camp, the North Carolina Court of Appeals affirmed dismissal of such a section 75-1.1 claim in Buie v. Daniel International.
The Middle District of North Carolina did the same in two cases that pair together like Castor and Pollux. Murphy v. Allstate and Choplin v. IBM illustrate—and reject—two common arguments for applying section 75-1.1 against former employers: that the market for labor among competitors, and therefore commerce, is affected by (1) an employment termination or (2) a broken pre-employment promise.
Murphy v. Allstate
Murphy was a lawsuit brought against Allstate by former supervisor Mr. Murphy. Allstate had terminated Mr. Murphy, claiming that he failed to properly manage a sales agent. When it did so, Allstate also filed a Form U-5 with the National Association of Securities Dealers that explained the reasons for its termination. Mr. Murphy sued, bringing a section 75-1.1 claim.
Citing Dalton v. Camp, the Murphy court explained that North Carolina has a “presumption . . . against claims for unfair and deceptive trade practices that arise from employer-employee relationships.”
Mr. Murphy sought to escape this presumption, pointing to the effects that his termination and the Form U-5 filing had on commerce. He argued that Allstate’s actions had “impeded” its competitors from acquiring Mr. Murphy’s “talents as an employee and manager.” He also argued that Allstate’s actions were affecting his “professional reputation and subsequent employment opportunities in the Greensboro insurance marketplace.”
The court rejected these arguments and dismissed the case. It reasoned that Mr. Murphy’s arguments would apply in any “standard employer-employee relationship” and did not support a conclusion that Allstate’s actions had “affected commerce to such a degree as to warrant” an exception to the Dalton v. Camp presumption.
Choplin v. IBM
Choplin considered a former IBM sales agent’s claim that IBM failed to pay him commissions according to its formula. The sales agent, Mr. Choplin, argued that this rose to the level of a section 75-1.1 claim because IBM had “a pattern and practice of misleading its sales representatives to entice them to work extraordinarily hard to make sales and then refusing to pay commissions after the deal is closed.”
In particular, Mr. Choplin alleged that IBM imposed a “cap” on commissions that contradicted representations made to him that his “earning potential was unlimited” and that he could “make as much money as [he] want[ed] to.”
The Choplin court was unpersuaded. It dismissed the section 75-1.1 claim, explaining that this conduct occurred “solely within [the sales agent’s] employment relationship.” Arguments about the ancillary effects on commerce, it reasoned, “overlook[ed]” the fact that the conduct itself was purely employment-related.
Guhne shines like a supernova against this dark backdrop.
Like a regularly scheduled appearance of a well-known comet, we now return to the case at hand.
Mr. Guhne enjoyed a “long and successful career” selling human-resource software for a company called Ultimate Software. In 2018, Ceridian, a competitor of Ultimate, approached Mr. Guhne and offered him a job. According to Mr. Guhne, Ceridian made two promises that induced him to leave Ultimate and take a job with Ceridian: (1) that he would receive 75,000 stock options, and (2) that he would quickly be promoted to Executive Vice President or Senior Vice President. Mr. Guhne found these as appealing as water on Mars, and he took the job with Ceridian.
After Mr. Guhne started work at Ceridian, he found that the water was not as plentiful as he had hoped. Although Ceridian had promised him 75,000 stock options, it offered him only 40,761 stock options. And, when it came time for a promotion, Mr. Guhne was made “Head of the East Coast Division”—not a vice-president-level position.
Eventually, Ceridian terminated Mr. Guhne for “unspecified performance issues.” To compound Mr. Guhne’s trouble, he was unable to seek re-employment with Ultimate because–much like atmospheric drag threatening a burn-up on re-entry—Ultimate had a “strict prohibition on re-hiring individuals who left the company.”
Mr. Guhne sued Ceridian, bringing fraudulent inducement, negligent misrepresentation, and unfair and deceptive trade practices claims. Ceridian answered and moved for judgment on the pleadings as to these claims—no doubt hoping that the section 75-1.1 claim would be destined for the black hole.
The Guhne court recognized that “mere promissory representations”—like Ceridian’s stock option and “quick promotion” promises—ordinarily would not support fraud or negligent misrepresentation claims. Where the promisor made them “with an intent to deceive and with no intent to comply,” however, they could be actionable. Fortunately for Mr. Guhne, he had alleged that Ceridian made the promises with this bad intent.
Ceridian pointed to Mr. Guhne’s offer letter and other documents that contained a merger clause, arguing that the clause foreclosed any claim on the alleged promises. (The court could consider these documents on a pleadings-stage motion because they were referenced in Mr. Guhne’s complaint.) The court concluded that the merger clause would not bar Mr. Guhne’s claims because, after all, he claimed that he was fraudulently induced to sign these documents in the first place.
On the other hand, the court was persuaded that these documents spoke to whether it was reasonable for Mr. Guhne to rely on Ceridian’s promises. The court concluded that the documents made Mr. Guhne’s reliance on the promise of a “quick promotion” unreasonable as a matter of law. They did not, however, foreclose his reasonable reliance on the promise of stock options. For this reason, the fraud and negligent misrepresentation claims could proceed as to the promise of stock options—but not as to the promise of a “quick promotion.”
The Guhne court next applied this same reasoning to limit the section 75-1.1 claim to the promise of stock options only. But, could such a claim escape the event horizon of the “in or affecting commerce” black hole? Guhne held that it could. The court explained that the statements at issue “were made prior to the existence of an employer-employee relationship” and allegedly to “injure Ceridian’s competition.”
How do we read these stars?
At first blush, the effect of Ceridian’s conduct on commerce might seem indistinguishable from the effects discussed in Murphy. And Mr. Guhne’s complaint that he was induced by the promise of stock options sounds a lot like Mr. Choplin’s complaint that he was induced by IBM’s pre-employment promises of unlimited commissions.
So, why did the section 75-1.1 claim in Guhne escape the gravitation field of the claims in Murphy and Choplin? The answer lies in the particular facts alleged.
Remember Ultimate’s “strict prohibition” on re-hiring people after they left? Mr. Guhne alleged specifically that Ceridian was aware of this prohibition and recruited him with a plan to terminate him and “remove a competing salesperson from the market.” Apparently, this allegation was enough to give Mr. Guhne’s claim its necessary escape velocity. Significantly, the complaint specifically alleged anti-competitive intent that extended Ceridian’s conduct outside of the employment relationship.
While Guhne gives us another data point on our star chart, it seems unlikely to open a wormhole for employment-adjacent section 75-1.1 claims. Afterall, Mr. Guhne’s allegations are rare and should be very difficult to prove. Some stars burn brightest soon before they die, so tune back in to see whether gravitational time dilation prevents this claim from surviving summary judgment.
Author: Tom Segars