Opinion
NO. 2017-CA-001021-MR
06-07-2019
GOOD LIFE TOO, INC., D/B/A/ H&R BLOCK APPELLANT v. BRANDIE JOHNSON APPELLEE
BRIEFS FOR APPELLANT: J. Denis Ogburn Louisville, Kentucky BRIEF FOR APPELLEE: Stuart Alexander, Jr. Louisville, Kentucky
NOT TO BE PUBLISHED APPEAL FROM JEFFERSON CIRCUIT COURT
HONORABLE MITCHELL PERRY, JUDGE
ACTION NO. 14-CI-000611 OPINION
AFFIRMING IN PART, VACATING IN PART, AND REMANDING
** ** ** ** **
BEFORE: CLAYTON, CHIEF JUDGE; JONES AND L. THOMPSON, JUDGES. JONES, JUDGE: Good Life Too, Inc. d/b/a H&R Block ("Good Life") appeals from an opinion and order of the Jefferson Circuit Court, which dismissed its claims against Appellee, Brandie Johnson, and awarded Johnson $72,360 in damages on her counterclaim against Good Life. Following a review of the record and applicable law, we affirm in part, vacate in part, and remand for further proceedings consistent with this opinion.
I. BACKGROUND
Good Life operates several tax preparation offices throughout Kentucky under franchisee licenses. Johnson began working as a tax preparer at one of Good Life's Louisville offices in late 2009, when it was operating as an Express Tax franchise. In 2011, Good Life became an H&R Block franchise. After Good Life began operating as an H&R Block franchise, all of its tax preparers—including Johnson—were required to sign an employment agreement annually (the "Employment Agreement"). The Employment Agreement was provided by H&R Block and contained the same terms each year. As pertinent to this appeal, the Employment Agreement stated that:
4. Compensation.
The Company shall pay Associate an hourly rate of pay, the amount of which shall be determined by the Company labor code assigned to a specific project or task. Different projects or tasks are assigned different pay rates and the Company reserves the right to revise such rates at any time. Under no circumstance shall the hourly rate for any work performed be less than the federal or applicable state minimum wage. Associate shall be paid overtime in accordance with federal and applicable state wage and hour laws.
. . .
6. Hours.
Associate's hours of employment will be as from time to time designated by the Company. Associate understands the seasonal nature and fluctuation of the Company's business and acknowledges the Company's exclusive right to reduce or increase Associate's hours of employment based on business needs. Associate recognizes and agrees that there may be pay periods during which Associate is not assigned any hours of employment. Associate hereby expressly acknowledges and agrees to abide by the Company's wage and hour policies.
. . .
8. Confidential Information.
Associate will be given access to Trade Secrets and other Confidential Business Information of Block which has commercial value to the Company and its affiliates (hereinafter together referred to as "Block") the confidential nature of all such information is hereby acknowledged by Associate. In consideration for the Company providing such access, and as a material term of this Agreement, Associate gives the Company the covenants contained in Section 8, 9, 10, and 11 of this Agreement.
. . .
10. Post-Termination Covenants.
a) Associate covenants that for two (2) years following the cessation of Associate's employment hereunder for any reason (the "Restricted Period"), Associate shall not directly or indirectly:
(1) Provide any of the following services to any Company Client: (i) preparation of tax returns; (ii) electronic filing of file tax returns; or (iii) any Alternative Products or Services; or
(2) Solicit Company Clients for the purpose of offering to such clients: (i) tax return preparation services; (ii) electronic filing of tax returns; or (iii) any Alternative Products or Services.
"Company Client" is defined in the Employment Agreement as "every person or entity whose federal or state tax return was prepared or electronically transmitted by Associate, or for whom Associate provided any Alternative Products or Services, during the term of this Agreement or during any period of time in which Associate was employed by the Company or an affiliate during the twelve (12) months immediately preceding the effective date of this Agreement."
Additionally, the Employment Agreement stated that it could be terminated by either Johnson or Good Life upon seven days' written notice. Further, Good Life retained the right under the Employment Agreement to discharge Johnson, without notice, if Good Life found that there was "cause" to do so. Johnson signed an Employment Agreement in late October of 2011, 2012, and 2013. The Employment Agreement indicated that it terminated on April 30 of the year after it was signed; it only covered Johnson's employment with Good Life during the "tax season." Johnson resigned from Good Life in January of 2014.
