Federal programs often require individuals employed by multiple corporations and by the federal government to work together. To ensure the project is successful, the prime contract and any related subcontract will often grant one party the right to make decisions regarding whether and how another party's employees participate in the project (e.g., the government may reserve the right to approve all key personnel substitutions). But a recent court case underscores the legal risks that can arise when a prime contractor exercises its rights under such a clause by directing the subcontractor to remove its personnel from working on federal program.
How did this case arise?
Booz Allen Hamilton (BAH) was the prime contractor for an Office of the Director of National Intelligence (ODNI) project, and Synertex, LLC was BAH's subcontractor. See Kruml v. Booz Allen Hamilton, Inc., No. 0518-23-4, 2025 WL 36977, at *1 (Va. Ct. App. Jan. 7, 2025) (unpublished). The subcontract granted BAH the express right to direct Synertex to remove any employee from the ODNI project. See id.
The plaintiff, Kruml, was an at-will employee of Synertex and worked as an analyst at ODNI under the prime contract and subcontract. See id. Kruml alleged that an ODNI employee subjected him to a hostile work environment by assaulting him with threatening verbal and physical acts, that he reported the incident to a BAH project manager, and that BAH then reported the allegation to ODNI's chief of staff. See id. Kruml further alleged that, just days later, three ODNI employees retaliated against him by arranging for the termination of his access to ODNI secure sites, knowing that without such access, Kruml could not perform his job duties. See id. Kruml stated that he reported this retaliation to Synertex, which reported it to BAH, but that BAH did not report it to ODNI. See id.
After BAH exercised its right under the subcontract to direct Synertex to remove Kruml from the ODNI project, Synertex complied and removed him from the project. See id. Later, Synertex terminated Kruml's employment altogether. See id.
What was the plaintiff's basis for suing the prime contractor when the underlying harassment and retaliation seemed to relate to actions by government employees?
Kruml sued BAH for tortious interference with his at-will employment contract with Synertex. See id. at *2. As the Virginia Court of Appeals explained, to present a prime facie case of tortious interference with an at-will employment contract, the plaintiff "must allege and prove not only an intentional interference that caused the termination of the at-will contract, but also that the defendant employed improper methods.'" Id. at *3 (emphasis added).
Here, Kruml argued BAH employed improper methods in three ways:
- First, the "crux of Kruml's tortious interference claim center[ed] on the prime and subcontracts and whether BAH violated any provisions of those contracts" by "failing to report to ODNI that ODNI's own employees had wrongfully deprived him of access to the systems he needed to do his job[.]" Id. at *4.
- Second, Kruml argued "that by directing Synertex to remove him from the ODNI contract because of lack of access, BAH used improper methods to interfere with his at-will employment contract with Synertex." Id.
- Third, Kruml claimed "that BAH engaged in improper methods because it 'became a vehicle of retaliation' and 'placed its interest of maintaining ongoing and future revenue from the Prime [contract] ahead of its obligation to report Mr. Kruml's retaliation claim by pacifying the supervisors at ODNI who retaliated against Mr. Kruml[.]'" Id. at *5.
Did the Court hold the prime contractor liable?
No, the Court of Appeals held that the trial court properly granted BAH summary judgment because BAH had not engaged in any improper methods when it directed Synertex to remove Kruml from the ODNI project.
The Court reasoned that Kruml "mischaracterize[d]" the relevant "contractual provisions," the "gravamen" of which was "to prohibit contractors from engaging in behavior and not, as Kruml argues, to impose a duty upon BAH to police the behavior of ODNI employees." Id. And the Court "decline[d] to extend the scope of the tort to require BAH to indemnify Kruml for the wrongful acts of a third-party over whom BAH had neither authority nor control." Id. at *6.
Moreover, "[a]lthough tortious interference with an at-will contract is a viable cause of action in Virginia, it is subject to a number of defenses," including "the 'lawful exercise of [the defendant's] statutory and contractual rights' which 'incidentally may ... interfere[ ]' with a contract." Id. The Court recognized that this defense reflects that "[p]rotecting its financial interests was not, as Kruml implies, an illegitimate consideration for BAH" or "mere crass profiteering," and thus was not an improper method. Id. at *7. Given that "BAH was under contract to provide services to ODNI" and "Kruml's loss of access impeded the delivery of those services," this was "not a case of a competitor seeking his own advantage by causing the breach of another's contract," but "a case of one acting normally to limit his liability in a situation to which he is already a party." Id.
Therefore, "[n]otwithstanding Kruml's assertion that ODNI employees wrongfully obstructed his access," BAH's "exercise of a valid contractual right to direct the removal of Kruml from the subcontract [wa]s not an improper method under the undisputed facts in this case." Id. at *8. The Court noted that the Virginia Supreme Court had previously established that even "'unsavory,' 'careless,' and 'harsh' conduct" does not necessarily rise to the level of "improper methods" in the context of at-will employment contracts. Id. at *8-*9.
What are the takeaways for prime contractors who sometimes need to direct the removal of subcontractor personnel to ensure satisfactory performance of the prime contract?
While the Court ruled in favor of the prime contractor, the facts and legal framework of the case should make prime contractors pause and consider the potential liability they incur when directing subcontractors on how to handle their own workforces. Several considerations are important to bear in mind:
- At minimum, prime contractors must ensure subcontracts appropriately account for the possibility of government approval of or control over personnel employed by subcontractors. The subcontract's terms should avoid scenarios in which the prime contractor may be "stuck in the middle," with the government directing the removal of personnel (or blocking a proposed substitute) pursuant to the terms of the prime contract, but the subcontract not including a comparable right for the prime contractor vis-à-vis its subcontractor.
- A tortious interference claim may be less likely to succeed where the subcontractor personnel are employed at will, but the prime contractor will not always know the terms of employment for subcontractor personnel. Where possible, it may be prudent to confirm such terms before directing a subcontractor to remove an employee from performance on a federal contract.
- The Court noted that, under Virginia law, exercise of a valid contractual right generally does not give rise to a tortious interference claim for at-will employment. This highlights the importance of expressly including in the terms of the subcontract a right for the prime contractor to order removal of subcontractor employees from performance under the prime contract.
- The Court emphasized that what constitutes "improper methods" for at-will employment is "limited," and that viable defenses to a tortious interference claim include "legitimate business competition, financial interest, responsibility for the welfare of another, directing business policy, and the giving of requested advice." Id. at *8. Prime contractors should consider whether any such defense might apply and, if so, document the factual basis for that defense to protect against subsequent litigation.
Addressing all these factors can be complex. For example, it may require consideration of other fact-specific issues (e.g., is prime contractor control over subcontractor personnel necessary if none of the subcontractor's employees are named as key personnel for the prime contract?) or financial considerations (e.g., is the subcontractor entitled to a percentage of the prime contract's workshare under a teaming agreement that could inhibit the prime contractor's ability to direct the removal of personnel?). Prime contractors and subcontractors alike should consider seeking the advice of counsel experienced in government contracting and labor law when negotiating subcontracts. They may also subscribe to receive additional updates from Venable on federal contracting and employment issues at https://www.venable.com/insights/subscription-center.