A. English Employment Law History: 1. Statute of Laborers (pg. 75)
- Required labor at wages of pre-plague levels in response to the labor shortage. The purpose was to eliminate wage competition between ERs.
2. Statute of Artificers (pg. 76)
- Prompted by another labor shortage, this statute specified that the term of labor was one year. There was increasing mobility of the laborer.
3. Blackstone (pg. 77)
- Set forth the general rule that hiring is for one year in order to prevent opportunism by both ERs and EEs. Contracts, however, could be created for longer or shorter terms.
B. Modern American Employment Law:
- Modern American employment law views employment as a private contract between employers and employees.
- If there were no employment laws at all there might be problems.
- For example, X arrives at Y Corp. and is offered a job at $10/day. X shows up and works 9-5. Y Corp. says wait, the $10/day means you must work 9am to 9pm. What do you do? Look to the oral contract. Look to industry practice. Messy.
- Employment law helps to fill in the gaps. (i.e. the work day is 8 hours, not 12)
- So if Y Corp. wants to have a 12 hour day, it is forced by the law to surface that issue and negotiate with the EE.
- If you were to create a law saying the daily wage is presumed to be for 8 hour days, and the maximum number of hours you can work is 8, this would prevent the worker from working more than 8 hours. So the worker would be protected in this way, but it would also prevent those who prefer to work 12 hours from working and earning more money.
2. American Employment Law History:
- In the Lochner case of 1905 the SC ruled that a NY law limiting the hours of a baker was unconstitutional. The Court has since backed away from this constitutional language.
- In 1935 the National Labor Relations Act (NLRA) was passed implementing procedures to allow workers to get together and bargain collectively. There were no substantive terms, however.
- Since then there has been an increase in the amount of government regulation of employment. The Fair Labor Standards Act (FLSA) passed in 1960, and other acts, have picked up where unions leave off. There has been a shift from reliance on collective bargaining to direct regulation of substantive workers’ rights.
- Title VII of the Civil Rights Act imposed no substantive terms on the employment relationship, but did say that you can’t hire/fire on the basis of race, religion, sex, etc.
- Under Title VII courts have developed a body of law to figure out what the ERs motivations were.
- There is no one central source of employment law. There are federal and state statutes, the constitution, and state and federal court decisions.
- States have greatly increased their influence on the employment relationship. They now closely examine employment decisions, especially terminations.
3. Default Rules
- Default rules are gap fillers. The parties are free to agree to something else. The main issue is where to set the default. Where you set it will change who has to raise the issue in employment negotiations.
- Traditionally, default rules strive to reflect that arrangement that most bargainers would prefer.
4. Immutable Rules:
- Rules that set the terms of the contract and override party preferences.
- These rules may infringe on what the EEs and ERs would choose given free choice.
5. Different Views:
- One view is that the ER and the EE are each independent, competent actors capable of bargaining and reaching an agreement based on their own self interests. Under this view, immutable rules are suspect. They prevent the free exchange of labor in the employment market. Labor is like any other commodity that can be exchanged on the open market.
- Another view is that labor is not like a widget on the market. It’s different from other commodities. The employment relationship is often a long term relationship, not a simple exchange of goods.
6. Implicit Life Cycle Model
- Worker enters the workforce and early on, the worker could earn more elsewhere, but he stays put because he is getting training that he thinks will help him in the long run. The ER is also paying more than he is receiving in productivity because he thinks he will get more in the long run over long-term employment. Eventually, the EEs output and wage are about equal, but eventually, the wages exceed the productivity as the term of employment drags on.
- As a result of this, the ER has the ability to opportunistically take advantage of the EE by firing him when the wages go above the output. The EE would be screwed because he would have a lot of firm specific investment, would be kind of old, might be hard to find a new job.
- The EE also has some incentive to quit early on when he is getting paid more than he is putting out.
II. Employment At Will
1. Wood’s Rule (pg. 79)
- Wood Rule: Hiring is at will when it is of a general or indefinite period.
- The British presume hiring is for one year.
- At will: Either party can terminate the contract at any time, for any reason (or for no reason).
- Wood’s rule is a default rule that parties are free to contract around. Why pick “at will” to fill in the gap?
- Why choose it? Simplicity – it is easily understood. Maybe this is what the parties would have intended.
- The “at will” relationship has a more immediate feeling – to the extent we need you, we’ll keep you. It feels more temporary to the EE, but this might also provide some incentive for the EE to avoid discharge.
- Many have criticized Wood’s Rule:
- Jacoby argued that this rigid presumption forced courts to ignore the parties’ intentions.
- Feinman argued that employment at will was an adjunct to the development of advanced capitalism. If the EEs could be dismissed on whim, they could not claim a voice in the determination of the conditions of work or the use of the product of their labor.
B. At Will Employment
1. Defining At Will Employment:
- In the absence of a contract for employment for a definite term or a contrary statutory provision, an ER may discharge an EE at any time, without cause or reason, or for any reason and in such case, no action may be maintained for wrongful discharge.
- At will employment is presumed in all states but MT.
2. Identifying At Will Contracts
a. Extra Consideration
- Some courts will allow you to show permanent employment by showing that the EE paid extra consideration outside of the service that he renders from day to day. (Skagerberg).
- Something more than just labor for wages is needed to show permanent employment. The court often wants concrete evidence that the parties meant to contract around the default rule.
b. Indefinite Contracts
- Some courts, including MO, will find an indefinite employment contract to be at will absent a contract for a definite term. (Skaggs)
- In these states, if you want to overcome the at will presumption, you will need to get a contract for a fixed period of time. MO has a strong preference for limiting attempts to contract around the at will rule.
- Most states now are more flexible and more willing to allow the presumption of at will to be overcome.
- Skagerberg (MN): Skagerberg was an engineer and received an offer to work for Blandin. He accepted and rescinded an offer from Purdue. He moved to MI and bought the home of Bladin’s superintendent as agreed in the contract. He was laid off after a few months. EE claimed breach of contract of permanent employment. Court said no, this was at will employment. There was just labor for wages, nothing more was exchanged. You need something more to get more permanent employment. Rejection of the Purdue offer, buying the house, giving up his business is all normal stuff.