"Cause" is defined in the Employment Agreement to mean "unsatisfactory performance as determined by the Company, violation of any term of this Agreement or Associate's state intention to violate any term of this Agreement, conviction of plea of guilty or no contest to a crime of dishonesty or theft during or prior to Associate's employment (subject to state law), misrepresentation on the employment application or in this Agreement, fraud or theft, failure to meet the criteria established for any company-mandated background check, material violation of Company policies including the H&R Block, Inc. Code of Business Ethics & Conduct, and other misconduct by Associate. 'Cause' shall further also include: (i) Associate's violation of any term of any prior employment agreement between Associate and the Company, (ii) fraud or theft by Associate during any prior period of employment with the Company, and (iii) material violation of any Company policy, including the H&R Block, Inc. Code of Business Ethics & Conduct, by Associate, during any prior period of employment with the Company."
The parties agreed that "tax season" began on January 1 and ran through April 15, or the closest working day after April 15, of each year. The parties referred to each tax season by the year of the tax returns they were preparing in that season. For example, Johnson signed an Employment Agreement in 2011 for the tax season running from January through April of 2012. While all work performed was done in 2012, that year was referred to as the "2011 tax season." The "off season" covers the remainder of the year. Johnson worked for Good Life year-round; however, it is unclear from the record what, if any, agreement governed Johnson's employment during the off season.
On February 3, 2014, Good Life filed a complaint against Johnson, alleging that she had violated the Employment Agreement. The complaint alleged that Good Life had received information leading it to believe that Johnson had solicited or prepared tax returns for its former customers, in violation of Section 10 of the Employment Agreement. Contemporaneous with the filing of its complaint, Good Life filed a motion for injunctive relief, requesting the trial court to enforce the Employment Agreement and prohibit Johnson from soliciting or preparing tax returns for Good Life's former clients.
Good Life also named Annette Bailey, another former Good Life tax preparer, as a defendant in the complaint. Good Life dismissed its claims against Bailey at the bench trial. Subsequent to the trial court's final judgment, Bailey and Good Life settled Bailey's claim against Good Life. Bailey was dismissed from this appeal by order dated September 19, 2018. Accordingly, we discuss only the facts that are relevant to the dispute between Good Life and Johnson.
Johnson filed an answer and counterclaim on March 10, 2014, alleging that Good Life owed her $6,954, which represented part of a bonus due to Johnson that she had never received. On March 24, 2014, Johnson filed an amended counterclaim contending that Good Life had violated Kentucky's Wage and Hours Act. Specifically, Johnson contended that Good Life had withheld her wages and commissions for weeks at a time, had failed to compensate her for all hours worked, and had failed to compensate her for overtime hours.
Kentucky Revised Statutes (KRS) Chapter 337.
The trial court heard arguments on Good Life's motion for injunctive relief on March 24, 2014. At the hearing, Good Life called Tammy Ellis, the daughter of one of Good Life's clients, to testify that Johnson had contacted her mother so that Johnson could prepare a tax return for her. Ellis testified that she had driven her mother to Johnson's home to have her tax returns prepared. While there, Ellis had observed several boxes of files containing information from Good Life. Ellis testified that she knew the files contained Good Life information because Johnson had pulled her mother's 2012 tax information from the files. Ellis additionally testified that Johnson had told her that she intended to prepare tax returns for clients from her garage that year, and intended to open her own office the following year.
Georgina Stamper, the owner of Good Life, also testified. Stamper testified that she first became aware that Johnson was violating the Employment Agreement when she was contacted by Ellis; however, she had subsequently heard from other former Good Life clients that Johnson had contacted them in an attempt to solicit their business. Stamper testified that Good Life had prepared fifty-three percent fewer tax returns in 2014 than it had in 2013. Following the hearing, the trial court entered a temporary injunction enjoining Johnson from violating the non-compete provisions of the Employment Agreement.
A bench trial was held on November 7, 2016. Good Life called Johnson as its first witness. Johnson testified that Stamper had come to the Louisville Good Life office and had her sign the 2013 Employment Agreement on October 24, 2013. Johnson was aware that the Employment Agreement prohibited her from preparing tax returns for or soliciting business from Good Life's clients for two years after she ceased working for Good Life. She testified that she left Good Life in January of 2014 and, shortly after her last day at Good Life, had met with the Ellises. Johnson denied preparing a tax return for Ellis, but testified that she had prepared an estimate. Johnson testified that in 2015, she began working for Hero Tax Service where she prepared tax returns.
Next, Good Life called Stamper. Stamper testified that most of Good Life's employees were paid an hourly wage, but that Johnson had requested that she be paid differently. Johnson received a set $600 per week during tax season. Stamper explained that once tax season concluded, she would calculate the total fees that Good Life had received from tax returns prepared by Johnson. Johnson would then receive twenty-five percent of that total, less the total weekly payments she had received during tax season. Stamper testified that Johnson had no set hours during tax season and that she had never authorized overtime for Johnson. Stamper characterized the twenty-five percent commission Johnson was paid as a "bonus." A sheet calculating the amount paid to Johnson in the spring of 2013 for her work during the 2012 tax season, which was admitted as an exhibit, likewise indicated that Johnson's twenty-five percent commission payment was bonus compensation. Stamper testified that Johnson had never made any grievances about the way in which she was paid. Stamper testified that H&R Block requires Good Life to have all employees sign an employment agreement, but clarified that she could have drafted an agreement different than the Employment Agreement.
