Employment at Will and Exceptions

Employment at Will Rule

"A general or indefinite hiring is prima facie a hiring at will, and if the servant seeks to make it out a yearly hiring, the burden is upon him to establish it by proof. ... [I]t is an indefinite hiring and is determinable at the will of either party, and in this respect, there is no distinction between domestic and other servant" (Wood's Master and Servant Treatise). Stemming from freedom of contract, the employment at will rule is tough to rebut and is the default rule. However, it may be overcome by contract, public policy, or legislation. Covenants not to compete conflict with employment at will. This made courts hesitant to favor such covenants. There are two main parts to the rule.

Two Main Parts of Employment at Will Rule

1. Employee May Quit or be Fired at Any Time 2. For Any Reason (and without Notice)

Tension Between Promissory Estoppel and Employment at Will

There is a strong tension between promissory estoppel with standard contract and employment law. Employment is generally at will. However, you cannot just allow employers to induce people for jobs that they rely on and then fire them immediately for no reason.

Promissory Estoppel

(1) A promise which the promisor should reasonably expect to induce action or forbearance ... (2) on the part of the promisee and (3) which does induce such action or forbearance that the promissee relies on. Promissory estoppel is a hard claim to succeed at and has a low success rate.

Theories Behind Public Policy Exception

1. Third Party Effects - We have to recognize externalities and how firing someone for a bad reason may hurt or affect others. For example, we cannot allow illegal contracts even between private parties because it would encourage people to commit crimes. However, violations that only affect the private working parties, such as embezzlement, may be illegal but are not public policy violations (Hayes). 2. Fundamental Public Policies - The policies sought to be protected are basic and fundamental. No employment relationship should allow such policies to be violated. There are foundational public interests at stake. The tort claim is necessary to advance the public policy.

Toussaint v. Blue Cross & Blue Shield of Mich., 292 N.W.2d 880 (Mich. 1980)

A manager was hired "as long as he did his job" for five years and was promised he would not be fired if he did this. They had been negotiating specifically for job security. The employer waived employment at will through this oral agreement. This was an explicit one-on-one bargaining contracting for job security. He could not be fired as long as he did his job because that is what they agreed to. There was consideration here—both evidence of commitment and a bargained for exchange.

Changes to Implied Contracts

A material change in conditions may create a new contract that requires new consideration. The majority says that consent of the employees is not required if the changes were minor and reasonable. The minority says that a new agreement requires employee consent. Generally, an employer can modify after a reasonable period with reasonable notice if doing so does not interfere with vested benefits (Asmus). Vested benefits means pensions, vacation time, and other things with material value. Note the tension between employment contracts and classical consideration.

Payne v. Western & Atlantic Railroad Co., 81 Tenn. 507 (1884)

A merchant of a store brought suit against a railroad for interference with business relations because the railroad prohibited its workers from shopping at the store and fired workers who went to the store. Because the employer has sovereignty as a business owner, even though the firing might have been wrongful, an employee may dismiss their employees at will for good cause, no cause, or even a morally wrong cause without being guilty of a legal wrong. This idea also comes from the strong protection of freedom of contract.

Rowe v. Montgomery Ward & Co., 473 N.W.2d 268 (Mich. 1991)

A salesperson was hired and told she would keep her job "as long as she met her sales quota." She was later fired for leaving for a personal emergency. Here, the court held that the oral agreement was insufficient to rebut the employment at will presumption and require termination for just cause. The oral statements regarding job security here were not clear and unequivocal, and they had not been bargaining for consideration like in the prior case. This case does, however, retreat from the expansive holding in Touissant.

NLRA in Employment Law Context

Although the NLRA mostly covers unions and collective action, it may be relevant for individual employment actions with regard to "concerted" acts that do not rise to the level of union activity.

Savage v. Spur Distributing Company, (Court of Appeals of Tn. 1949)

An accountant in Pittsburgh was hired for a permanent position in Nashville. He quit his job and moved to Nashville for the new job. They agreed orally to the terms of the job. However, he was fired soon after he started. The employer did not breach the contract because employment at will rule says employee can be fired or quit at any time. There was no contract that overcame the employment at will presumption here since there was no consideration. Employee claims that giving up his prior employment was valid consideration to constitute an employment contract. However, the employer gained no benefit. The employment at will standard is tough to rebut. In a normal contract, this likely would have been enough consideration as a suffered detriment. But here, the employer did not gain anything. Consideration is tougher to meet in the employment at will context.

Youngstown Steel Mills Case

An official at struggling steel company told investors and employees that there were no plans to shut down. Investors contributed money while employees relied that they would retain their jobs. The company shuts down, and both investors and employees have been lied to. The employer had a right to control the business at any time. However, the investors had a claim under the SEA for capital market fraud while the workers had no claim even though their harm was just as bad. The property rights of the investors were valued more than the individual rights of employees who would lose their job.

