Workers were fired because they were trading with a merchant who operated a store near the ∆’s railroad company. Workers, out of fear of being fired, stopped trading with π. While the cause might be unjust and censurable, it is not legally wrong.
Classic statement of the at will rule: All employers may dismiss their employees at will, be they many or few, for good cause, for no cause or even for cause morally wrong, without being thereby guild of legal wrong.
What kind of response might that invoke in employees? Unionize (working collectively together they might be able to change the law…); sign a contract with employer (fixed term contract); try to insulate yourself and do the best at your job; there might be a market response.
Employment at will is the default rule, justified on the basis that employers require flexibility in order to respond to business fluctuations.
The Rise and Fall of Freedom of Contract
Lochner v. New York (1905)
The Supreme Court ruled that a NY law limiting the hours of a baker was unconstitutional. It is unreasonable to interfere with the rights of parties to contract. The general right to make a contract in relation to one’s business is part of the liberty of the individual protected by the 14th Amendment of the Constitution.
This case constitutionalized the concept of freedom of contract: limiting the government from setting time constraints on jobs.
The New Deal Labor Legislation
The “New Deal,” a program of regulation designed to spur economic recovery following the Great Depression, set out to reduce wage competition so that American workers would enjoy higher wages and more secure employment and therefore would spend more money stimulating growth.
The Labor Laws
Wagner Act – the National Labor Relations Act – the “labor laws”
Declared it the policy of the United States to encourage worker self-organization and collective bargaining as a means to facilitate labor peace and the uninterrupted flow of commerce. Conferred rights to organize and to bargain collectively on employees and created the NLRB, which was charged with the authority to settle disputes arising out of unfair labor practices.
National Labor Relations Board v. Jones & Laughlin Steel Corp. (1937)
Facts: This case is a dispute over an organizing drive to form unions by employees. The employer was not allowing the workers to unionize. The NRLB found that the company had committed unfair labor practices by coercing and intimidating employees who were seeking to organize a union and discharging employees in retaliation for union organizing. The company refused to comply with the Board’s order. The Court of Appeals found that the order exceeded the power of the Board.
Holding & Rationale: The Supreme Court found that the order of the board was within its competency and that the act (NRLA) is valid as applied here. After all, the theory behind the right of worker’s to organize is that it would be a way of channeling disputes into the bargaining context versus the more disruptive work stoppages.
The Philosophy of Unionism…
Societies have 2 basic mechanisms for dealing with social or economic problems: (1) exit-and-entry – exit means quitting and is the market mechanism that aids those who are unhappy with their condition and entry consists of new hires by the firm, and (2) voice – refers to the use of direct communication to bring actual and desired conditions closer together/to raise concerns about conditions.
Today, there continues to be this drive of workers to want to have a voice in their work environments. What are the advantage and disadvantages of relying on exit as opposed to voice?
Voice gives more information to the employers; employer has a reason to know what the problem is.
Much turnover if relying on exit (especially if your industry relies on innovation and skills sets).
If the market works well, then the market would weed out the companies that are not conducive to a worker’s needs.
Fear of retaliation when using the voice.
Takes time to raise the voice.
If the problem is fixed, then everyone gets the benefit of the solution/ is it fair to spend the time and effort trying to get the change, however also those who do nothing receive the benefit.
Unions are a mechanism for dealing with voice. The union is the way of collecting people’s thoughts and then presenting it to the SUPERIORS.
The Decline of Unionism – Why?
Unions themselves, become too bureaucratic, too complacent, not responsive to changes in workplace.
Law itself; limited remedies available to deal with unfair labor practices, complicated process to gain recognition in a union.
Employer hostility against the unions.
The Individual Rights-Based Statutory and Judicial Doctrines that have supplanted Unionism and Collective Bargaining
Minimum Standards Protection; statues that establish minimum workplace requirements
Common Law Protections, judge made protections
Public policy tort
Covenant of good faith and fair dealing
These rights basically involved substantive limits being placed on the employer. This is in contrast to the NLRA model as well as the market restraints placed on the employers. Some argue that employees lose the voice in the individual-rights model because the opportunity for governance is lost.
THE CONTEMPORARY ERA – shifts in the demographics and structure of work
The Workforce of the Future
More immigrant workers
Changes in work time
People have different interests in fulltime employment versus flexible time schedules.
The needs of the workplace are changing. Old model:
Internal Labor Markets (ILMs) – This model had its predominance in the mid-20th Century. Firms are organized hierarchically, where they do their hiring at the entry level and promote from within, encouraging long-term employment. Basic relationship is viewed as one of employee dependence. Employee loyalty is important. Expectation of job security (the company will take care of you). Employees identify with the company. Wages and benefits are tied to seniority.
