Fired DTC Employees Claim Extortion, Wrongful Termination in Federal Lawsuit; DTC Denies Allegations

February 26, 2013
Dwayne Page
Craig Gates
DTC Communications

Claiming they were the victims of a scheme to get rid of them and others, two former employees of DTC Communications, James A Vaden of Carthage and Kevin C. Young of Smithville filed a federal court lawsuit against the company and the CEO Craig Gates in November claiming they were the victims of extortion and wrongful termination. Vaden and Young contend that the defendants, DTC and Gates, wrongfully interfered with their employee benefits and improperly denied them their severance benefits. The incident, according to the lawsuit, has also triggered an extortion investigation by authorities in the 13th & 15th Judicial Districts against Gates.

The dismissal of both Vaden and Young apparently grew out of a probe into allegations that a group of DTC employees had participated in a scheme to sell copper cable owned by the company for their own benefit. Vaden and Young claim they did not participate in such a scheme.

Gates and DTC Communications have answered the lawsuit, denying the allegations made by Vaden and Young.

The case is set for trial in the United States District Court for the Middle District of Tennessee Northeastern Division on March 18, 2014 before U.S. Magistrate Judge Joe B. Brown with the final pretrial conference set for March 3, 2014 in Cookeville. Meanwhile a telephone conference with the parties to discuss the progress of the case and the possibility of ultimate dispute resolution is set for July 10, 2013

Vaden and Young claim that while they were both exemplary employees of DTC or DeKalb Telephone Cooperative the new Chief Executive Officer, Gates, implemented a scheme to rid the company of many of its most senior and therefore most highly compensated employees. Gates terminated a few employees outright. He presented several others with an ultimatum: sign an agreement requiring, among other things, that the employees be reclassified as "new hires" which would have reduced their pay and vested pension benefits, or be terminated. No matter what choice Young, Vaden, and their co-workers made, the defendants, DTC and Gates would cut their payroll expenses dramatically, a convenient result at a time when DTC was widely known to be suffering financially," according to the lawsuit.

Viewing the ultimatum to be nothing less than extortion, Young and Vaden refused to sign. They were promptly fired. To date, the defendants have refused to provide Young and Vaden with the severance benefits to which they are entitled pursuant to the company's severance welfare plan, according to the complaint.

Defendants, DTC and Gates' ultimatum to Young and Vaden constitutes extortion under the law of the State of Tennessee and that ultimatum is a wrongful basis for terminating Young and Vaden's employment. Rather than being motivated by any misconduct on Young and Vaden's part, defendant's actions were driven by a desire to interfere with Young and Vaden's pension, health, and welfare, and severance benefits and to retaliate against them for refusing to give up those benefits. Defendants have wrongfully denied Young and Vaden's benefits to which they are clearly entitled," according to the lawsuit.

In their answer to the lawsuit, DTC and Gates deny the allegations and deny there is any basis for liability. "After a careful and thorough investigation into the particularized facts, the defendants, DTC and Gates formed an honest belief that a group of employees, including Vaden and Young, participated in a scheme to sell copper cable owned by the company for their own benefit. Defendants, DTC and Gates deny that there is any basis whatsoever for individual liability as to Gates. Defendants deny that the severance policy contained in the employee handbook is a qualified plan pursuant to the Employee Retirement Income Security Act (ERISA). Defendants deny that any actions taken by the defendants were taken with the specific intent of avoiding ERISA liability. Finally, the defendants deny there is any factual or legal basis for any of the plaintiff's claims, including their common law retaliation claims, which fails as a matter of law," according to the answer filed by DTC and Gates.

Vaden and Young are seeking damages in an amount to equal the benefits owed to them under the employer's severance plan; that they be awarded compensatory and punitive damages, including but not limited to statutory damages under the Employee Retirement Income Security Act (ERISA) for interfering with their right to employee benefits; that they be awarded compensatory and punitive damages for defendant's extortion and wrongful termination; that they be awarded compensatory and punitive damages, including but not limited to statutory damages under ERISA for losses suffered due to the defendant's breaches of fiduciary duty; that Gates be made personally liable for losses suffered by the plaintiffs; that the court enjoin the defendants from further breaching their fiduciary duties; that the court grant the plaintiffs reasonable attorney's fees, pre-judgment interest and the costs of this cause; and that the court grant such further equitable, and or other relief as it may deem appropriate.

According to the lawsuit, Vaden began working for DTC on September 22, 1997 as a lineman on the line crew, installing, repairing, and replacing the external lines and related equipment that send telecommunications signals directly to consumer's homes. He was employed by DTC as a lineman until he was terminated on April 3, 2012 at which time he was earning $21.97 per hour.