Timekeeping Systems (NLRB)

COO of company sent around email about vacation and time-off policies. One employee replied with provocative and disapproving emails for all to see. He was fired for failure to treat others with courtesy and respect. The court held that his actions were concerted because he was attempting to correct a misconception about the vacation policy to all the employees and it was for mutual aid even if he was not expressly inducing group action. Just because his language was abrasive does not make his acts not protected by section 7. His main goal was to communicate with the others disapproval of the new policy.

Outsourced Work

Companies generally do not have a duty to employees of other foreign companies though some have argued that they should because there is a mismatch of labor standards between countries.

Constructive Discharge

Constructive discharge is not a standalone claim. To raise the constructive discharge defense, the employee must establish conditions so intolerable that he or she felt compelled to resign. This is the first step, which is separate from the overall wrongful discharge claim. The employer also must have known or should have known, though some courts do not require intent. The discharge must also be shown to be wrongful.

Sources of Public Policy

Courts differ on what constitutes a violation of public policy. Some say only firing someone who refused to do something illegal is a violation. Others say that a good faith belief that there was a public policy violation is enough. Other courts may list various factors to determine whether a violation occurred. Courts disagree whether sources of public policy for claiming a public policy violation in wrongful termination must come from a statute and constitution or from other sources such as judicial decisions, regulations, or codes of ethics: (1) no public policy exception, (2) only refusing to commit a crime, (3) good faith belief there was a PP violation, (4) constitutional or statutory bases only, (5) other legal sources, (6) non-legal sources.

Moving as Reasonable Reliance

Courts disagree on whether moving means reasonable reliance or rather that today we are in a mobile world and that that is just an expectation of the job market.

Gant v. Sentry Insurance (CA 1992)

Employee complained to her manager, P, about sexual harassment. Her reported it. The company lowered his reviews and pressured him not to testify on the harassment or face retaliation. He was demoted and eventually forced to resign. The court notes that a fundamental public policy violation must be rooted in some statutory scheme and must be an important fundamental public policy that affects the public at large. However, the statute does not have to prohibit the exact conduct but if it is clear that it sought to promote the interests sought to be protected here, it may count as a valid source of public policy. The CA investigations statute clearly seeks to promote the interests of allowing sexual harassment to be reported. Here, the CA statute prohibits the obstruction of a Department of Fair Employment and Housing investigation. The statute shows a clear public interest in protecting employees who cooperate with investigations of sexual harassment in the workplace. Public Policy Test Drawn from Gant: (1) Delineated in either constitutional or statutory provisions; (2) 'Public' in the sense that it 'inures to the benefit of the public' rather than serving merely the interests of the individual; (3) Well established at the time of the discharge; and (4) Substantial and fundamental." Washington Multi-Factor Test: (1) The plaintiffs must prove the existence of a clear public policy (clarity), (2) the plaintiffs must prove that discouraging the conduct in which they engaged would jeopardize the public policy (jeopardy), (3) the plaintiffs must prove that the public-policy-linked conduct caused the dismissal (causation), (4) the defendant must not be able to offer an overriding justification for the dismissal (absence of justification)."

Employee Handbooks as Implied Contracts

Employee handbooks may be implied contracts unless there is a clear disclaimer that says otherwise. It is reasonable, in the absence of other agreements, that the employees believe the books constitute the terms of employment.

Performing a Public Duty as a Public Policy Exception (Jury Duty)

Employee was fired for exercising her right to perform jury duty. This is clearly a violation of public policy because it would discourage workers from exercising this duty. (Ness v. Hock).

Strozinsky v. School District of Brown Deer (Wis. 2000)

Employee, a school payroll clerk, disagreed with the school superintendent about how to deal with tax withholdings on his checks believing it would violate the law. She was forced to comply. She was later given less responsibility by her supervisors, treated poorly, and felt forced to quit. The situation was so objectively intolerable that the employee felt forced to quit. It was also wrongful because she was refusing to break the law. Therefore, it was a wrongful discharge.

WARN Act (Worker Adjustment and Retraining Notification Act)

Employers with 100 or more full time employees must notify workers, unions, and state agencies of layoffs of more than 50 workers at least 60 days prior. The DOL may regulate provisions of this act. Sometimes, if the employer made a good faith effort to obtain capital, failing to notify may result in less penalties. Also, natural disasters are an exception. It encourages workers to have time to find a new job and gives them some transition time. It is not revolutionary or robustly enforced by DOL, but it does exist.

Contracting Around Employment at Will

Employment at will default protects reciprocal obligations between employee and employer, the labor market and the ability to leave a job, etc., but there are some exceptions such as contracting around the default rule. More skilled employees can generally negotiate better terms.