The Reconstitution of Work: “Precarious Employment”
The New “New Deal” (new model argued by Katherine Stone)
Short-term employment. Lateral hiring. Employees are expected to take more responsibility for managing their careers. Expect to see multiple employers over the course of a career. Identity is tied more to an occupation or a skill rather than a particular firm. No job security. Wages are set by the market. Benefits, if they are provided, are more portable.
What implication does this change have on the laws that get passed? This provides more flexibility to the employer to shift their employment standards to accommodate a changing economy
Contingent Employment – another way of thinking about this shift.
Increase in part-time employment, outsourcing, the use of temporary or leased employees, independent contractors.
CONTRACTING FOR INDIVIDUAL JOB SECURITY
Despite numerous laws that regulate the employment relationship, the underlying assumption remains that the terms and conditions of employment are primarily determined by private agreement between the parties. “Employers may dismiss their employees at will…for good cause, for no cause, or even for cause morally wrong, without being thereby guilty of legal wrong.” (Payne). The employee’s interests in insuring job security run up against the employer’s need or desire for discretion and flexibility to manage its workforce.
The Presumption of Employment At-Will
The English Law from Blackstone
Picture of Employment: Hiring was for a year; servant would serve and master maintain servant.
The presumption that an indefinite hiring was a hiring for a year extended at all classes of servants
The presumption could be rebutted in specific cases when the parties contracted.
The American Law from Woods
Wood’s Rule marked the point where American law departed from British law. The employment relationship became apart from the domestic master/servant relationship.
The rule is inflexible – when there is general or indefinite hiring, it is prima facie a hiring at will.
Either party can terminate the contract at any time, for any reason.
Wood’s rule is a default rule that parties are free to contract around.
It is easily understood.
The “at-will” relationship has a more immediate feeling – to the extent that we need you, we will keep you.
It feels more temporary to the employee, but this could work as incentive to avoid being discharged by the employer.
Wood’s Rule is the default rule meaning that even if the parties don’t talk about the terms, but there is a relationship, this is the term that fills any gaps.
Savage v. Spur Distributing (1949)
Facts: Plaintiff took new job based on belief that the new employment would be permanent. He moved his family to a new city for the job. Shortly after he began, he was discharged. Plaintiff sued for damages claiming breach of an alleged employment contract. Plaintiff claims he had an option contract in which he had a permanent job unless he performed unsatisfactorily.
The Court stated that there was no contract for employment for any definite time which means the employment was indefinite which means at-will, unless there is something else specifically put forth, like additional consideration. For example, did the employee actually purchase the job? Did the employee give up something to make the job permanent? Plaintiff says that he incurred expenses when moving his family, but the court says that the expenses weren’t sufficient because the employer did not receive any benefit from the consideration (the detriment).
Generally, courts found sufficient additional consideration only in two situations: when an employee agreed to release a claim for damages or agreed to give up a competing business.
Not good law in most states today. Most states have gotten rid of the mutuality requirement.
The Union Sector
“Just Cause” – most collective bargaining agreements place just cause restrictions on the employer’s right to discharge workers.
Individuals in unionized workplaces receive legal protection against arbitrary discharge.
Perform satisfactory work, and the employee is entitled to industrial due process before being discharged. Satisfactory work has 4 components:
Obedience to reasonable work rules.
A reasonable quality and quantity of work.
Avoidance of conduct, either at or away from work, which would interfere with the employer’s ability to carry on the business effectively.
Board of Regents of State Colleges v. Roth (1972)
Civil service statutes at both the state and federal levels typically restrict the ability of public employers to discharge covered employees without cause.
Facts: Roth was hired as an assistant professor for a term of one year, and was not rehired for the following academic year. Tenure was only available after 4 years of year to year employment. A new teacher without tenure is under Wisconsin law entitled to nothing beyond his one-year appointment. Roth brought suit claiming that failure to give him notice of any reason for non-retention and the opportunity for a hearing violated his due process of law.
Holding: The Court found no liberty or property interest implicated and, therefore, he had no claim of entitlement.
No deprivation of liberty argument, b/c…
The state, in declining to rehire the respondent, did not make any charge against him that might seriously damage his standing and associations in his community.
No deprivation of property argument, b/c…
He did not demonstrate that he had a property interest in the job beyond 1-year.
No substantive right or property interest = no due process claim.