- Skaggs (MO): Carriger worked for a hospital and was terminated without notice. Her contract had stated that either party could terminate the agreement “with just cause” by giving 60 days notice. She argues this was wrongful discharge because she had a just cause contract, not at will. The court said no, this is at will employment. The written contract was at will, the court looks only to the law, not to the facts. They don’t care about party intent. Indefinite term contracts are contracts at will.
C. Overcoming the At Will Presumption: Express and Implied Contracts
1. Express Definite Term Contracts (and Just Cause):
- Under these contracts, employment continues indefinitely but the ER can only terminated the EE for “just cause.”
- If you have a definite term contract, the courts will imply a just cause provision. (Chiodo).
- By implying a just cause provision you are preventing a potential moral hazard. Without such a provision there would be no incentive to work because you are completely protected from firing.
- Now, if no just cause term were implied, and the ER would be stuck with the EE, then that would encourage the ER to contract around this default rule. But this isn’t the rule. If it was, you might be stuck with a bad default rule if the parties don’t know about it. There are barriers to negotiating over it.
- What is just cause? EE not performing well, misconduct, incompetence, changed business conditions.
- What about the EE stealing? Yes. ER believes EE is stealing? Some courts say you need a good reason and a reasonable basis for believing he was stealing, and the company must act in good faith. Other courts use a more objective standard. Good cause: more subjective. Just cause: more objective.
- EE filed for embezzlement? Yes, just cause.
- EE hired under a 2 year contract and then fired for embezzlement? Yes, just cause.
- EE hired under a 2 year contract, business conditions change and he is fired? Maybe this would be just cause. But maybe the fact that he was hired under a 2 year contract means the ER should have been anticipating what his needs were. There is not necessarily a right answer here. The context in which the contract was made may shape the court’s analysis.
- Chiodo (UT): Chiodo sued for breach of contract. He had an employment contract for a definite term of 10 years. The court implies a just cause term into the contract and finds that in a definite term contract, the ER must be able to discharge for just cause to prevent a moral hazard. Here there was not just cause for the termination. He was a good manager, worked hard. The ER seems to have tried to dredge up accusations against him. But EE was able to sufficiently and reasonably explain them.
2. Oral Contracts
- If an ER makes statements indicating that if the EE does a good job she will not be fired, such statements can create indefinite employment with termination only for just cause. (Hetes)
- Some courts will look to the context of the alleged agreement to overcome the presumption of at will employment.
- For example, if the alleged agreement came up during negotiations about job security, that weighs in favor of finding a just cause term.
- Also if the promises are more specific, rather than general, there is a better change you will be held to have created a just cause situation.
- In MI, the SC found that a salesperson who had been told that “generally as long as they generated sales and were honest the salesperson had a job” was not a just cause contract. The court emphasized that the words were couched in general terms.
- ERs would be wise to be careful of what they say, to try to put everything in writing, especially if they aim to have at will employment.
- Casual words of encourage may or may not be viewed as sufficient to overcome the presumption of at will employment.
- Some courts will imply a good faith obligation on the ER when he promises to provide employment “as long as I am satisfied with your work.”
- In such jurisdictions, the EE might be able to show breach of contract by showing that the ER was not “in good faith” dissatisfied with the EE’s job performance.
- The difference between good faith and just cause is that between a subjective and objective standard.
- Hetes (MI): Hetes was a receptionist at a law office. She had no written contract but had had conversations during the hiring process with law firm representatives that assured her as long as she did a good job, she would have a job. She was terminated. Was this at will or just cause? The court held this was termination only for cause. Here she was given specific oral assurances of job security that were enforceable given the context of a negotiation about job security.
3. Statute of Frauds?
- Under the statute of frauds, an oral contract is void if it cannot be completed within one year.
- Thus, an indefinite term contract with just cause termination will not be in violation of the statute of frauds because just cause includes termination because of a downturn in business, which may occur within one year. (Ohanian)
- Therefore it is useless to argue that an oral just cause contract is void because it will only terminate within one year if the EE fails to perform, which is breach – not performance of the contract.
- So some courts imply a term into the just cause provision, specifically the downturn in business, which actually limits the EE’s rights, but in some cases will allow him to win a breach of contract case.
- Other courts hold that you need express termination terms to take an oral contract out of the statute of frauds, implied is not enough.
- With the statute of frauds, you don’t have to worry about people forgetting the terms of the oral contract when the employment relationship is indefinite. If you don’t enforce the statute of frauds that forces the ERs to put their promises and expectations in writing.
- But if you do enforce it, that may mean the EE will extract promises from the ER that aren’t valid under the statute of frauds.
- How the statute of frauds is applied varies from state to state. VA, for example, applies it very strictly. NY (aside from the Ohanian case) also applies it very strictly. Some, on the other hand, will say the EE could have died within one year so that satisfies the statute of frauds.
- Ohanian (2nd Cir): Ohanian worked for Avis for many years. They wanted to transfer him to the Northeast. They told him his future was secure in the company as long as he didn’t screw up badly. And that he would never get hurt in the company. So he took the job and moved. He was fired shortly after moving. The court implied a just cause termination term into the agreement on the basis of the oral assurances. These statements were made in the context of discussions about a job transfer, not during the hiring process. Avis tried to argue the statute of fraud prevented this just cause oral contract, but the court said no. Just cause includes termination for poor business conditions, which would mean that contract technically could be completed within one year. Dissent felt this should have been in violation of the statute of frauds since the oral assurances mentioned only him screwing up and not downturns in business.
4. Implied Contracts – Promissory Estoppel
a. Promissory Estoppel:
i. Promise by the defendant;
ii. Defendant should expect plaintiff would rely;
iii. Plaintiff relied;
iv. Injustice resulted by not keeping the promise.
- The reliance must be real. If you work for a company for 5, 10 years and reject other offers and then are fired, you probably won’t be successful arguing promissory estoppel because this won’t be seen as real reliance or it won’t be seen as reasonable reliance.
- Courts have used promissory estoppel to imply a contract for employment for a reasonable period of time. The period of time may depend on the extent of the reliance on the promise. (Grouse)
- Some courts, however, refuse to use promissory estoppel because it undoes employment at will (i.e. MO).
- Damages in a promissory estoppel claim are reliance damages. You do not get what you would have earned from the employment in question. This includes:
- Damages for what was lost in quitting the prior job
- Damages for what was lost in declining other offers.