Young started working for DTC in February, 2000, where he was employed as an installer and repairman. In 2003, he was transferred to the line crew where he worked as a lineman, installing, repairing, and replacing the external lines and related equipment that send telecommunications signals directly to consumers' homes. In 2009, Young was made the Network Administrator at DTC. He was employed by DTC in that capacity until he was terminated on April 3, 2012 at which time he was earning $26 per hour.

As a lineman, Vaden and Young's job duties included tearing down old cables and poles and disposing of them. Some of the cable wiring was made of copper. Linemen tore down and disposed of cable as instructed by their supervisor.

Upon information and belief, during the year 2007, some DTC employees realized that scrap copper could be sold and so they began selling scrap copper cable at a scrap yard. Vaden and Young were not involved in this scrap copper selling, nor did they have knowledge of it at that time," according to their lawsuit.

Upon information and belief, prior to this time, the cost of collecting and selling copper would have been equal to or greater than any profit received from its sale, and so DTC had no reason to object to employees selling said scrap copper," according to the lawsuit.

Upon information and belief, DTC had no policy in place in 2007 concerning the proper procedure for disposing of copper scrap. If such policy existed, Vaden and Young were not, and still are not aware of it, they claim.

Eventually, as the price of copper increased, DTC began selling all the copper scrap itself and employees were instructed to refrain from selling copper wiring individually. Upon information and belief, all but one employee complied with those instructions.

On or about September 17, 2011, Craig Gates became the new Chief Executive Officer of DTC. Upon information and belief, this change in leadership was prompted by DTC's declining financial health," according to the lawsuit.

At some point after Gates arrived at DTC, an employee, Tom Irwin, was caught allegedly taking copper scrap that belonged to DTC. A criminal investigation followed and is still pending.

Faced with rising payroll costs and a number of employees nearing retirement age, Gates used this incident with Irwin as an excuse to investigate and eventually terminate the other employees who were working as linemen back in 2007, according to Vaden and Young.

Gates implicated nine employees who had been on the line crew in 2007. In late March 2012, Gates summarily terminated two of those employees, Dale Myers and Luke Judkins. Upon information and belief, at the time of his termination, Dale Myers had been employed at DTC for approximately 34 years and Luke Judkins had been employed at DTC for approximately six years.

On March 29, 2012, Gates gathered the remaining seven employees and interrogated them all separately. On April 2, 2012, Gates presented at least four of them with an identical document, entitled "Agreement of Suspension". Gates gave them the choice of signing it or being terminated," according to the lawsuit.

The Agreement of Suspension required Vaden, Young, and their co-workers to admit to committing theft in 2007, repay $700, plus interest calculated at the usurious rate of 20%, accruing since 2007, and accept a six week unpaid suspension of employment.

Among other things, the Agreement of Suspension also substantially reduced employee benefits to which plaintiffs were entitled or would have become entitled, to wit:

The Agreement of Suspension required plaintiffs to waive the employee grievance procedure provided to employees, as outlined in DTC's Employee Handbook.

It suspended accrual of all employee benefits during the period of suspension, including health and pension benefits.

It required the linemen to accept re-employment after the period of suspension as "new hires" for any and all benefits available to them as employees. This provision would have eliminated vested pension benefits to which Vaden and Young were entitled by law. It would have also eliminated the vacation and sick time that Vaden and Young had accrued during the course of their employment.

It also required plaintiffs to accrue a 10% decrease in pay upon re-employment.

Those employees who signed the agreement, thereby admitting to theft from the company, were allowed to keep their jobs. Those who maintained their innocence and refused to sign, including Vaden and Young were terminated," according to the lawsuit.

Maintaining their innocence of any alleged theft or impropriety, and unwilling to be wrongfully deprived of their employee benefits, Vaden and Young refused to sign the Agreement of Suspension. They informed Gates of their decision not to sign on April 3, 2012 and they were terminated on the spot, according to the lawsuit.

Through these actions, Defendants either terminated the employment of or cut the salary and benefits of at lease five of the six highest paid members of the line crew, in addition to the Network Administrator.

By his actions, ostensibly based on the copper scrap sales of 2007, Gates accomplished the expense of reduction of a company-wide lay off without having to provide severance benefits to the terminated employees or incur the increased costs of unemployment insurance.

During the investigation period from March 29, 2012 until April 3, 2012 and in the time since then, the defendants have uncovered no evidence of Vaden's or Young's involvement in the copper scrap sales, because no such evidence exists.

As of the date of filing this Complaint, investigators in the 13th and 15th Judicial Districts are exploring criminal charges of extortion against Gates based on his actions leading up to Vaden's and Young's termination, focusing in particular on the specifics of the Agreement of Suspension, according to Vaden and Young's lawsuit.

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