As to the damages Good Life had suffered as a result of Johnson's alleged breach of the Employment Agreement, Stamper gave testimony concerning a spreadsheet Good Life had obtained from Hero Tax Service, which showed the names of all individuals for whom Hero Tax Service had prepared a 2014 tax return. Stamper explained that she had gone through the spreadsheet and marked each individual for whom Good Life had prepared a 2012 tax return. By each of those individuals' names, Stamper had written the amount of fees Good Life had collected from them for their 2012 tax returns. In total, Stamper indicated that Good Life had collected $20,625 in the 2012 tax season from clients who had their 2014 tax returns prepared by Hero Tax Service. Stamper testified that she believed that those clients would have returned to Good Life had Johnson not solicited their business. This belief was based on the fact that all of those individuals had been repeat customers of Good Life until Johnson left the company.
On cross-examination, Stamper acknowledged that the Employment Agreement stated that Good Life would pay Johnson at an hourly rate of pay, but that Johnson had not been paid based on an hourly rate during tax season. Stamper acknowledged that Johnson's position was not exempt from overtime pay. However, Stamper testified that Johnson had been paid a salary that was above the state minimum wage. Stamper reiterated that she had never authorized Johnson to work overtime. She testified that during non-tax season, the Good Life office was open two half-days a week and one full day a week. During tax season, the Good Life office was open from 9 a.m. through 7 p.m., except for two weeks each year when it stayed open until 9 p.m. Stamper testified that she had told Johnson that it was not necessary to clock in or out during tax season and that she had not kept track of the hours Johnson worked during tax season. However, Stamper testified that Johnson was only supposed to work forty hours a week during tax season. Stamper testified that Johnson was paid at a rate of $15 per hour during non-tax season, but that she and Johnson had negotiated her pay for tax season separately. Stamper acknowledged that there was nothing in the Employment Agreement or any separate agreement authorizing the way Good Life had paid Johnson during tax season.
Johnson testified again on her own behalf. She testified that each year that she had worked for Good Life, Stamper came to the office and asked her to sign a new Employment Agreement. Johnson testified that Stamper had informed her that she would not receive the pay that she had already earned unless she signed the agreement. Johnson testified that she had received an hourly wage and overtime payment during non-tax season, but not during tax season. During tax season, Stamper had told Johnson and Bailey to be in the office from 9 a.m. until 7 p.m., Monday through Saturday. Johnson testified that, at a minimum, the Good Life office was open fifty-eight hours per week during tax season. She testified that she was in the office from open to close every day during tax season, as she and Bailey were the only two tax preparers who worked out of that office. Sometimes she would be at the office until 1 a.m. Johnson acknowledged that in 2015, she had prepared tax returns for several individuals who had previously been clients of Good Life. She testified, however, that those clients had reached out to her because they were dissatisfied with Good Life's service and prices. On cross-examination, Johnson testified that she had requested that she be paid the twenty-five percent commission during tax season.
Stamper testified again on rebuttal. She testified that she had never told Johnson or Bailey that more than one of them needed to be in the office at all times. Stamper denied that the Good Life office had frequent walk-in clients. On cross-examination, Stamper testified that she only came to the Louisville office a couple times during tax season, and therefore had no way of knowing if anyone came into the office or not.
Good Life and Johnson both filed post-trial memoranda with the trial court on January 13, 2017. In Good Life's memorandum, it contended that the Employment Agreement was enforceable and not against public policy. Good Life noted that Johnson had testified the she had prepared tax returns for Good Life's former customers in 2015, which was clearly in violation of the Employment Agreement. Good Life contended that it had proven, through Stamper's testimony, that Good Life sustained losses in one year of $20,625 due to Johnson's violation of the Employment Agreement. Because the Employment Agreement restricted Johnson from competing with Good Life for two years following her last day of employment with the company, Good Life contended that its losses should be averaged over a two-year period, for a total of $41,250 in damages. Good Life argued that the Employment Agreement was a condition for employment. Because every Good Life employee was required to sign a new Employment Agreement each year, Good Life argued that consideration for the Employment Agreement was employment for the year in which the contract was signed.