- Some states will strictly enforce the statute of frauds and not allow oral contracts, but then will allow promissory estoppel arguments.
- Some courts have held that it is not reasonable to incur moving expenses or quit a job in reliance on an offer of at will employment. Other courts have asked whether an EE who has suffered moving expenses would have done so without some assurances of more than an at will contract.
- This is a hard theory to win on. Only about 4.23% of cases succeed.
- Grouse (MN): Grouse worked as a pharmacist. He was offered at job with GHP and told to give his 2 weeks. He did that and declined another job with Veteran’s Hospital. GHP was unable to get two references, so they fired him before he started. Grouse argued breach of contract via promissory estoppel. The court agreed saying he had reasonably relied on GHP’s promises and this included created a reasonable period of time during which EE could work. The court gave reliance damages.
b. Extra Consideration – Just Cause
- Some courts will overcome the at will presumption by implying a term that there can be no termination without just cause for a reasonable time if:
- EE affords his ER a substantial benefit other than the services which the EE is hired to perform, or when the EE undergoes a substantial hardship other than the services which he is hired to perform.
In such a case, the length of the reasonable time just cause term will depend on the hardship endured by the EE or the benefit he has bestowed. (Veno)
- Some states hold that when sufficient additional consideration is present, courts infer that the parties intended that the contract would not be terminable at will. (Darlington)
- Veno (PA): Veno was managing editor of the Free Press and was fired for publishing a story criticizing a local judge. He sued for illegal termination of his employment contract. The court held this was at will employment. There was no express contract or implied contract indicating this was not at will. In addition, EE could not show additional consideration which would create a suspicion that may this was not at will, but rather, just cause. Court found general comments made by Free Press managers, such as “we’re going to retire together” to be merely of an aspirational character. They do not create a legally binding definite term contract. In addition, his refusal to take other jobs was a preference to remain with Free Press, not a reliance on the promises. Finally, the court did not find additional consideration. But if there was, the EE would not be subject to discharge without cause for a reasonable period of time. That period being dependent upon the hardship endured by EE or benefits bestowed.
c. ER/EE Actions – Good Cause
- Some courts will imply an implied in fact contract for some sort of job security by looking to the longevity of the EE, his promotions and other successes, assurances made the ER, etc. (Pugh)
- Some courts finding this type of implied contract suggest that the ER may terminate if he has “good cause,” which is more of a subjective standard.
- This type of implied in fact contract can be used to protect the EE when he gets older and the ER has the incentive to opportunistically fire him and find someone cheaper.
- Other courts have found that the mere passage of time in the ERs service, even marked by good reviews, is not enough to create an implied in fact contract.
- In the public sector, courts have been willing to find that teaching 4 years in a public college was enough to create a legitimate claim to job tenure.
- Pugh (CA): Pugh was employed with See’s Candies for 32 years. He was promoted several times. He was fired one day. He had been told by the president that if he was loyal and did a good job his future was secure. Moreover, See had a policy of not terminating administrative personnel except for good cause. There were no formal complaints against Pugh. The court here found facts from which a jury could find an implied promise of termination only for just cause. He worked for a long time, received lots of commendations and promotions, no criticisms, he was given assurances, and the ER’s policies worked in his faor. So now the ER must demonstrate good cause.
D. Overcoming At Will Presumption: Employment Manuals
- States have gone in two ways concerning employment manuals:
a. NJ and Others: A contract may exist based on an employment manual. (Wooley)
- The more liberal states will presume reliance. Many courts require that the EE have relied on the manual before the promises can bind.
- These courts hold that the manual creates a unilateral contract, the ER is offering certain terms, the EE who is aware of the manual accepts those terms by continuing to work when he has no obligation to continue.
b. NY and Others: An employment manual can give rise to actual employment promises, but they will look and make sure the language makes a promise and isn’t just broad statements.
c. MO and Others: Say employment manuals cannot create a binding contract. (Johnson v MDD)
- These courts say that the handbook is an information tool, couched in general terms and open to broad discretion. It does not constitute an offer. Rather, they are unilateral expressions of self-imposed policies.
- A majority of states will allow employment manuals to create implied contracts, but states differ on the evidence they will allow. Often if you determine a contract exists, the next argument is over what the terms are.
- Some states use employment manuals to avoid unionization. Many ERs will issue disclaimers providing the risks/benefits of unionizing vs. nonunionizing.
- Woolley (NJ): Woolley was hired by Hoffman with no written employment contract. He received a personnel manual which stated that EEs could be terminated for layoffs, performance, disciplinary reasons, retirement, and resignation. There was no category of discharge without cause. He argues he was fired without cause. He says the manual made express and implied promises of just cause termination. The court held that absent a clear and prominent disclaimer, an implied promise contained in an employment manual that an EE will be fired only for cause may be enforceable, even when employment is for an indefinite term and would otherwise be at will. Here the ER made an offer of just cause termination via the manual. It was given to all EEs and seemed to carry legal obligations. There was consideration because the EEs continued to work. The manual was a unilateral contract. The offer is binding as the EEs continue to work.
- Johnson v MDD (MO): Johnson was fired from MDD after she came in late a lot. She argues the handbook she received created an implied unilateral contract whereby she was granted indefinite employment with discharge only for cause. The court held the manual did not create a binding contract, as there was no offer or acceptance. It was an informational statement of self-imposed policies. You need to have the essential contract elements of offer, acceptance and consideration to make this binding. None of those elements were present. The handbook was in general terms and open to broad discretion. The ER reserved the power to alter the handbook, and no reasonable EE would see this as an offer to modify the employment contract.
2. Disclaimers in Employment Manuals
- Some courts hold that disclaimers are effective to invalidate any potential contracts created in the employment manual as long as the ER gives reasonable notice. (So the views above would invalidate the existence of a contract if there was a valid disclaimer).
- What is reasonable notice? Look to typeface, visibility, length of time the disclaimer was in the manual, etc. Would the EE notice?
- Some courts hold that once an employment manual has operated to create an implied in fact contract term, the ER cannot unilaterally modify the contract (say by adding a disclaimer). To modify you need an offer, acceptance and consideration. (Demasse)
- Some courts have held that continuing employment after modification does not constitute acceptance. The EE must be informed of the new terms, aware of the impact, and affirmatively consent to the modification. (Demasse)
- The approach of the Demasse court might limit the flexibility of ERs, discouraging ERs from experimenting with greater job protection or other benefits in the first place. A competing policy concern, however, if to protect EEs who reasonably rely on company handbooks.