Hispanics United (NLRB)

Facebook employee expressed to her colleagues that they were not helping victims of domestic violence as much as they should be and wanted to take it up with the manager. One of the colleagues posted what she said on Facebook and many others responded with harsh exchanges over the post. Employee who the posts were about claimed she was defamed, and employer fired those responsible. The court held that this was concerted action with a clear mutual objective. By responding to her post, the employees were acting concertedly, and they had a clear mutual objective to defend their position and harass her on her views on their work. The comments were not pure harassment or bullying but true concerted action.

Franchise

Franchisors, such as corporate McDonalds, have some amount of control over the franchisees, the individual locations, through contract provisions or market sanctions. Some courts have considered franchises like McDonalds to be joint employers while others, such as California with regard to Pizza Hut, have said franchises do not have enough control over day to day operations.

Background of Employment at Will

In feudal England, employment was governed by master-servant doctrine before the emergence of the employment at will rule. There used to be a presumption that an indefinite hiring was a hiring for a year unless rebutted by a contract and usually reasonable notice was required. In America, at first, they relied on the English rule but eventually developed the employment at will doctrine.

Implied Contracts

Most employment contract issues arise from implied contracts, such as employee handbooks, promissory estoppel, and other implied agreements.

Wooley v. Hoffman-La Roche, Inc. (NJ 1985)

P was hired as an engineer without an express written or oral employment agreement. P was promoted but later fired because the employer lost confidence in him. The employee had read an employee handbook that required a procedure and just cause for termination. The employer did not follow the procedures or fire him for just cause. In an action for a breach of an employment contract, the employer argued that this was merely company philosophy, but the court held that the employee manual constituted the terms of the employment agreement for ALL employees. Wooley reasonably believed the handbook to be the terms of employment. The employer clearly intended for this handbook to be the terms of employment and if it did not it should have included a clear disclaimer. This was a unilateral contract with ALL employees, which is an offer that can only be accepted by performance, rather than a special contract between P and the employer. Employer makes an offer, employee accepts through performance by continuing to work and having notice of terms through the employee handbook. Notice is required. Reliance may be enough. The consideration here was continued work in exchange for reliance on job security. Employee handbooks may include other rights such as arbitration, sick leave, etc. Employers want to have employee morale so often provide job security and other benefits to workers even if not legally required. After this case, many employers started including disclaimers in its handbooks, but the disclaimers must be CLEAR AND CONSPICUOUS. Other cases describe how conspicuous disclaimer must be.

Goff-Hamel v. Obstetricians & Gynecologists, P.C. (1999)

P was offered job but immediately let go because someone opposed her hiring. She left her other job and traveled relying on her employment at this job. Employment is generally at will and she can be fired at any time for any reason without a contract. However, because she reasonably relied on the promise, and the employer could have reasonably expected her reliance, promissory estoppel is a valid claim. However, the damages should not be what she expected to make at her new place of employment but what she gave up by leaving her old job.

Hayes v. Eaters, Inc. (1995)

P was promoted to an assistant manager role "as long as he did an adequate job." He was terminated for attempting to investigate theft and embezzlement of a coworker. The court explained that there is no fundamental public interest being protected here. What the coworker did may have been wrong, but it only harms the company in a private way rather than the public. He also was not asked to perform an illegal act but only observed someone else commit one. Whistleblower protection is different in the private sector. There are not the same third party effects as there were in Sheet's.

Sheet's v. Teddy's Frosted Foods, Inc. (CN 1980)

P, a quality controls director for a food company, communicated substandard, mislabeled, and underweight food to his employer that breached Connecticut food quality standards. He was let go for reporting this, though they claimed it was for unsatisfactory performance to cover their asses. Although there is a presumption of employment at will, we cannot allow companies to fire employees for reasons that go against fundamental public policy. Here, as quality control director, Sheets' employment required him to monitor the quality of the goods sold by TFFI, and his failure to address potentially criminal violations of the labeling law could have subjected him personally to criminal sanctions. TFFI's mislabeling of its products was in violation of a state statute intended to protect consumers from being misled, and to protect the health of the public. TFFI's retaliatory discharge of Sheets violated public policy and the trial court erred in dismissing the complaint. Employees should not have to choose between employment and breaking the law. This would have had a demonstrably bad effect on the public if the company was allowed to consider this practice because we do not want people getting sick and eating bad food.

Asmus v. Pacific Bell (2000)

PB had a policy in which employees were guaranteed job security in that even if their positions were eliminated the company would find another place for them in the company as long as employees meet continued business expectations. Due to market pressures, PB changed its policy to allow for firings but would give generous severance and pension benefits to those who agreed to leave early. The employees allege a breach of an implied unilateral contract for a material change in conditions. But the court held that there was no breach because PB maintained the policy for a reasonable time, it provided more than reasonable notice about the changes to employees, the contract was not illusory, and it did not interfere with the employees' vested benefits. They were even granted generous pension and severance to those who left early. Therefore, the change was not material and did not require additional agreement. There was consideration here because the employees continued to work. Additional consideration is NOT required for changes that are not material. The employees accepted the new conditions, which were not a material change, by continuing to work in exchange for payment and better benefits. The dissent argues that new consideration is required and that this is a completely new agreement that requires the consent of the employees. This is the minority rule.