Good Life contended that Johnson's claims against it were speculative, exempt, and barred by laches, waiver, and estoppel. Good Life alleged that Johnson had agreed to be paid in the manner in which she had during tax season. The amount Johnson received each year exceeded the minimum wage requirements. Therefore, Good Life contended that Johnson was exempt from any overtime allowance. Good Life noted that Johnson had never raised any issue with the amount or way in which she paid until it had filed suit against her. Accordingly, it contended that laches, waiver, and estoppel barred Johnson's claims.
In Johnson's post-trial memorandum, she contended that the non-compete covenants in the Employment Agreement were unenforceable, both due to lack of consideration and the fact that Good Life had breached the Employment Agreement. Johnson contended that Good Life had not paid her any hourly wages during tax season, despite the fact that she worked in excess of fifty-eight hours per week. Johnson disputed Good Life's claim that the commission payments she received at the end of each tax year constituted "wages" and "overtime." Johnson noted Stamper's testimony and written description of those payments as "bonuses." Johnson calculated the unpaid wages she was due as follows:
As discussed below, these calculations do not accurately reflect the testimony and evidence presented at the trial.
• Unpaid wages as per contract: 4.5 months (1/1-4/15) per year x 4 years = 18 months;R. 144.
• 1/1/10 - 1/1/14 = 4 years x 4.5 months per year for a total 18 months unpaid;
• Unpaid wages at $15.00 per hour, based upon 40 hour [sic] week = $600 per week;
• Unpaid overtime at 18 hours per week during tax season = $405.00;
• Total unpaid wages per week during tax season = $1,005.00 per week;
• 18 months unpaid wages = 72 weeks unpaid;
• 72 weeks unpaid x $1,005.00 = $72,360.00
• An equal amount as liquidated damages pursuant to KRS 337.385 = $72,360.00;
• Unpaid wages, plus liquidated damages = $144,720.00; and
• Prejudgment interests [sic] and attorneys' fees and costs.
Kentucky Revised Statutes.
Johnson contended that because she had not been paid "wages" as contemplated in Section 4 of the Employment Agreement, there had been no consideration for any of the Employment Agreements that she signed. She further argued that the fact that Stamper had instructed her not to record her hours worked during tax season indicated that Good Life's failure to pay Johnson wages as required was in bad faith. Johnson additionally argued that Good Life's claim against her must fail because it had been unable to satisfactorily prove any damages or lost profits.
The trial court entered an opinion and order on May 24, 2017. Looking first to Good Life's claims, the trial court noted that "non-compete clauses which do not alter the terms of an employment relationship between the employer and the employee are not the same as new employment, and thus do not provide the requisite consideration necessary to render the agreement enforceable." The trial court concluded that it was clear that Good Life had failed to provide the requisite consideration to render the Employment Agreement enforceable. Further, the trial court found that Good Life had offered nothing but speculation to support its claim for damages. Accordingly, the trial court concluded that Good Life could not prevail on its claim against Johnson.
As to Johnson, the trial court found that, pursuant to the Employment Agreement, she was to be paid an hourly wage with overtime in accordance with federal and state law. The trial court found that because Johnson had been required to be present at the Good Life office at all times during the extended hours of tax season, she had worked at least fifty-eight hours per week during tax season. The trial court noted that Johnson had been directed not to record her hours worked during tax season, which it concluded was in contravention of law. The trial court concluded that Good Life had violated KRS 337.060(1) by failing to pay Johnson an hourly wage plus overtime during tax season, which entitled Johnson to a judgment in her favor. However, the trial court found that Good Life had acted in good faith when it failed to comply with KRS 337.060(1) and declined to award Johnson liquidated damages. Good Life was ordered to pay Johnson $72,360 in damages, representing Johnson's "unpaid wages for the tax season from 2010 thru [sic] 2014[.]" R. 175.
This appeal follows.
II. STANDARD OF REVIEW
Because the trial court's order in this case followed a bench trial, our review is governed by CR 52.01. Accordingly, the trial court's findings of fact "shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge the credibility of the witnesses." CR 52.01. Findings of fact are deemed clearly erroneous when there is no substantial evidence in the record supporting them. M.P.S. v. Cabinet for Human Res., 979 S.W.2d 114, 116 (Ky. App. 1998) (citing V.S. v. Commonwealth, Cabinet for Human Res., 706 S.W.2d 420, 424 (Ky. App. 1986)). "Evidence is substantial, when taken alone or in light of all the evidence, if it has sufficient probative value to induce conviction in the mind of a reasonable person." Colyer v. Coyote Ridge Farm, LLC, 565 S.W.3d 659, 662 (Ky. App. 2018) (citing Stanford Health & Rehab. Ctr. v. Brock, 334 S.W.3d 883, 885 (Ky. App. 2010)). The trial court's conclusions of law are reviewed de novo. Id. (citing Gosney v. Glenn, 163 S.W.3d 894, 888 (Ky. App. 2005)).