- Demasse (AZ): Demasse was terminated. He had received a handbook when he stared that stated terminations would start with less senior EEs. Later amendments changed that policy and stated hourly EEs would not be laid off based on seniority, but on performance and ability. After he was fired, he brought suit for breach of implied contract requiring EEs be laid off according to seniority. The court held that the seniority provision had become part of the employment contract, so the ER could not unilaterally change that policy. Implied in fact terms cannot be unilaterally modified. When the ER puts statements in the handbook, that ER should reasonably expect the EE to consider that as a commitment by the ER. That term becomes an offer to form an implied contract and is accepted by the EE’s acceptance of employment. Once the contract is formed, to modify the contract, there must be an offer, acceptance and consideration. So the new handbook provision was an offer to modify. Employment after the change is not an acceptance. The EE would first need legally adequate notice of the modification, and then affirmatively consent to the modification.
III.Termination Claims - Tort
A. Exception to At Will Rule: Wrongful Discharge/Public Policy (Retaliatory Discharge)
1. Four Different Public Policies Recognized for a Wrongful Discharge Claim:
a. Refusal to Commit an Illegal Act
b. Refusal to Shirk a Public Duty (Jury Duty)
c. Refusal to Withhold a Workers’ Compensation Claim (Exercising a Statutory Right)
d. Whistleblowing (in some states)
2. Sources of Public Policies
a. Constitution (state and federal)
b. Statutes: Criminal Codes, Civil Statutes
d. Judicial Opinions (considered a less firm foundation for public policy)
e. Codes of Ethics
- Most states hold that if you find the public policy in a statute, regulation, etc., the statute need not specifically forbid the discharge. You need to ask how specific must the statute be? Is it enough to look at the general principle behind the statute?
3. Third Party Effects
- In order to have a public policy wrongful discharge claim, there must be a third party interest at stake. Query (Paredes?) whether the third party must be the public generally or if a single person is okay.
- If the EE is demoted or harassed, rather than fired, in retaliation, she may also be able to bring a public policy claim.
- Foley Test: Would we allow the parties to contract around the policy at issue? If the ER and EE created a contract, and that contract would not be enforceable for public policy reasons, then the ER can’t terminate for that reason either.
- What if there is a statute that specifically forbids discharge on the ground you are interested in? Does the statute have a built in remedy?
- TN: If the statute creates a new right, it’s your only remedy. If it’s an old right, your remedies are cumulative, unless the statute specifically provides that you only get the statutory remedy. This approach presumes the legislature knew the old common law claim existed when it created the new statutory right. So unless it excludes specifically the old common law remedy, you can have both the common law and the statutory remedy. (Hodges)
- MO: If there is a statutory remedy, that is your exclusive remedy, no common law claims. If there is no remedy under the statute, you can bring common law claims.
5. State Approaches:
- 44 states recognize a public policy exception; 5 do not; 1 has not addressed it.
- NY and Other Sates: The decision lies with the legislature whether to recognize a wrongful discharge in violation of public policy tort. The legislature is an elected body, elected by the people, and should be responsible for determining what’s best for public policy. (Murphy)
- But wouldn’t this work in favor of ERs who will have the money and the incentive to get it together and lobby the legislature? While the workers are scattered and unorganized.
- Other States: Do recognize the public policy torts listed above in 1. Once the court decides to recognize the public polity exception, it will have to decide what violations are bad enough to trigger that tort.
- States that do recognize the claim look to the sources listed in 2 to find the public policy.
- Some states will only look to the criminal codes of the state to find public policy, others will use all of the sources listed in 2.
- CA: In Gant held that the public policy exception requires the plaintiff to find a statute or CA constitutional provision as the basis for the claim. However, in Foley the court put aside the issue of whether there must be a statute and asked whether you could contract for it.
- IL: Defines a public policy concern as what is right and just and what affects the citizens of the State collectively. This is a very broad definition. (Palmateer)
- MO: Courts will look to statutes (criminal and civil), the constitution, and regulations to find a public policy. Process in MO: (1) look for a clear mandate of public policy; (2) hope there’s no remedy to preempt your tort claim. (Kirk)
- TX: Public policy exception covers only two cases: (1) Refusal to perform an illegal act (Sabine) – This covers instances where the EE in good faith reasonably believes that her ER has requested her to perform an act that may carry criminal penalties; and (2) when the EE is terminated because the ER does not want to pay benefits into the EE’s pension fund.
- Foley: EE claims he was fired for informing the VP of his company about another executive’s criminal investigation. He says under the law of agency, he had a duty to tell the ER about the relevant information so firing him for it was against public policy. The court rejected this idea, saying there was no third party affected by this. The interest was a purely private one. What if it was a publicly held company?
- Nees: EE was at will and argues that she was fired for carrying out her civic duty to serve jury duty. The court looked to the Oregon Constitution, Oregon criminal and civil statutes, and cases to find a general public policy of promoting jury duty. If Nees had been demoted or harassed in some way in retaliation for serving jury duty, she could probably still bring a claim for violation of public policy.
- Palmateer: IL SC upheld a cause of action for discharge after an EE was fired for reporting a possible crime to law enforcement.
- Kirk: EE was fired for some unclear reason regarding her actions in looking after a patient at a hospital. She claimed the source of her actions was the Nursing Practice Act. The court accepted this and saw a general public policy that nurses should be acting on behalf of patients.
- Del Mar: EE refused to ship fire arms under a label of “fishing gear” because she thought it was a criminal act. She was fired after she called the ATFB to see if it was illegal. Court held that there is a public policy exception to the at will rule in TX for discharge for refusal to commit an illegal act. This includes refusing to do an act under a good faith belief that the requested act might be illegal.
- See Nees case notes for more examples.
7. Tort Damages
- A claim for wrongful discharge in violation of public policy is a tort claim. You are punishing for a wrong done to the person and to society. Because it’s a tort claim, you get punitive damages.
- In a contract claim you are enforcing a private agreement. In those claims you get restitution and expectancy damages.
- Questions to ask:
a. Does the state protect both internal and external whistleblowers?
b. Must there be an actual violation?
c. Is good faith enough?
d. Does the EE actually have to commit the illegal act, or can he see others do it?
e. Must there be a public health/safety threat?
f. Is violation of a regulation okay or must it be a criminal law?