Facts: Companion to Roth. There was a Faculty Guide that stated that there was no tenure system, but a teacher has a permanent tenure so long as services are satisfactory and is cooperative and happy in work. Also there were guidelines from the TX College and University System that said that employed teachers of 7 or more years have a form of job tenure.
Court held that there was a legitimate claim of entitlement to job tenure.
Facts: The plaintiff was employed by the Ohio Board of Ed as a security guard, a civil service position, who was fired for alleged dishonesty on his employment application. He sued alleging that the Ohio statute was unconstitutional b/ it failed to provide any kind of hearing prior to dismissal, thereby depriving him of property w/out due process.
Holding: The Court decided that Loudermill was entitled to oral/written notice of the charges against him; an explanation of the evidence against him; and the opportunity to present his side.
Why do we have a Due Process clause? Check on government power to prevent arbitrary revocation of rights/arbitrary decision making. Also, want citizens to feel secure in their rights. Fairness. Lowers the possibility of mistake – helps ensure accurate, fair decision. What are the costs? Slows the process down, results in loss of managerial discretion and efficiency.
The Contemporary Era
By the 1980s, many court rejected the previous doctrine, like where an employee had to prove that he had provided additional consideration to avoid discharge without cause, and opened the way for discharged employees to assert that an express promise not to discharge without cause was enforceable even if the employee was free to quit at any time and didn’t provide additional consideration apart from his labor
Even with the hurdles of mutuality and additional considerations removed, individual employees who wish to challenge their dismissals as a violation of their contractual rights must still come forward with some evidence to overcome the presumption that employment is at-will.
Written Contracts – the at-will presumption can be overcome by evidence that the parties had contracted for the employment to continue for a definite period of time. A written contract for a fixed term remains the most straightforward way to overcome the at-will presumption. Even when the contract is silent on the issue of termination, courts presume that contracts for a fixed period cannot be terminated without cause during the term of the contract. When contracts for a definite term fail to specify the circumstances under which they can be terminated, the courts must fill the gap and determine what circumstances apply. Generally, a fixed-term contract can be terminated for “just cause, in the sense of poor job performance or misconduct. In addition, most courts today are willing to enforce indefinite-term contracts restricting the employer’s power to terminate where the parties’ intentions are clear.
Guiliano v. Cleo, Inc. (1999)
Facts: Plaintiff employee entered into a written employment contract with defendant employer. Thereafter, plaintiff’s role and responsibility to defendant was severely diminished. Defendant instructed plaintiff to work out of his home and he would receive assignments, which he did not receive. After several months, plaintiff retained a position with another company. Plaintiff initiated an action against defendant for constructive termination, suing for the remainder of his salary because he claimed he was entitled to it through a date that had been written into the contract. Plaintiff’s contract stated that employment could be terminated for cause, listed as dishonesty, willful misconduct, gross negligence. The contract spelled out cause, so the employer couldn’t claim financial difficulties or unexpected market problems as “cause.”
The court reasoned that the plaintiff was constructively terminated from his position with defendant, and was entitled to liquidated damages because the sum was reasonable at the time the parties entered into the contract, and reflected their true intention to compensate for a breach. The employer could change his duties but couldn’t take them away altogether = breach.
Last issue over damages… Plaintiff claiming that the contract contains a severance clause (no contingency, automatically entitled to money), and the Defendant claiming that this is a liquidated damages clause (requires further inquiry into a possible breach). The court stated that paragraph 9 of the contract contains a liquidated damages clause.
Toussaint v. Blue Cross & Blue Shield of Michigan (1980)
Plaintiff believed that he would have his job “so long as he did his job” according to oral discussion at time of hire.
The Court sets out a liberal standard in this case compared to the one from Savage.
Court held that oral statements were sufficient for a jury to find the existence of contract for employment terminable only for cause.
Rowe v. Montgomery Ward & Co. (1991)
Plaintiff was fired when she had to leave the store (after 8 years of satisfactory work) for a personal emergency without permission from supervisor.
The Court found the oral statements by the interviewer insufficient to rise to the level of an agreement providing termination only for just cause.
Unlike Toussaint, Rowe didn’t engage in pre-employment negotiations regarding security, rather she had simply stumbled into the store one day and had the interview before being hired. Also, there is no evidence that Rowe asked about job security. Hence, there is no evidence of a meeting of the minds on this subject of continued employment.
Establishing Oral Contracts for Job Security
In theory, contracts requiring just cause or good cause for termination can be created by oral agreement as well as written agreement. In practice, however, claims based on purely oral promises faces substantial hurdles. Difficulties with enforcing oral contracts include:
Distinguishing between “puffery and promise,” especially in the context of the hiring process in which mutual wooing between the parties occurs.