Kentucky Rules of Civil Procedure.
III. ANALYSIS
Good Life's first argument on appeal is that the trial court erred in concluding that it could not collect damages as a result of Johnson's breach of the Employment Agreement. As part of this argument, Good Life contends that because Johnson was required to sign a new Employment Agreement each year she worked for Good Life, there was sufficient consideration to support the agreement. Additionally, Good Life contends that the trial court's conclusion that it had not adequately proven damages suffered as a result of Johnson's breach was erroneous.
Non-compete contracts, like any contract, must be supported by consideration to be enforceable. F.T. Gunther Grocery Co. v. Koll, 153 Ky. 446, 155 S.W. 1145, 1146 (1913). "Consideration for a contract can be either 'a benefit to the party promising, or a loss or detriment to the party to whom the promise is made.'" Alph C. Kaufman, Inc. v. Cornerstone Indus. Corp., 540 S.W.3d 803, 814 (Ky. App. 2017) (quoting Phillips v. Phillips, 294 Ky. 323, 171 S.W.2d 458, 464 (1943)). "Kentucky courts also have defined consideration as 'the reason which moves contracting parties to enter into [an] undertaking.'" Id. (quoting Cassinelli v. Stacy, 238 Ky. 827, 38 S.W.2d 980, 983 (1931)). "It is not necessary that each clause of a contract carry with it specific consideration. It is sufficient if the overall agreement has a consideration. Nor does a contract lack mutuality because the obligation undertaken on one side is not commensurate with that undertaken on the other." Hamrick v. City of Ashland, 321 S.W.2d 401, 403 (Ky. 1959).
"Non-competition agreements fall into one of two general categories. In the first category are those which were entered into at the time of employment." Kaufman, 540 S.W.3d at 813. When the covenant not to compete is executed at the time an employee accepts employment, the employment is the consideration for the covenant. Id. (citing Ferdinand S. Tinio, Annotation, Sufficiency of Consideration for Employee's Covenant Not to Compete, Entered Into After Inception of Employment, 51 A.L.R.3d 825 (1973)). "In the second category we find non-compete agreements that were entered into subsequent to the employment." Id. An employment agreement signed subsequent to initial employment will be considered to be supported by adequate consideration when the employment relationship changes after the agreement is executed. Charles T. Creech, Inc. v. Brown, 433 S.W.3d 345, 354 (Ky. 2014). It is undisputed that Johnson did not sign the Employment Agreement until approximately two years after she had been hired by Good Life. Accordingly, the Employment Agreement falls into the second category, and the consideration for the non-compete covenant cannot be Good Life's initial hiring of Johnson.
Stamper did testify that Johnson signed a non-compete agreement—but not the Employment Agreement—at the time she was hired by Good Life d/b/a Express Tax. Stamper thought she "probably" had a copy of that agreement somewhere, but she did not have it at trial. Stamper testified that the agreement Johnson signed at the time of her hire would have been drafted by Express Tax. She was not sure of the terms of that agreement, but thought it was "probably similar" to the Employment Agreement. Nonetheless, Johnson clearly did not sign the Employment Agreement when she was hired in 2009.
Good Life notes that Johnson was required to sign a new Employment Agreement each year and that Stamper testified that signing a new Employment Agreement was a condition of Johnson's continued employment. Good Life contends that these facts indicate that the consideration supporting the Employment Agreement was Good Life's continuing to employ Johnson as a tax preparer. Johnson disputes Good Life's assertion that signing a new Employment Agreement was a condition of continued employment. Rather, Johnson testified at trial that Stamper told her she had to sign the Employment Agreement in order to receive her pay for work she had already completed. Johnson additionally contends that the Employment Agreement cannot be enforced because Good Life failed to pay her wages as contemplated in the Employment Agreement.
In concluding that the Employment Agreement was not supported by consideration, the trial court cited to Creech for the proposition that "Kentucky courts have held that non-compete clauses which do not alter the terms of the employment relationship between the employee and the employer are not the same as new employment, and thus do not provide the requisite consideration necessary to render the agreement enforceable." R. 173-74 (citing Creech, 433 S.W.3d at 353). This was the extent of the trial court's analysis concerning whether there was consideration for the Employment Agreement. While we agree that there is a distinct difference between non-compete covenants executed at the start of new employment and those executed subsequent to being hired, Creech did not hold that the latter class can never be found to be supported by consideration. Rather, it must be determined whether the employer-employee relationship was altered following execution of the agreement.