- Under NY law: (1) Activity, policy, or practice of the ER must be in violation of a law, rule or regulation (you need an actual violation); (2) Violation of the law, rule or regulation must create and present a substantial and specific danger to public health or safety; (3) EE must bring the activity, policy or practice in violation of law, rule or regulation to the attention of someone internally first; (4) Internal person must have a reasonable opportunity to correct the activity, policy, or practice.
- Under the NY statute, institution of a claim under the statute waives the right to seek remedy under contract, collective bargaining agreements, other laws, rules or regulations, or under the common law.
- Under TX law: Generally, whistleblowing is not protected (that is, observing someone else perform an illegal act). Only when the EE himself is asked to perform the illegal act is he protected. Also as seen above, if the EE in good faith refuses to perform an act the ER requests because he reasonably believes it might be illegal, he will be protected. However you might need to be making an inquiry into whether the act is illegal, not just refusing to do it.
- Sarbanes Oxley: Protects EEs of publicly held companies who tell on their ER that they have a reasonable believe the ER is violating securities laws, committing mail fraud, etc. Reporting can be internal or external, the law covers both.
B. Wrongful Discharge: Attorneys 1. Generally:
- Can an attorney claim wrongful discharge in violation of public policy?
a. IL and Others: No (Balla)
- Because the EE is an attorney, he does not have a claim. Under the Rules of Professional Conduct for IL, the attorney would have to report any violations by the company because it could result in injuries to public health and safety. That is, because the attorney had a duty to report the violation anyway, he has no public policy claim because the public policy interest is already protected.
- This view encourages the client to freely communicate with his attorney and will not chill the flow of information.
- The attorney has a fiduciary duty of loyalty to the ER that other EEs do not have. This view assumes the attorney will do what he is supposed to do, and follow the Rules of Professional Conduct.
- In such a state, you might try to argue that the EE was not acting as a lawyer, but in some other capacity.
b. CA and Others: Yes (Gen. Dynamics)
- The public interest is protected by attorneys, and attorneys need the protection of the courts. Because attorneys are so regulated, they need more protection from public policy torts. The Court in CA too this approach:
i. Mandatory Ethical Rule requiring disclosure of a violation: Attorney can bring a wrongful discharge claim.
ii. Permissible Rule: Ask (i) Was the ER’s conduct of the kind to give rise to a retaliatory discharge action by a non-attorney EE? (ii) Is there a statute or ethical rule that specifically permits the attorney to depart from the usual requirement of confidentiality.
- The ethical requirement must be clearly established by the ethics code or a statutory provision. The ethics norm must be one intended for the protection of the public at large.
- When there is a permissive rule, you can argue that this undercuts the presumption that the public welfare is protected. To the extent the rule is permissive, the duty of confidentiality seems even stronger.
- In MO, an attorney may reveal confidential information to keep their ER from causing public injury or death. Can you bring a wrongful discharge public policy claim? Not sure.
- In NY, attorneys but not general EEs are protected from wrongful discharge in violation of public policy.
3. Litigation of these Cases
- It’s hard to litigate these claims given the attorney-client privilege. If you can’t litigate without revealing secrets, perhaps the suit ought to be dismissed.
- Some states allow secrets to be exposed to the extent necessary to prove a claim between an attorney and the client. Some states allow for use of sealed documents, protective orders, in camera proceedings, etc.
- In house lawyers are economically dependent on a single client/ER who controls their entire compensation, so maybe their discharge should be for cause. This might limit flexibility in replacing top corporate officers like in house counsel.
- The attorney has a fiduciary duty of loyalty to the ER that other EEs don’t have. It assumes that they will follow the RPC they are obliged to. However, in house counsel is particularly vulnerable to the client because he is not financially independent. This might weigh in favor of allowing a public policy exception.
- Sarbanes Oxley: attorneys appearing before the SEC have a duty to the corporate entity, not to any one person in the corporation. The Attorney first goes up the internal chain, if there is no response, he can go to the corporation’s board, and then to the SEC.
- The Model Rules were modified to reflect Sarbanes Oxley.
- SEC rules are intended to conform with state rules regarding the fiduciary duties of loyalty, care and confidentiality.
- Balla (IL): Balla was an in house attorney at Gambro and he informed the FDA that Gambro was going to try to sell kidney dialyzers that did not meet FDA standards. He was fired for that. He argues wrongful discharge in violation of public policy. The court says no. Service as corporate in house counsel should not be allowed a claim for retaliatory discharge because the public policy implicated is protected by the lawyer’s ethical obligation to reveal information about a client as necessary to prevent acts that would result in death or serious bodily harm.
- General Dynamics (CA): Rose, the in house lawyer thinks he was fired for spearheading an investigation in EE drug abuse, protesting the company’s failure to investigate the bugging of the office of the chief of security, and advising general dynamics officials that their wage policy might violate the FLSA. He sues for public policy tort. The court says this is a case of the attorney engaged in ethically permissible conduct, but it is not required by statute or ethical code. The court asks whether EE conduct was of the kind to give rise to a retaliatory discharge action by a non-attorney EE, and whether there was a statute or ethical rule permitting the attorney to depart from the usual requirement of confidentiality with respect to attorney-client privilege. The court said the attorney may meet these requirements here. The ethical norm at issue must be one that is intended for the protection of the public at large.
C. Intentional Infliction of Emotional Distress (IIED)
- Elements of an IIED Claim:
a. Actor intended to inflict emotional distress, or knew or should have known that emotional distress was the likely result of his conduct;
b. Conduct was “extreme and outrageous”, “beyond all possible bounds of decency” and “utterly intolerable in a civilized community;”
c. Actions of the defendant were the cause of plaintiff’s emotional distress; and
d. Emotion distress was “severe” and of a nature that “no reasonable man could be expected to endure it.”
- 2 Types of Outrageous Conduct (Bodewig)
a. Intentional conduct designed to inflict psychological and emotional distress;
b. There is a special relationship and one party behaved recklessly.
- Some things are just so beyond the bounds that there can be no legitimate business purpose. In those cases, the ER must answer for its actions. But must show the act was extreme and outrageous.