Determining exactly what was said after the fact (courts often look at the circumstanced surrounding the hiring).
Statute of frauds, which generally bars enforcement of oral contracts that are not capable of performance within a year.
Sometimes various employer communications, policies or practices impliedly create contractual right to job security. In these instances, courts are willing to recognize enforceable contractual rights despite the absence of specific negotiated contracts.
Woolley v. Hoffman-La Roches, Inc. (1985)
Facts: Woolley was hired without written employment contract. He received a personnel manual stating that there could be termination for layoffs, performance, discipline, retirement, and resignation. There was no mention of discharge without cause. Woolley argues he was fired without cause. He claims the manual made express and implied promises of just cause termination.
Holding: The Court held that the job security provisions contained in the personnel policy manual widely distributed among a large workforce are supported by consideration and may therefore be enforced as binding.
Rationale: The Court noted the importance of honoring commitments made through employee manuals especially when they provide for job security. In determining the manual’s meaning and effect, must consider the probable context in which it was disseminated and the environment where it exists. Here the manual represented the most reliable statement of the terms of employment because except for medical staff, no one would have special contracts. It is inevitable that employees would regard the manual as binding commitment. Ultimately, the manual is an offer that seeks the formation of a unilateral contract, and the employees’ continued work makes the contract binding. Reliance was to be presumed under the circumstances.
Anderson v. Douglas & Lomason Co. (1995)
Facts: Anderson was fired for stealing a box of company pencils. He filed claim because he said that DLC didn’t follow the discipline policies as outlined in the company handbook.Issue: whether the issuance of the handbook created an employment contract other than an at-will relationship.
The Court stated that the fact that Anderson didn’t read the employee manual doesn’t prevent his from relying on the promises contained in the manual in this breach of contract action. All that is necessary is the existence of an offer to be present from an objective standpoint; how would a normally constituted person understand the words when used in their actual setting? To decide whether manual if objectively definite, consider its language and context.
Holding: The final holding was that a reasonable person reading the manual couldn’t have believed that DLC assented to be bound to the provisions contained within.
Asmus v. Pacific Bell (2000)
Facts: PB had a Management Employment Security Policy that offered all management employees employment security even if present jobs are eliminated so long as they continue to meet changing business expectations. PB terminated the MESP so that it could achieve more flexibility in the conducting its business and compete more successfully in the marketplace. However, PB adopted a new layoff policy, and employees who chose to stay on working would receive enhanced pension benefits. Plaintiffs remained on, but after a couple of years they were laid off. The parties disagree on how employers may terminate or modify unilateral contracts that have been accepted by the employees’ performance.
Holding: The Court held that once the promisor determines after a reasonable time that it will terminate or modify the contract, and provides employees with reasonable notice of change, additional consideration is not required.
Rationale: The MESP can’t be deemed illusory because plaintiffs obtained the benefits of the policy while it was operable. The MESP didn’t give rise to or create any vested benefits in plaintiffs’ favor. The MESP was in place for a reasonable time and was effectively terminated after PB decided that it was no longer a sound policy for the company, PB provided more than reasonable notice to the affected employees that it was terminating the policy and it didn’t interfere with any employees’ vested benefits.
Promissory Estoppel is an implied contract doctrine intended to enforce promises that induce reasonable detrimental reliance when the factual circumstances fall short of establishing a formally bargained-for exchange. (A promise which the promisor should reasonably expect to induce action or forbearance …on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise).
Goff-Hamel v. Obstetricians & Gynecologists, PC (1999)
Facts: GH was offered a job, left her present job, but then the new employer changed their mind and never started her position. GH was offered employment without a definite period. So she had no grounds to bring a breach of contract claim because the employment was essentially at will. However, she brought a promissory estoppel claim.
Holding: Court concluded that promissory estoppel can be asserted in connection with the offer of at-will employment. Promissory estoppel is appropriate here because GH acted to her detriment in order to avail herself of the promised employment.
PE claims have only limited success in the employment context due to the judicial veneration of the employment-at-will rule.
Implied-in-Fact Contracts a variety of factors, combined together, may imply that the parties intended something other than at-will employment. Theory has been criticized for vagueness.
Pugh v. See’s Candies, Inc. (1981)
Facts: Pugh had been told by president that if he was loyal and did a good job his future was secure. There were no formal complaints against Pugh but he was fired after 32 years of service.
