Bad Information and Faculty Buyouts

November 7, 2011

A ruling last week by a California appeals court may show how important it is for colleges offering tenured faculty members retirement buyouts to be sure that the information they receive to make their decisions is accurate.

The ruling found that Whittier College committed fraud when it described to tenured law professors what would happen if significant numbers of them did not accept buyouts. The law school was sued by Nelson Rose, a professor who accepted a buyout, when he saw that conditions for those who remained were in fact better than predicted. "Whittier’s statements concerning salaries and workloads were material misrepresentations and a valid basis for holding it liable for fraud and negligent misrepresentation," said the ruling by the appeals court.

The appeals court upheld trial court's $350,000 award to Rose, finding it reasonable, but rejected $500,000 in punitive damages (although the latter rejection was based on Rose's failure to present certain evidence about Whittier's overall financial condition, not Rose's grievances).

Rose left Whittier's law school in 2007, accepting a buyout of his tenured position, after having taught there for 23 years. The events that led up to his departure can be traced to a 2005 decision by the American Bar Association to place the law school on probation -- and the law school's efforts to improve itself. Whittier used a consultant, which advised the college that it couldn't keep faculty salaries flat (as it was considering) without losing talent. Whittier decided it would gain more flexibility by encouraging some faculty members to accept buyouts, and it offered such deals to 20 professors. The court records state that, in meetings with the faculty members, law school officials said that if the professors did not accept the buyout offers, they would see a 50-100 percent increase in workload (from three or four courses a semester to five or six) and would see salaries frozen.

Shortly after Rose left the law school, Whittier gave law faculty members a 3 percent raise -- and their workloads were not increased. (The law school's fortunes improved after its graduates showed improved success rates on the bar exam.)

Whittier officials did not respond to e-mail messages seeking comment on the case, but the appeals court decision said that the college did not dispute what its officials told Rose and other faculty members. Rather, the college argued that these statements were "non-actionable expressions of opinion," which cannot be subject to litigation based on misrepresentation, or that they were "mere predictions of future events."

The trial court and the appeals court rejected these arguments. The appeals court noted that college officials made the statements in question "under circumstances indicating they were intended as expressions of fact." Further, the appeals court noted that Whittier -- but not the professors -- had the consultants' report suggesting that the law school could not afford not to raise faculty salaries. And the court found that Whittier could not argue that it was merely offering a theory about what would happen in the future.

The appeals court upheld the finding of the trial court that "Whittier's administrators not only had information not available to a professor, but were also responsible for making decisions on the very issues at stake, including salaries and workload."

Ann H. Franke, who as president of Wise Results advises colleges on legal issues, said that the case is unusual in that "faculty retirement incentives do not usually generate much litigation." But she said that the case is "significant" in that it shows how important it is for institutions to be "truthful" in the information they provide to employees about the consequences of a decision on whether to retire.

She said that the court's ruling was based on statements from "several meetings between the administration and tenured faculty. Eager for faculty participation in the incentive program, the administration painted too bleak and too certain a picture of the future." She said that the appeals court's ruling that there was "no reasonable basis" for the law school leaders to speak as they did was "strong stuff, particularly in a law school setting."

Franke said that misrepresentation cases in higher education tend to focus on statements that are more optimistic than reality -- say a college that is sued by students who say that it "misrepresented its accreditation status" or by a new professor who " might claim that, in the hiring process, an institution promised more than it could deliver." This case shows another kind of misrepresentation for which a college could be liable, she said.

Valerie Martin Conley, director of the Center for Higher Education at Ohio University and a scholar of retirement incentives in higher education, said that she lacks the legal expertise to comment on the decision itself. But she said that "as someone who studies psychosocial issues related to decision-making for retirement, though, I had expected that it was only a matter of time before we would start seeing situations showing up in the courts. "

Conley added that "with buyuouts becoming the norm, individuals have to be as savvy about navigating the terrain to exit their career as they were when they negotiated their first academic job at the beginning of their career." And that isn't always going to be easy, she said. "Is this really what we want for higher education?" Conley asked. " While I believe flexibility is needed, transparency and clear guidelines are imperative if we are going to avoid claims regarding information sharing like this one."

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