In Creech, an employee, Brown, was asked to sign a non-compete covenant after having worked for Creech for sixteen years. Creech, 433 S.W.3d at 347. Two years after executing that covenant, Brown went to work for one of Creech's competitors, and Creech sued for violation of the non-compete covenant. Id. at 348-49. Brown responded to the allegations on a number of grounds, one of which being that he had received no consideration for signing the covenant. Id. The trial court granted Brown's motion for summary judgment, and a panel of this Court reversed. On discretionary review before the Kentucky Supreme Court, Creech contended that Brown's continued employment was sufficient consideration to support the covenant. The Supreme Court disagreed. In so concluding, the Court noted that Creech had offered nothing to Brown in exchange for his signing the agreement; the covenant had not contained any indicia of an employment contract—such as stating what Brown would be required to do or what wages he would be paid—and, therefore, could not be construed as Creech "hiring" or "rehiring" Brown; and that the covenant imposed an obligation on Brown, but did not provide him with any rights. Id. at 353. Additionally, the Court found that there was no evidence that Brown had obtained any specialized training or expertise during the time in which he was employed by Creech, and that Creech had not been threatened with the loss of his job if he refused to sign the covenant. Id. at 354. In sum, the focus of the Court's analysis was whether—after the non-compete provision was signed—the employment relationship between the parties changed. Id.
The Employment Agreement Johnson executed each year is noticeably different than the covenant at issue in Creech. The Employment Agreement sets out what role Johnson was hired to perform, what her duties are, how Johnson's compensation should be calculated, and under what grounds Good Life could terminate Johnson without notice. Further, the nature of Johnson's employment with Good Life changed each time a new Employment Agreement was signed. Stamper testified that Johnson's duties were different in the off season than they were in tax season. This change is understandable; during the tax season, Johnson's primary function was to prepare tax returns. She could not do this in the off season. While Johnson worked for Good Life year-round, there is no indication that Good Life promised to retain Johnson as a tax preparer each year. The term of the agreements indicates that Good Life only employed Johnson as a tax preparer until April 30 of each year. Under these facts, the Employment Agreement did alter the terms of the employment relationship between Johnson and Good Life. Further, we note that the Employment Agreement specifically states in Section 8 that Johnson's having access to H&R Block's trade secrets and "other confidential business information" was considered consideration for the non-compete covenants contained therein. Accordingly, we must conclude that there was sufficient consideration to support the Employment Agreement.
Despite our conclusion that the Employment Agreement was supported by adequate consideration, we find no error in the trial court's conclusion that Good Life cannot collect damages for Johnson's breach. "Loss of anticipated profits is a recognized form of damages in Kentucky if proven with a reasonable certainty." Insight Kentucky Partners II, L.P. v. Preferred Auto. Servs., Inc ., 514 S.W.3d 537, 553 (Ky. App. 2016) (citing Pauline's Chicken Villa, Inc. v. KFC Corp., 701 S.W.2d 399, 401 (Ky. 1985); Kentucky Util. Co. v. Warren Ellison Café, 231 Ky. 558, 563, 21 S.W.2d 976, 978 (Ky. 1929)). "Although the '[m]ere uncertainty as to the amount will not preclude recovery[,]' . . . more than a mere estimate is required." Id. at 553 (citing Illinois Valley Asphalt, Inc. v. Harry Berry, Inc., 578 S.W.2d 244, 245 (Ky.1979)). "There must be presented . . . sufficient evidence on which a reasonable inference as to the amount of damage can be based." Illinois Valley, 578 S.W.2d at 246 (citing McCormick, Handbook on the Law of Damages, § 28, 104-06 (1935)). "In proving a claim of loss of profits of an established business, the record of past profits is usually the best available evidence. Mere 'estimates' of witnesses will not serve, if books were kept." Id.
In support of Good Life's claim for lost profits, Stamper offered hand-written notations purporting to demonstrate what Good Life had received in fees from former clients who had followed Johnson to Hero Tax Service. There was no documentary evidence indicating that the fees represented by Stamper were accurate, or even that those individuals had been clients of Good Life previously. Good Life undoubtably had records that would have demonstrated who its former customers were and what fees those customers had been charged; it chose not to offer those at trial. Further, the damages testified to by Stamper assumed that these customers would have returned to Good Life, or that Johnson had actually contacted any of those clients to solicit their business. Stamper's testimony was simply insufficient to establish lost profits by a reasonable certainty.