Holding: Pugh demonstrated a prima facie case of wrongful termination in violation of his contract and there was an implied contract that he could only be fired for good cause.
Rationale: When determining whether there was an implied in fact promise for continued employment, consider a variety of factors: personnel policies or practices; longevity of service; actions or communications by employer reflecting assurances; industry practices. While oblique language won’t be sufficient to establish agreement, consider the totality of relationship.
More recently, the CA Supreme Court has stated that the purpose of the implied-in-fact contract theory was to enforce the actual understanding of the parties. The focus of the inquiry should be on the particular terms and conditions of employment impliedly agreed to by the parties. Some states use a “totality of circumstances” analysis.
Determining Whether Good Cause Exists
Proving the existence of a contract limiting the employer’s right to discharge at will is only the first step in establishing liability. Once such limits are shown, the next question is whether the defendant violated its contractual obligations by discharging the plaintiff. Usually financial difficulties or the need for reorganization suffice permitting termination, but difficult situations arise when employers assert lack of performance or employee misconduct.
Cotran v. Rollins Hudig Hall Intn’l, Inc. (1998)
Facts: Cotran was accused of sexually harassing other employees and, after an investigation by his employer, fired.
Holding: Court held that the interests of both parties must be balanced to ensure that good cause dismissals are scrutinized under an objective standard, without infringing more than necessary on the freedom to make efficient business decisions.
Good Cause means: “fair and honest reasons, regulated by good faith, that are no trivial, arbitrary or capricious, unrelated to business needs or goals or pretextual. A reasoned conclusion supported by substantial evidence gathered through adequate investigation that includes notice of the claimed misconduct and a chance for the employee to respond”
In general, when a trier of fact must determine whether a good cause contract was breached, 3 distinct issued must be raised.
Does the reason for discharge constitute good cause?
Is the reason given by the employer the actual reason for the discharge, or merely a pretext for some other insufficient reason?
Did the employee in fact act in the way alleged by the employer to give cause for the termination?
Burden of Proof –
In the union context, employers bear the burden of proving that just cause exists for disciplining or discharging an employee.
Good Faith and Fair Dealing
“Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.” Restatement
Although a majority of states that have considered the issue have rejected application of the implied covenant in the employment context (they are seen as encroaching too far on management prerogatives), a substantial minority of states do recognize good faith and fair dealing claims by employees under certain circumstances. These states, however, have not abrogated the presumption of at-will employment, thereby creating a tension between an employer’s implied duty to act in good faith and the unfettered right to terminate the employment relationship.
Fortune v. National Cash Register Co. (1977)
Facts: Plaintiff was employed by defendant under a written at-will contract. He was paid commission according to written contract, but he was transferred before he received the rest of the commission he would have been entitled to had he not been transferred. After the transfer, he was terminated. Issue: whether this “bad faith” termination constituted a breach of the employment at will contract.
Holding: Court held that the written contract contained an implied covenant of good faith and fair dealing and a termination not made in good faith constitutes a breach of the contract.
Murphy v. American Home Products Corp. (1983)
Facts: Murphy claimed he was fired when he complained to management of accounting improprieties. He did not have a written employment contract, but plaintiff claims that employer acted in bad faith when it fired him after he reported.
Holding: The court held that this was at will employment and plaintiff could be fired at any time. NY Court says that it doesn’t make sense to have a good faith and fair dealing claim for at will employment. There is no compelling policy reason to read the implied obligation of good faith out of contracts impliedly terminable at will.
Foley v. Interactive Data Corp. (1988)
Claims based on implied covenant of good faith and fair dealing gave rise to only contract, not tort, damages in the employment context. When a court enforces the implied covenant, it is in essence acting to protect “the interest in having promises performed” – the traditional realm of a contract action – rather than to protect some general duty to society which the law places on an employer without regard to the substance of its contractual obligations to its employee.
PUBLIC POLICY CLAIMS
For many decades, the majority of courts held that even when the employer’s exercise of its power to discharge had effects beyond the operation of its business, they refused to intervene on the grounds that no contractual provision limited the employer’s actions. In the following decades, the common law courts developed a number of doctrines that mitigated the harshness of the at-will rule. Wrongful discharge in violation of public policy offers individual employees some protection for job security.
The Public Policy Exemption
Sheets v. Teddy’s Frosted Foods, Inc. (1980)
Facts: Plaintiff was an at-will employee who reported to his employer that their products did not comply with the applicable law relating to labeling and licensing. He was terminated for unsatisfactory performance but the actual reason for his termination was retaliation for his efforts to ensure compliance of his employer products. The court stated the issue as whether to recognize an exception to the traditional rules governing employment at will so as to permit a cause of action for wrongful discharge where the discharge contravenes a clear mandate of public policy.
