Sovereign Immunity & Public University Employment Contracts

Can an employee of a state university sue his or her employer for breach of contract?

 

It is well-settled law in Kentucky that state universities are entitled to sovereign immunity. It is also well settled that a state university’s immunity can be waived only with a specific and express waiver by the Kentucky General Assembly.  What has not been so clear—at least until now—is whether the waiver of immunity for contract claims against the state found in Kentucky’s Model Procurement Code extends to employment contracts with state universities.  On November 2, 2017, the question was answered “yes” by the Kentucky Supreme Court in a November 2, 2017 decision styled University of Louisville v. Rothstein, 2017 WL 5034507 (Ky. 2017).

Background

The University of Louisville hired Rothstein, the Appellee, as a professor of medicine and appointed him as a Distinguished University Scholar under a five-year renewable contract. Disputes arose over this contract which led to the university’s termination of the contract. Rothstein sued UofL for breach of the employment contract. Both Rothstein and UofL moved for summary judgment. UofL argued that it was immune from suit due to its status as a state agency and further, that the Model Procurement Code waiver of immunity for breach of contract actions does not extend to employment contracts because the Model Procurement Code has no bearing on the hiring of university faculty. Both the Franklin Circuit Court and the Kentucky Court of Appeals denied UofL’s argument and it moved the Kentucky Supreme Court for discretionary review.

Model Procurement Code Waiver of Sovereign Immunity

The waiver at issue in Rothstein was a section of Kentucky’s Model Procurement Code, KRS 45A.245(1), which provides a waiver of immunity for “any person, firm or corporation, having a lawfully authorized written contract with the Commonwealth.”  The scope of that waiver is defined within the Code in part by KRS 45A.030, which defines “contract” as:

[A]ll types of state agreements, including grants and orders, for the purchase or disposal of supplies, services, construction, or any other item. It includes: awards; contracts of a fixed-price, cost, cost-plus-a-fixed-fee, or incentive type; contracts providing for the issuance of job or task orders; leases; letter contracts; purchase orders; public-private partnership agreements; and insurance contracts except as provided in KRS 45A.022. It includes supplemental agreements with respect to any of the foregoing[.]

This detailed definition of “contract” led state agencies in many instances to speculate that the scope of “written contracts” under KRS 45A.245(1) must be limited to the procurement of things like hardware and construction services, which must be purchased following the Code’s detailed bidding procedures.  In fact, the Kentucky Court of Appeals suggested as much over 30 years ago in Ashley v. University of Louisville, 723 S.W.2d 866, 867 (Ky. App. 1986). Nevertheless, in 2014, the Kentucky Supreme Court indicated that the question of whether state employment contracts are subject to the limited waiver in KRS 45A.245 was still an open one, but decided to leave its answer to that question for another day.  Furtula v. University of Kentucky, 438 S.W.3d 303, 306 (Ky. 2014).

Does the sovereign immunity waiver apply to employment contracts? 

In Rothstein, the Kentucky Supreme Court recognized that the “bill has come due” on the question of whether state employment contracts—in this case, the contract of a University of Louisville professor—are covered by the limited waiver of immunity found in KRS 45A.245.  The Court held that immunity is waived for “all lawfully authorized written contracts with the Commonwealth,” including employment contracts.

Unfortunately, the Court declined to decide whether such employment contracts must follow other requirements of the Model Procurement Code such as the competitive bidding procedures outlined in KRS Chapter 45A.  That question will have to wait for another day when its bill finally comes due.