ii. Johnson's Claim under the Kentucky Wage and Hour Act
Good Life next contends that the trial court erred in awarding Johnson damages on her wage and hour act claim. Good Life argues that Johnson's claim for unpaid wages is speculative and bared by laches, waiver, and estoppel. We agree with Good Life that the trial court erred in concluding that Johnson could prevail on her claim and in awarding her damages; albeit not necessarily for the reasons asserted by Good Life. While this Court normally limits itself to issues raised by the parties, in this instance, it is clear that the trial court misapplied the law. "Applicable legal authority is not evidence and can be resorted to at any stage of the proceedings whether cited by the litigants or simply applied, sua sponte, by the adjudicator(s). Nor is legal research a matter of judicial notice, for the issue is one of law, not evidence." Burton v. Foster Wheeler Corp., 72 S.W.3d 925, 930 (Ky. 2002). "When the facts reveal a fundamental basis for decision not presented by the parties, it is our duty to address the issue to avoid a misleading application of the law." Mitchell v. Hadl, 816 S.W.2d 183, 185 (Ky. 1991). Further, "CR 61.02 permits this [C]ourt to correct palpable errors which affect the substantial rights of a party, notwithstanding that the issue may have been insufficiently raised or preserved for review, if the [C]ourt determines that manifest injustice has resulted from the error." Slone v. Calhoun, 386 S.W.3d 745, 748 (Ky. App. 2012). The trial court's improper application of the law in this instance would indeed result in a manifest injustice to Good Life.
Johnson brought her counterclaim under KRS 337.385, which provides a private cause of action for unpaid wages and overtime compensation. In pertinent part, that statute reads as follows:
(1) . . . any employer who pays an employee less than wages and overtime compensation to which such employee is entitled under or by virtue of KRS 337.020 to 337.285 shall be liable to such employee affected for the full amount of such wages and overtime compensation, less any amount actually paid to such employee by the employer , for an additional equal amount as liquidated damages, and for costs and such reasonable attorney's fees as may be allowed by the court.KRS 337.385(1)-(2) (emphasis added).
In determining that Johnson was entitled to damages under KRS 337.385, the trial court concluded that Good Life had violated KRS 337.060, which prohibits an employer from "withhold[ing] from any employee any part of the wage agreed upon." The trial court found that the terms of the Employment Agreement indicated that Good Life had agreed to pay Johnson an hourly wage, plus overtime compensation, but had failed to do so. The trial court did not, however, make any findings concerning the oral agreement between Johnson and Stamper by which Johnson received commission for tax return fees collected.
Under Kentucky's Wage and Hour Act, an employee has the right to be paid all wages due to her. Lipson v. Univ. of Louisville, 556 S.W.3d 18, 29 (Ky. App. 2018). Wages due are the wages "agreed upon." KRS 337.060(1). It follows that, if Good Life paid Johnson the wages due to her, Johnson has no claim for damages under Kentucky Wage and Hour Act. Id. This is true even if Johnson received her payment under a different designation that what was contemplated in the Employment Agreement. The trial court's award of damages to Johnson reflects that Johnson is entitled to wages as contemplated under the Employment Agreement for each year on top of the money Good Life has already paid to Johnson.
The Employment Agreement Johnson signed each year indicated that Good Life "shall pay [Johnson] an hourly rate of pay, the amount of which shall be determined by the Company labor code assigned to a specific project or task . . . . Under no circumstances shall the hourly rate for any work performed be less than the federal or applicable state minimum wage." Additionally, the Employment Agreement contemplated that Good Life would compensate Johnson for overtime hours worked "in accordance with federal and applicable state wage and hour laws." The amount Good Life was to pay Johnson for each hour worked is not contained anywhere in the Employment Agreement. The Company labor code is not a part of record. Johnson and Bailey testified that Johnson was paid at a rate of $15/hour during the non-tax season. This was disputed by Stamper; however, it is within the trial court's purview to determine what testimony he deems most credible. CR 52.01. While Stamper did agree with Johnson that Good Life had not paid Johnson an hourly rate of pay during tax season, she testified that Johnson had been paid more than the hourly state and federal minimum wage at all times.
If Johnson and Good Life had agreed that Johnson would receive commission payments—in the form of $600 per week, with the balance of commission earned paid at the end of tax season—in addition to the compensation contemplated in the Employment Agreement, then Johnson would be due those amounts and would have a claim for unpaid wages under KRS 337.385. The damages awarded to Johnson contemplate that Johnson was due her commission in addition to an hourly wage, plus overtime; however, the trial court made no such finding. The trial court's analysis focused on the Employment Agreement, not the oral agreement. Having reviewed the record, it is clear that there was insufficient evidence to find that Johnson and Good Life agreed that the commission payments would be in addition to Johnson's hourly rate of pay. Stamper testified that Johnson agreed to receive her pay during tax season based on commission in lieu of the hourly rate of pay. Johnson testified that she wanted to receive a twenty-five percent commission on fees collected during tax season. It was noted that the sheets calculating the commission due to Johnson at the end of the 2012 tax season were titled "2013 Bonus Comp"; however that alone is insufficient to prove that the entire commission received by Johnson was meant to be additional to an hourly rate of pay.