Holding: An employee should not be put to an election whether to risk criminal sanction or to jeopardize his continued employment.
The public policy exception is present to protect employees who are in awkward positions.
An overwhelming majority of jurisdictions have recognized a public policy exception to the at-will rule, although the scope of the exception varies significantly from state to state.
Most courts that recognize the public policy tort will protect the employee so long as she has a good faith, or at least objectively reasonable, belief that the act was illegal, even if she turns out to be wrong. A few, however, require that the employee prove that the activity was in fact illegal.
Different public policies recognized for a wrongful discharge claim:
Refuse to commit an illegal act/ perjury.
File a worker’s compensation claim (exercising a statutory right).
Perform jury duty.
Engage in union activity (usually not a common law claim).
Whistleblowing (not all states).
The overwhelming majority of states that recognize a public policy exception in employment say that claim arises in tort not contract (which allows the employee to claim a broader range of damages).
Seminal cases adopting a public policy exception:
Petermann v. International Brotherhood of Teamsters (CA, 1959)
Plaintiff was subpoenaed to testify before a legislative committee, and he alleged that a union official instructed him to testify falsely. When he failed to do so, he was discharged.
The court stated that “to hold that one’s continued employment could be made contingent upon his commission of a felonious act at the instance of his employer would be to encourage criminal conduct upon the part of both the employee and employer and would serve to contaminate the honest administration of public affairs. This is patently contrary to public welfare.”
Frampton v. Central Indiana Gas, Co. (Ind. 1973)
Plaintiff was injured while at work and filed a claim for Workers’ Comp. She was soon discharged without explanation.
The court stated that an employee must be able to exercise this statutory right without fear of reprisal. Retaliatory discharge in this case is unconscionable.
Ness v. Hock (Or. 1975)
Plaintiff was called to serve jury duty. She was soon discharged.
The court stated that the system would be adversely affected by allowing an employer to discharge an employee for fulfilling her obligation of jury duty; the will of the community would be thwarted.
What Constitutes Public Policy?
According to the court in Palmateer, public policy “concerns what is right and just and what affect the citizens of the State collectively.” Some courts simply list the types of situations in which the exception will be recognized, usually the 3 categories outlined above – illegal acts, workers’ comp, and jury duty (some also recognize whistleblowing).
Hayes v. Eateries, Inc. (1995)
Facts: Plaintiff alleged he was discharged because he reported and attempted to investigate the theft of property and embezzlement by his supervisor from his employer.
Holding: The court rejected his public policy argument, because the act he complained of did not affect the public but rather a private interest. The reporting of a crime against the interest of his employer can’t be said to have been seeking to vindicate his own legal rights, but only those of the employer he says wrongfully terminated him. The victim of the crime here can’t be said to be the general public, as where crimes or violations of health or safety laws are involved. Therefore, there was no public harm in this situation.
Public versus Private interests – In recognizing a public policy claims, many courts have emphasized that it protects only public and not purely private interests.
If there was a contract between parties to expressly avoid any obligation to inform employer of illegal behavior, would the contract be considered void? If not, then there is no public interest at stake. “Void if contracted for” test.
Third Party Effects
Professor Schwab suggests the court should step in when the private contract has substantial adverse third-party effects.
In order to have a public policy claim, a public concern must be implicated not merely a private overreaching. An employee acting in the public interest gets only a small share of the social benefit created. The public-good activity, therefore, will be underproduced unless tort law intervenes…?
Gantt v. Sentry Insurance (1992)
Facts: Plaintiff claims constructive discharge in retaliation for his refusal to testify untruthfully or withhold testimony regarding the sexual harassment of fellow employee, which he believes is in violation of public policy.
The court outlined sources of public policy:
Legislation (statutes – criminal and civil codes)
Administrative rules, regulations or decisions
In certain instances, a professional codes of ethics may contain an expression of public policy.
Question to ask: Whether the employer’s conduct contravenes the letter or purpose of a constitutional, statutory or regulatory provision or scheme.
Holding: An employee bringing a wrongful discharge claim must identify a public policy delineated in a constitutional or statutory provision. The court stated that any attempt to induce or coerce an employee to lie to an investigator plainly contravenes the public policy of the state.
In later cases, the CA courts have read into Gantt a 4-part test for determining whether a public policy exception applies. “…to support a wrongful discharge claim, the alleged policy must be:
Public in the sense that inures to the benefit of the public rather than serving merely the interests of the individual;
Well established at the time of the discharge; and
Substantial and fundamental.