- Courts might look to the social context in which the case arose to determine severity. (Bodewig)
- Even though there is no third policy concern implicated here, some courts do recognized IIED claims. Why? Because if the conduct was really so outrageous you want to do something about that. Also this helps to equalize bargaining power. Most discharges, however, won’t give rise to IIED claims.
2. 4 Views:
a. Traditional View: Freedom of contract. The implied relationship is a contracted one, so the contract contains all the terms and conditions concerning the relationship. The court will look only to the contract.
b. Modern View: We honor private agreements, but if they affect a third party, the court will intervene.
c. Broader View: Even though the parties are free to establish the terms of their relationship, they do so against a backdrop of norms and duties prescribed by law. The terms of the contract must fit within those basic notions of civility and decency.
d. Strongest View: Some duties/interests are so fundamental that it is not merely a duty of implying them, but because they are so central to what our perceptions are of what people should do, we won’t contract around them.
- Plaintiff can get compensatory damages for IIED in a wrongful discharge in violation of public policy claim as well, if you can’t get IIED alone.
- Punitives, compensatory damages.
- Agis: MA court found that the firing of a waitress because her last name was first alphabetically, for money that disappeared but she didn’t take was extreme and outrageous conduct. That action was without privilege and caused severe emotional distress, even though there was no physical harm.
- Bodewig: Customer accused the Kmart clerk of stealing $20 from her. Eventually resulted in EE being strip searched. Court noted the EE was young and shy. They looked at the social context in which the case arose. She consented to the search, but nevertheless, the court found that this might rise to the level of IIED via the special relationship conduct. This case is unique in that the circumstances weren’t really that bad.
- Monarch: 60 year old VP demoted to an entry level warehouse supervisor job that eventually resulted in his involuntary hospitalization. 5th Cir. upheld a claim for IIED.
- The implied covenant of good faith claim is intended to insure that neither party to a contract can deprive the other of the benefit of the contract.
- Courts seem more likely to accept a good faith claim when the EE is seeking the benefit of the contract that he has been deprived of – you want the benefit of what you have earned. (Fortune) When the EE tries to use the claim to limit the at will rule and challenged the ERs right to terminate, that type of argument is less successful. (Foley).
- The implied covenant is usually implied in commercial contracts. This covenant seems at odds with the at will rule. Taken literally, it seems to undue the rule. So these implied covenant cases will only be successful mostly in cases like Fortune (see below), where the ER has acted opportunistically by depriving the EE of the benefit of the bargain.
2. Remedy: Tort of Contract:
- Under a tort claim you get compensatory and punitive damages, but not under a contract claim. Tort damages are awarded to deter and fulfill people’s expectations.
- Does the implied covenant of good faith go to “overcoming the at will presumption” – a contract aspect – or is it an “exception to the at will rule” – a tort aspect?
- The Foley court says it goes on the contract side.
- The implied covenant of good faith is about protecting the bargain, not a separate socially imposed duty. In this respect, it’s a contract claim.
- Foley also said there was no special relationship similar to the insurance context to warrant tort damages. An EE can always find a new job, but if your house burns down, you can’t find new insurance.
- The problem with only offered contract remedies is that the average EE will not be able to bring such a claim because it would not be worth it for a lawyer to take on such a case. Without tort damages, the contract damages are much lower, making it unlikely the lower paid EE would be able to find an attorney to take her case.
- Fortune (MA): EE had an at will contract. He was paid his commission according to the written contract, but he was transferred before he could receive the rest of the commission he would have been entitled to had he not been transferred. After his transfer he was terminated. EE did not contest the discharge, only that the ER did not act in good faith. The MA court analogized: “where the principal seeks to deprive the agent of all compensation by terminating the contractual relationship when the agent is on the brink of successfully completing the sale, the principal has acted in bad faith and the ensuring transaction between the principal and the buyer should be regarded as having been accomplished by the agent. Also cites Monge, quoted directly below:
- Monge (NH): NH court held that a termination by the ER of a contract of employment at will which is motivated by bad faith or malice constitutes a breach of the employment contract.
- Murphy (NY): Murphy was fired because he disclosed that top management was committing accounting improprieties. He argues that his duties were to report any problems and in doing so, he was fired. He argues this is bad faith. However, the court held he had not good faith and fair dealing claim. If the relationship is at will, you can’t imply a covenant of good faith in order to undermine the at will rule. No obligation of good faith can be implied if it would be inconsistent with the other terms of the contractual relationship (i.e. the at will part). Dissent would read in a good faith obligation when there is an express contract to do certain things (i.e. report accounting problems).
- Foley (CA): EE was terminated after over 6 years of employment with good review and repeated oral assurances his job would be there if he did a good job. He also received termination guidelines that he believed indicated he would not be fired except for good cause. He was fired when he reported to a supervisor that a recently hired EE was being investigated by the FBI. The court held the had a contract claim for breach of the implied covenant of good faith. The court could find no special relationship between the ER and EE allowing tort damages (as there is in an insurance context).
B. At Will Rule Policy Discussion
1. Epstein Article (pg. 217)
- Epstein presents a classic defense to the at will rule. Epstein argues that there should be freedom of contract, and that it’s reasonable to expect that most of the time ERs and EEs will want to enter into an at will relationship.
- Principle concerns in regulating the employment relationship on either side?
- ERs primary interest is to deter wrongdoing an encourage maximum effort. ER doesn’t want to have to worry about justifying its actions.
- EEs primary concern is to control ER abuses, and Epstein says that at will works because the EE can quit at any time. The EEs threat to quit is a real one. The ER must be concerned with reputation, having to rehire and train new EEs, etc.
- Quitting, however, can be very costly. And adverse reputation effects can be good, but we don’t always have perfect information about the ER. Moreover, the threat of a low skilled worker quitting really isn’t that critical to an ER.
- Epstein says the vast majority of employment contracts are at will – isn’t this some evidence that it makes sense?
- But collective bargaining agreements generally do provide for some type of job security. Doesn’t that indicate that the average at will EE would want contracted job security if he could have it?
2. Schwab Article (Life Cycle Analysis)
- Schwab argues we have the best of both worlds – at will that can be overcome in certain exceptions.
- Does the life cycle model really apply to all EEs? Even unsophisticated clerks, etc? He says most mid-career workers can shirk because they’re being paid less than they’re working. In such a case, the at will presumption favors the ER.