Refusing to Commit a Crime as a Public Policy Exception (Perjury)

Refusing to commit perjury violated public policy. (Petermann v. International Brotherhood of Teamsters).

NLRB v. Washington Aluminum (SCOTUS 1962)

Several workers walked out of work at an aluminum company one day because it was way too cold and the employers had not fixed the heat despite several attempts and promises to get it fixed. They were then discharged. Even though the employees were not a formal union, they acted concertedly, which the NLRA protects when they walked out. It does not matter if all the workers agreed on the specific goal or action they wanted from the employer as long as there is concerted action. Their firing was wrong, and they should be reinstated because they acted concertedly for mutual aid by leaving together because of the cold.

Wrongful Discharge

Sometimes an employee might have a claim when he or she left voluntarily because there was no choice but to leave. If constructive discharge can be established, there may be wrongful discharge if the firing would have been unjust had it been done expressly. Constructive discharge is not enough. To ultimately succeed on the claim, had the employee been expressly discharged, it would have been actionable as a violation of public policy. This comes from the NLRA.

Section 7 of NLRA 3-Part Test

The NLRA applies to the non-union workplace to protect certain group action that does not rise to the level of unionism. To succeed on an NLRA Section 7 claim for wrongful termination, the group action must be (1) concerted, (2) for the purpose of collective bargaining or mutual aid regarding a common condition, such as wages, hours, etc., and (3) is protected and otherwise not unlawful.

Just Cause

There is no precise definition for what constitutes good cause or just cause, but most view it as something that is not arbitrary or unreasonable. Just cause may include willfully bad conduct, moral turpitude, breach of fiduciary duties, underperformance, etc (substantive elements). Just cause may also require "industrial due process" and "industrial equal protection" (procedural element). The burden of proof is on the employee for individuals and on the employer for collective bargaining. For fixed contracts, most courts have implied a term permitting termination of a definite-term contract for misconduct or inability to perform job duties. For indefinite contracts, when interpreting indefinite term contracts, most courts interpret "cause" to include both employee malfeasance and economic circumstances.

Joint Employer Doctrine

Under the joint employer doctrine, both the original contracting employer and a subcontractor may be liable depending on the amount of control they had over the work. The joint employer doctrine test is similar to the independent contractor versus employee test. If both businesses share or combine control over the workers terms and conditions of employment (such as setting the workers' hours, pay rates, and job duties), the joint-employer doctrine permits both businesses to be held accountable for complying with the laws that protect the workers' basic rights to health, safety, and fair pay.

Oral Contracts

Valid oral contracts may also rebut employment at will but are harder to prove.

Whistleblowing as a Public Policy Exception

We have protection for whistleblowers because they are in the best position to see what goes on in a company every day and they can report abuse or illegality on the part of the employer. Whistleblower protection is much stronger in the public sector than in the private sector. It will generally be protected if it regarding an issue that has a public harm, such as substandard food, but not necessarily if the harm is only private, such as embezzlement.

Public Policy Limitations on Employment at Will (Torts v Contracts)

While the prior section discussed how contract law may provide exceptions to employment at will, some public policy exceptions may provide tort-based exceptions to employment at will. While contracts show that the employer broke a promise or fired someone for not a good enough reason, tort law claims that an employer let someone go for a demonstrably bad reason.

Just Cause in the Union Context

Within the union context, collective bargaining agreements, and legislation that governs them such as the NLRA, often requires just cause. This means that employees can only be fired for legitimate reasons, which is difficult to define, but usually means things such as underperformance, violating rules, etc. rather than something arbitrary or unfair. Under just cause provisions in the union context, employees are entitled to procedural protections and may have their grievances heard, usually through arbitration. Many are not public, but courts have drawn from some of these arbitrations in the collective bargaining context. What's better...just cause or mandatory severance pay? Other countries have just cause but not mandatory severance. Another protection could be requiring reasonable notice for termination.

Exercising a Right as a Public Policy Exception (Workers Compensation)

Workers should be able to seek workers' compensation if they are injured by the job without fear of being fired. Allowing employers to do this would mean that employees would not report injuries, which is their right. (Frampton v. Central Indiana Gas Co.).

Written Contracts

Written employment contracts, usually for more skilled workers for a set period of time, are the most straight forward and may rebut employment at will default. They are governed by contract law and usually require just cause for termination. When the written contract is for an indefinite time, some courts still require just cause while others use employment at will default for termination.