Other courts have developed their own tests.
Kirk v. Mercy Hospital Tri-County (1993)
Facts: Plaintiff made diagnosis of TSS and thought that doctor would provide treatment orders. Received no orders from doctor and patient died. Plaintiff made comments to patient’s family and later was terminated because hospital was mad that she was making such statements. Plaintiff brought an action for wrongful discharge under the public policy exception to the employment-at-will doctrine. She claims she was fired after trying to advocate on behalf of the patient. The public policy exception in MO requires a violation of some well-established public policy and no other remedy present to protect the interests of the employee or society. If there is another remedy the PPE is inapplicable.
Holding: The court held that plaintiff was entitled to pursue her claim without reliance on any direct violation of “law or regulation” by defendant. The court stated that you need to point to something that speaks to a general policy. According to the court, the Nursing Practice Act and the regulations thereunder constituted a clear mandate of law on which a cause of action for wrongful discharge could be based. Under these rules of professional conduct, the plaintiff could have risked discipline by the state board of nurses if she ignored improper treatment of patient under her care.
While the statute the Kirk court relied on as a source of public policy was quite general, other courts have looked for quite specific statutory prohibitions. In addition, some courts do not restrict public policy to violations of the “literal language” of a statutory or constitutional provision, but assert they should consider whether the discharge contravenes the “spirit as well as the letter” of the law. Others have been far more reluctant to find public policy violations without a specific showing of an actual violation.
Once courts deal with the issue of the public policy exception (legal question), they also have to deal with the factual question of whether or not her discharge was in fact wrongful.
Because of the number and variety of statutes regulating the employment relationship, court often confront situations in which there are potentially overlapping remedies.
Amos v. Oakdale Knitting Co. (1992)
Facts: Plaintiffs were given pay cut which resulted in pay below minimum wage. They were told to accept the cut or be fired. They brought suit saying their termination violated state public policy
Holding: Court stated that public policy has been violated because employees were fired in contravention of express policy declarations contained in the NC General Statutes. Absent federal preemption or the intent of our state legislature to supplant the common law with exclusive statutory remedies, the availability of alternative remedies doesn’t prevent a plaintiff from seeking tort remedies for wrongful discharge based on PPE
Constructive Discharge – purposefully creating working conditions so intolerable that the employee has no option but to resign.
Strozinsky v. School District of Brown Deer (2000)
Facts: Plaintiff claimed that she was forced to resign because she disagreed about the tax withholdings from a bonus check. She claimed that she was trying to comply with a statute and federal tax laws when she disagreed with the others. Issue: Whether a cause arising from a resignation can be actionable as a wrongful discharge within the context of that narrow exception (public policy exception to the employment-at-will doctrine requires a “discharge”). Whether the doctrine of constructive discharge can attach to a common-law claim based on the narrow public policy exception to the general rule of at will employment.
The Court held that the employee must establish conditions so intolerable that he or she felt compelled to resign would a reasonable person in the position of the plaintiff feel forced to quit? The situation must be unusually aggravating and surpass “single, trivial, or isolated incidents of misconduct.” Taken together (looking at the totality of circumstances: frequency of conduct, severity, remoteness of the illegal acts from the actual dates of resignation) the cumulative effect of these circumstances led the court to believe there was a factual question about the nature of her discharge. The plaintiff must prevail under an objective standard before showing constructive discharge. Plaintiffs can raise an ancillary constructive discharge defense in those causes of action under the public policy exception to the employment at will doctrine in which the employer alleges voluntary resignation.
There are at least 3 issues that must be addressed when establishing the standards for determining when an employee has been constructively discharged:
What type of working conditions must the employee show?
By what standards should the alleged conditions be judged?
What level of employer intent is required? Courts have taken different approaches to this question.
Statutory Protections for Whistleblowers
Numerous statutes – both state and federal – also protect the job security of employees who engage in certain types of whistleblowing.
Whistleblower protections have tended to treat health and safety violations as more serious than financial violations. After Enron, etc. there may be a shift of common law to find that financial wrongdoing could support a claim.
Sarbanes-Oxley Act of 2002 – created important new protections for whistleblowers in context of publicly traded companies were fraud or violations of federal securities law is at issue.
The Special Case of Attorneys
Balla v. Gambro, Inc. (1991)
Facts: Plaintiff was in-house counsel and manager of regulatory affairs for the defendant. Plaintiff informed the defendant, his employer, that he would do whatever was necessary to stop the sale of certain misbranded and/or adulterated dialyzers. The employer fired the attorney, and the attorney filed an action for retaliatory discharge. Question presented: whether in-house counsel should be allowed the remedy of an action for retaliatory discharge.