- What would an alternative legal regime for wrongful discharge look like? One possibility is to make the presumption just cause (statutory or judicial common law)
- This might limit flexibility if ERs can’t hire and fire to meet their needs.
- Just cause could lead to a lot of litigation as to what is/is not just cause.
- Litigation s costly for ERs and EEs. Do the courts need to be the ones to resolves these disputes? In other countries that don’t have an at will rule, it’s much harder to lay people off when economic times are bad.
V. Public Employment Constitutional Claims
- Public employment adds another layer of concern and different law applies, especially the Constitution. So in a discharge case, the first step is to decide the EE is public or private.
A. Due Process Claims 1. Due process applies when:
a. There is a legitimate claim of entitlement of the job (via existing rules, understandings, law); and
b. When there is a liberty or property interest at stake.
- Essentially, if you don’t have the substantive right, the court will not impose a procedural right. The whole point of due process is to protect substantive rights, if you don’t have a substantive right, it’s a waste to allow the process. That’s why you must show a legitimate claim of entitlement.
- The 14th Amendment Due Process clause protects liberty and property interests.
- Liberty includes the right to the individual to contract, to engage in any of the common occupations of life and generally enjoy those privileges recognized as the pursuit of happiness.
- To have a property interest in a benefit, you must have more than an abstract need or desire for it. There must be a legitimate claim of entitlement stemming from existing rules or understandings that stem from an independent source, such as state law.
- Once due process is found to apply, you are entitled to the minimum procedural protections provided by federal law (the Constitution).
- What is due process? Notice and opportunity to be heard. A full evidentiary hearing is not necessary. (Loudermill) There is no hard and fast rule as to what is appropriate. Use a balancing test – balance the interests at stake.
- For example, if there is a factual dispute, the EE may deserve more process. But if the ER’s interest in immediate termination is strong (i.e. if someone brings a weapon to work) then less process might be appropriate.
- In addition, the availability of post-termination procedures, and the speed in which the procedures will come about can weigh in favor of one side or the other.
- The Court in Loudermill found that affording the EE the opportunity to respond prior to termination would impose neither significant administrative burden, nor intolerable delays.
- If you can prove there is a liberty interest to which you have a legitimate claim of entitlement, the court will grant a hearing, it will not give you reinstatement, etc. (Sindermann)
- Why grant due process? It’s a way of forcing the government to give reasons for its actions and decision. It holds the government accountable.
- It’s a means of preventing error, weeding out bad motives, etc.
- Why not grant due process to private sector employees as well? You want to prevent political patronage in the government sector. In addition, private ERs are disciplined by the market, the government has no market discipline. It takes a lot of time and resources to hold a hearing every time the government wants to fine someone.
- Justice Marshall concurring opinion in one of these cases said his concern is that if ERs don’t have to give a reason, we won’t know if they had bad reasons. If they have good reasons, it’s not a problem. So they should have to reveal their reasons. Requiring the government to give notice and opportunity to be heard makes it harder for the government to act with bad motives.
- Roth (Sup Ct): Roth was hired as a professor at a state university for one year. It was decided he would not be rehired and reason was given to him for this decision. He alleged that failure to give notice of any reason for the nonretention and an opportunity for rehearing violated due process. The Court found no liberty or property interest implicated and he had no claim of entitlement to his job.
- Sindermann (Sup Ct): Sindermann worked at a junior college for four years, and his contract was not renewed. The college made no statement why it was not renewing his employment and gave him no hearing. There were no formal contractual tenure provisions, but there were understandings fostered by the college, particularly those in the employee handbook. He argues these guidelines promulgated by the TX College and University Board created a legitimate claim of entitlement. The Court held he had a legitimate claim of entitlement to job tenure and this was proof of a property interest that would get him hearing.
- Loudermill (Sup Ct): Loudermill was fired from his security guard job for the state because he was deemed to have lied on his employment application when he stated he had never been convicted of a felony. Loudermill maintains he thought it was a misdemeanor. Under OH law civil servants can be terminated only for cause and may obtain administrative review if discharged. Loudermill received his hearing and his dismissal was upheld. He alleges though that his due process was violated because he did not have a change to respond to the charges against him prior to removal. OH state law was the source of his property interest. The Court found that a pretermination opportunity to respond, coupled with post-termination procedures is good. Once due process is found to apply, you must give the minimum procedural requirements provided by federal law (constitution). Court determined that Loudermill was entitled to oral/written notice of the charges, an explanation of the evidence against him, and the opportunity to present his side.
B. First Amendment Claims 1. Process Generally
a. 1st Amendment Free Speech
- A public employee will have a 1st Amendment free speech Claim when:
a. The statement was of a public concern (when the public has an interest in the statement, when it will raise public debate: look to context, form and content).
- If there is a 1st Amendment speech claim:
a. Balance the ER interests in effective and efficient fulfillment of its responsibilities to the public with the EEs interest in commenting on public concerns.
- Factors to consider in ERs interest in effective operation: Did the speech have an impact on the job? Did it show alack of loyalty via direct criticism of supervisors, etc.? Did the statements impair discipline by superiors or harmony among co-workers? Was there a detrimental impact on close working relationships for which personal loyalty and confidence are necessary, or impedes the performance of the speaker’s duties or interferes with the regular operation of the enterprise? Does the speech impair the EE’s ability to carry out his responsibilities?
b. First Amendment Freedom of Association Claim:
- The government interest in insuring loyal implementation of its policies does not outweigh the EEs interest in freedom of association. You cannot hire/fire on the basis of political association/affiliation. (Rutan)
- There are other ways to insure the policies are carried out – i.e. firing for failure to carry out duties, etc.
- Freedom of association allows people to associate with political parties and preserves their ability to participate in the democratic process. (Rutan)
2. Other Views
- Brennan in dissent in Connick (Free Speech) said:
a. Take only the content of the speech into account in determining if there is a public interest.
b. Take the context into account in the balancing.
- Scalia in Rutan (Freedom of Association) said
- It should be a matter of political choice to allow government ERs to hire and fire based on political affiliation. He thinks the majority was imposing a civil service system. He points to federal judges who are all hired on the basis of political patronage. If it’s a good enough policy for judges, why not for other kinds of government jobs as well?
- 1st Amendment claims encourage political discourse. It allows voters to make reasoned and informed judgments.
- Public EEs will fear discharge which would chill discourse.