With no finding, or proof to support a finding, that Good Life and Johnson agreed Johnson would be paid based on commission in addition to an hourly rate of pay, the trial court's award of damages to Johnson is in contravention of the law. The weekly payments made to Johnson of $600 as an "advance" on her commission equate to making $15 per hour for a forty-hour week. Therefore, Johnson received all amounts she was due under the Employment Agreement for a regular work week. Of course, Johnson would also be due wages for any overtime worked during tax season.
The testimony and exhibits offered at trial demonstrate that Johnson received $37,307.74 in commission payments for the 2012 tax season. This amount does not include the $600 per week payments that Johnson received during tax-season. The trial court accepted Johnson's testimony that she worked fifty-eight hours per week during tax season, which would be eighteen hours per week of overtime. If Johnson was supposed to have been paid $15 per hour during that period, her overtime pay rate would have been $22.50 per hour. This would amount to Good Life owing Johnson approximately $6,075 in overtime payments for work done in 2013. Good Life paid Johnson well over that amount. Neither Good Life nor Johnson put on any proof as to what wages Johnson received for the 2011 tax seasons. While Johnson signed an Employment Agreement for the 2013 tax season, she left Good Life in January of 2014. It is unclear from the record whether Johnson prepared any tax returns for Good Life clients prior to leaving in January of 2014. Accordingly, it is unclear from the record whether Johnson received the wages she was due during those years.
It was stipulated that tax season runs from January 1 to April 15. Contrary to Johnson's calculations in her post-trial memorandum, in 2013, this came out to approximately 15 weeks. Thus, Johnson would be due overtime wages for 270 hours of work.
In waiting until May to remit those payments, Good Life was in violation of KRS 327.020. While Johnson cited to KRS 327.020 multiple times in the proceedings before the trial court, she did not put on proof as to damages she was entitled to for Good Life's violation of the statute at trial.
The calculations Johnson included in her post-trial memorandum calculated overtime wages due to Johnson for four years' worth of tax seasons. The proof only showed that Johnson signed the Employment Agreement, entitling her to an hourly wage with overtime payment, for three years. --------
The trial court concluded that Good Life was required to pay Johnson for all amounts due under the Employment Agreement in addition to the sums Johnson had already received from Good Life for work done in the applicable time periods. This is not what the wage and hour laws contemplate. Those laws are meant to provide a remedy when an employee has been paid less than what is required. In Johnson's case, Good Life paid her more than it was required to under the Employment Agreement.
Further, the trial court's order on damages accepts in toto the amount that Johnson alleged she was due in her post-trial memorandum. Even assuming that Johnson is due her hourly wage plus overtime for each year covered by the Employment Agreement, the damages as calculated by Johnson are not supported by the facts of record. Johnson's calculations were based on four years of unpaid wages; testimony at trial only concerned years governed by the Employment Agreement—tax years 2011-2013—and it was established that Johnson ceased working for Good Life towards the beginning of the 2013 tax year. Johnson additionally claimed that the tax season encompassed four-and-half months; however, the parties agreed that tax season runs from January 1 through April 15 of each year.
Accordingly, we must vacate the trial court's award of damages to Johnson and remand. On remand, the trial court shall determine the amount of wages due to Johnson under the Employment Agreements signed in 2011, 2012, and 2013. It should then calculate the payments made to Johnson for her work during the tax seasons those agreements cover, taking additional proof if necessary. If the trial court finds that Johnson received less than the amount she was due, based on the wage rate contemplated in the Employment Agreement, then Johnson is entitled to damages in the amount of the deficiency. If the trial court finds that Johnson received amounts more than or equal to the amount she was due based on the wage rate contemplated in the Employment Agreement, then Johnson cannot prevail on her claim and is not entitled to damages.
IV. CONCLUSION
In light of the foregoing analysis, we AFFIRM the portion of the trial court's order denying Good Life's claim for damages. The portion of the trial court's order awarding Johnson damages is VACATED and REMANDED. On remand, the trial court shall determine what damages, if any, are due to Johnson on her claim against Good Life.
THOMPSON, L., JUDGE, CONCURS.
CLAYTON, CHIEF JUDGE, CONCURS IN RESULT ONLY. BRIEFS FOR APPELLANT: J. Denis Ogburn
Louisville, Kentucky BRIEF FOR APPELLEE: Stuart Alexander, Jr.
Louisville, Kentucky