Holding & Rationale: The court stated that, generally, in house counsel don’t have a claim under the tort of retaliatory discharge. The public policy to be protected, that of protecting the lives and property of citizens, is adequately safeguarded without extending the tort of retaliatory discharge to in-house counsel. The court reasoned that the retaliatory discharge exception to the at-will employment doctrine was intended to encourage employees to come forward and report acts that contravened public policy. The court found that attorneys had an ethical obligation pursuant to Model Rules of Prof’l Conduct to reveal information necessary to prevent a client from committing a crime. The court also found that extending the tort of retaliatory discharge might have a chilling effect on the communications between the employer and in-house counsel such that employers might limit their communication with their in-house counsel. The court stated that attorneys know or should know that at certain times in their professional careers, they will have to forgo economic gains in order to protect the integrity of the legal profession.
Crews v. Buckman Laboratories International, Inc. (2002)
Facts: Plaintiff was hired by defendant as associate general counsel. While working in this capacity, she reported to the general counsel, who, she discovered, did not have a license to practice law in Tennessee. Plaintiff discussed her concerns w/a member of the Board. General counsel, Davis, later fired the plaintiff.Plaintiff filed suit alleging a common law action for retaliatory discharge in violation of public policy. She alleged (1) the existence of an at-will employment relationship; (2) the existence of a clear public policy evidenced by the ethical duty not to aid in the unauthorized practice of law; (3) that she did not voluntarily leave her employment; and (4) the sole motivation for the constructive discharge was her adherence to her ethical duties to report the unauthorized practice of law; thus, her complaint stated a common-law retaliatory discharge claim and the lower courts improperly dismissed her claim.
Holding: In a case of first impression, the Tennessee Supreme Court held that in-house counsel could bring a common-law action of retaliatory discharge resulting from counsel’s compliance with an ethical duty (Code of Professional Responsibility) that represented a clear and definitive statement of public policy.
Rationale: The court reasoned that it seems anomalous to protect only non-lawyer employees under these circumstances. The fact that the employee is also an attorney doesn’t mean that the action for retaliatory discharge in violation of public policy is not available to them. In contradicting the rationale in Balla, the court stated that sole reliance on the mere presence of the ethical rules to protect important public policies gives too little weight to the actual presence of economic pressures designed to tempt in-house counsel into subordinating ethical standards to corporate misconduct. Unlike lawyers possessing multiple clients, in-house counsel are dependent upon only one client for their livelihood. Also, the employer should bear the burden, not the employee. The court agreed with the Model Rules, permitting in-house counsel to reveal the confidences and secrets of a client when the lawyer reasonably believes that such information is necessary to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client. However, the court emphasized that the in-house counsel must make every effort to avoid unnecessary disclosure of client confidences and secrets.
Mandatory vs. Permissive Disclosures. What is the lawyer’s duty/obligation if client is committing a financial wrongdoing?
A majority of states follow the Model Rules which states that “a lawyer may reveal information relating to the representation of a client to the extent the lawyer reasonably believes necessary to prevent reasonably certain death or substantial bodily harm.
If lawyer is confronted with illegality but can’t reveal due to confidence privilege, option is to withdraw.
A lawyer’s duty has changed (become more complex) after Sarbanes-Oxley.
These regulations state that lawyers have a duty to represent the corporate entity and also report corporate wrongdoing up the corporate ladder to the CEO or Chief Legal Officer.
This reporting wouldn’t be a violation of attorney-client relationship, also could report confidential information to the SEC.
COLLECTIVE JOB SECURITY
There exist three possible bases for legal claims by workers: (1) common law contract, property, and tort claims; (2) the notice provisions of the Worker Adjustment Retraining and Notice Act of 1988; and (3) the NLRA prohibition on retaliatory partial closings in the context of a union organizing drive and (in the unionized workforce) its requirement that the employer bargain over decisions affecting working conditions, including job security.
The Common Law Contract, Property and Tort Claims
Local 1330, United Steel Workers of America v. United States Steel Corp. (Youngstown Steel Case)
Plaintiffs sought to either force US Steel to keep the plants open or enjoin the company to sell the plants to the employees
Plaintiffs claimed that proposals on part of management to keep the plant open if the workers increased productivity and it was profitable resulted in a contract between the labor and management (this was not supported by any written document and was not covered by the collective bargaining agreement between the parties).