- Freedom of association claims preserve the public EE’s right to have political affiliations without consequence to his job. It promotes the democratic process and allows people to participate.
- Pickering (Sup Ct): Pickering was a teacher in a school district. He was dismissed after writing a letter to a local newspaper criticizing the way the board of education handled proposals to raise new revenue, etc. The Board said the letter was false and statements were damaging to the reputation of other school officials. The Court found that Pickerings comments were on an issue of public importance and concern, and that the interest of the school did not outweigh Pickering’s interest in contributing to public debate. The court looked to whether the statements were carelessly made and false, how closely related to the operations of the schools the statements were, whether they would have a harmful impact on the school system, etc.
- Connick (Sup Ct): EE worked as an assistant DA in New Orleans. She was unhappy with her transfer to a different team in the office. She circulated a survey asking other EEs of their opinions on the office, the supervisors, etc. and whether they felt obligated to support certain political parties. The court held that other than the political party question, the survey was not of a public concern. That question went through a balancing test and found that the government’s interest outweighed. The DA felt that the survey caused a mini-insurrection and injured working relationships. The court did not see the necessity for an ER to allow event to unfold to the extent that the disruption of the office and the destruction of working relationships is manifest.
- Rakin (Sup Ct.): McPherson worked in the office of the Constable in TX. She made some comments about hoping Reagan is killed in the context of a conversation with a coworker about reduced foodstamp funding, etc. The supervisor overheard and she was fired. The Court found this to be a matter of public concern because her statements were made in the context of a discussion on the President’s policy. In doing a balancing test, the Court ruled that there as no evidence her remark interfered with the functionings of the office. She served no confidential, policymaking or public contact role, so the danger to the agency’s functioning from her private speech was minimal. You could argue in this case that her speech really didn’t have much significance from a public policy standpoint.
- Rutan (Sup Ct): The governor of IL issued an executive order proclaiming a hiring freeze for every agency. No vacancies would be filled or any new positions created unless allowed by the Governor. He appeared to be using his office to operate a political patronage system for republicans. Rutan made a first amendment freedom of association claim. Court found this to be a 1st Amendment violation. The government’s interest in efficiency can be satisfied by hiring and firing based on the EE’s effectiveness in doing his job, not on the basis of his political affiliation. The Court does allow the government to choose or dismiss certain high level EEs based on their political views in order to insure loyal implementation of its policies.
VI. Private Employment Constitutional Claims A. Constitutional Free Speech and Association Claims 1. Generally:
- Private EEs cannot rely directly on the 1st Amendment, as it applies only to government actors.
- Some states will allow you to look to the federal constitution to find a public policy promoting freedom of association.
a. Does the court recognize a public policy drawn from the constitution?
- A freedom of speech/association claim does not fall into any of the 4 pigeonholes noted in the retaliatory discharge discussion. In addition, there doesn’t seem to be any third party interest at stake, unless you look to the interest in allowing third parties to receive the speech that is being suppressed.
b. Balance the interests of the ER in efficiently carrying out its responsibilities and fostering close working relationships vs. the EE’s interest in speaking out on an issue of public concern. (the Connick test)
- Foley asks whether you could contract for what happened. For example, could you create a contract allowing someone hired as a janitor to be obligated to lobby in a certain way? Maybe it will depend on what he’s lobbying for. Does it have to do with what the company is in the business of doing or is it completely unrelated?
- Some states, like TX, have no general public policy exception. In TX the public policy tort has been recognized in only 2 situations (refusal to perform an illegal act; ER fires to avoid having to pay into a pension fund). So in TX there is no public policy exception for infringements on freedom of speech and association.
- To show a violation of §7, you must show:
a. Concerted Activity: NLRA protects only group activities;
b. Activity was Protected: It was for the mutual aid or protection of others, and was work related (related to wages, hours, and other conditions of employment);
c. ER knows the activity is concerted;
d. ER is motivated by the concerted activity.
- In order to not be protected, the act must be truly insubordinate and disruptive of the workplace. Usually you get protection unless the activity is so violent or of such serious character as to render the EE unfit for further service.
- Point of the NLRA is that if you’re going to protect collective bargaining, you need to protect the efforts leading to protective bargaining as well.
- The NLRA thus protects private EEs who speak out about matters that are work related in a concerted manner. This protection is not afforded to public EEs. But there are some analogous types of rights for public EEs.
- Does it make sense to have two separate systems for public vs. private employees?
- Some states have passed statutes saying private ERs can’t discriminate against the EEs on the basis on political affiliation, etc. Many states have looked to statutes and the constitution for expressions of public policy even if the constitution doesn’t expressly apply to the situation.
- Public policy wants to protect public values – you want to prevent the distorting of the democratic process.
- Novosel (COA): Novosel was employed by Nationwide Insurance and was discharged solely for refusing to participate in an effort to lobby the PA house on tort reform. The court held that there was a public policy exception: Public policies are ones that strike at the heart of a citizen’s social right, duties and responsibilities. Freedom of political expression is a compelling societal interest, like that of serving jury duty. The court looked to state court opinions to find the public policy against limiting the rights of political expression and association. The court then ruled that you would have to balance the ER and EE interests as in Connick to determine if there was a violation.
- Brunner (TX): Brunner claims she was fired for volunteering to help AIDs victims. The court refused to create a public policy exception since TX law only allows a public policy tort claim in 2 narrow situations: refusal to perform an illegal act; ER fires to avoid having to pay into a pension fund. Since this does not fall into either exception, no tort claim.
- Timekeeping (NLRB): EE argues he was wrongfully terminated under NLRA §7 and 8 for engaging in a protected, concerted activity. He wrote an email criticizing the proposed vacation policy plan and sent it to fellow EEs and the manager. The email also was worded in flippant and grating language. The manager saw it as a slap in the face of EEs with good attitudes and a personal attack upon himself. The court held that this was a concerted activity, about a work related topic, that was for the work-related mutual aid of his fellow employees. In addition, the ER knew the activity was concerted because it was a group email, and he even stated he was motivated to fire him because of the concerted activity. If this had been a public EE, this would not be a matter of public concern, so the public EE would have no constitutional claim.
RECAP: PROTECTION FOR SPEECH RIGHTS:
- When to EEs have some sort of protection for speech rights? First ask if the EE is public or private?