Employment at Will

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EMPLOYMENT AT WILL

A common-law rule that an employment contract of indefinite duration can be terminated by either the employer or the employee at any time for any reason; also known as terminable at will.

Traditionally, U.S. employers have possessed the right to discharge their employees at will for any reason, be it good or bad. The "at-will" category encompasses all employees who are not protected by express employment contracts that state that they may be fired only for good cause. "Good cause" requirements are typically a part of collective bargaining agreements negotiated by employee unions; nonunion workers rarely have this form of protection. The at-will doctrine also does not apply to contracts for a specified term, such as an employment contract that contemplates the employee providing service for a expressly designated number of years.

The United States is the only major industrial power that maintains a general employment-at-will rule. Canada, France, Germany, Great Britain, Italy, Japan, and Sweden all have statutory provisions that require employers to show good cause before discharging employees.

Beginning in the 1980s, employment at will came under challenge in the United States. Employees had grown increasingly dissatisfied with the rule for a variety of reasons. For one thing, a decline in the number of self-employed individuals—due, in part, to a continuing decline in the number of farmers—meant that most U.S. citizens worked for someone else. For another, a typical worker who was discharged currently lost more than in the past in terms of pension, insurance, and other benefits.

As a result, a greater number of discharged workers brought suits alleging wrongful discharge from employment. By the 1980s, as concepts of job security expanded, employees became increasingly successful in such suits. In 1987, California juries ruled in favor of the employees in over two-thirds of such cases and granted an average award of $1.5 million. In some successful cases, the courts have created exceptions to the employment-at-will practice. Thus far, these exceptions have fallen into three

broad categories: (1) breach of contract by the employer, (2) breach of an implied covenant of good faith and fair dealing, and (3) violation of public policy by the employer. Employers and legislatures have responded in a variety of ways.

Breach of Contract

Approximately half of the states have allowed exceptions to employment at will on the basis of an express or implied promise by the employer. Typically, a wrongful discharge action alleging the breach of an employer's promise is based on a statement by the employer that expressly or implicitly promises employees a degree of job security. Ordinarily, such statements are found in employee handbooks or in policy memorandums given to employees when they are hired. Some courts have interpreted such statements as unilateral contracts in which the employer promises not to discharge the employees except for just cause and in accordance with certain procedures (Duldulao v. Saint Mary of Nazareth Hospital Center, 115 Ill. 2d 482, 106 Ill. Dec. 8, 505 N.E.2d 314 [Ill. 1987]). Courts were more reluctant to find exceptions to the employment at-will practice in cases that involved an oral promise of long-term employment.

Breach of an Implied Covenant of Good Faith and Fair Dealing

In wrongful dismissal cases based on an implied covenant of good faith and fair dealing, the discharged employee typically contends that the employer has indicated in various ways that the employee has job security and will be treated fairly. For example, long time employees who have consistently received favorable evaluations might claim that their length of service and positive performance reviews were signs that their job would be secure as long as they performed satisfactorily.

Courts that have recognized good-faith-and-fair-dealing exceptions have found either covenants implied in fact or covenants implied in law. Covenants implied in fact have been found in "objective manifestations," including repeated promotions and pay increases, that might reasonably give an employee cause to believe that he or she has job security and will be treated fairly (Dare v. Montana Petroleum Marketing, 687 P.2d 1015 [Mont. 1984]; Kerr v. Gibson's Products Co., 733 P.2d 1292 [Mont. 1987]).

A few jurisdictions have recognized implied-in-law covenants of good faith and fair dealing. California courts have ruled that every employment contract carries with it an implied covenant that neither party will impede the other from receiving the benefits of the agreement. In deciding whether such a covenant is to be inferred, a court looks at such factors as whether the company properly followed its stated personnel policies, the length of the person's employment, any job security assurances that may have been made, a presence or lack of prior criticism of performance, and basic notions of fairness.

In Khanna v. Microdata Corp., 170 Cal. App. 3d 250, 215 Cal. Rptr. 860 (1985), for example, a California court of appeals ruled that a company violated an implied covenant when it fired a leading salesman who had brought suit against the company for unpaid commissions. The court found that a breach of an implied-in-law covenant is established whenever an employer engages in a bad-faith action outside a contract and attempts to frustrate an employee's enjoyment of her or his contract rights.

Violation of Public Policy

Several public policy exceptions to the employment-at-will practice have been recognized by courts in some jurisdictions. In public policy cases, the employee alleges that he or she has been discharged in violation of a policy found in a statutory right of the employee, statutes containing penalties, constitutional provisions, and judicial opinions. Courts have generally been more willing to recognize a public policy exception when the policy in question has a statutory basis than when it does not.

Courts in many jurisdictions have been willing to recognize public policy exceptions for employees who were discharged because they asserted a statutory right. For example, in Firestone Textile Co. Division, Firestone Tire & Rubber Co. v. Meadows, 666 S.W.2d 730 (1983), the Supreme Court of Kentucky ruled that an employer could not discharge an employee simply because he had filed a workers' compensation claim.

A public policy exception to employment at will has also been found in cases where an employee was fired for refusing to violate a statute. Wrongful discharge has been found in instances where employees were dismissed for refusing to dispose of waste in a place where doing so is prohibited by federal law, for refusing to commit perjury, and for giving testimony in compliance with a court order.

Courts have much less frequently been willing to recognize exceptions to employment at will owing to constitutional provisions. Nevertheless, in Novosel v. Nationwide Insurance Co., 721 F.2d 894 (3d Cir. 1983), a federal appeals court made a public policy exception for an employee who was dismissed for refusing to join a company's lobbying effort because he privately opposed the company's stance on the issue. The court found that the free speech provisions of the Pennsylvania Constitution and the U.S. Constitution's first amendment protected the employee's refusal. In Borse v. Piece Goods Shop, 963 F.2d 611 (1992), a federal circuit court of appeals ruled that Pennsylvania law may protect at-will employees from being fired for refusing to take part in drug-testing programs if the employees' privacy is unreasonably invaded.

The Response by Employers and Legislatures

Legal guidelines relating to the status of employment at will are still developing or remain unclear in many states. The evolving judgments of legislatures and courts on this issue reflect a continuing debate over how to protect wrongfully discharged at-will employees while allowing employers the freedom to make personnel decisions.

The rising number of wrongful-dismissal suits has alarmed many employers. Faced with the threat of high legal fees, court costs, and huge potential damage awards in such cases, more companies have begun to add express employment-at-will clauses to employment contracts. Many employers have deleted potentially troublesome statements from their handbooks and instructed recruiters to make no promises about just cause or the term of employment. Companies are also turning more frequently to severance pay settlements, in which discharged employees receive a reasonably generous compensation package in exchange for waiving all future claims based on the employment or its termination.

The decline of the power of employee unions and collective bargaining has provided many employers with the freedom to insert the new contract clauses. In many instances, companies are concerned more with losing expensive termination lawsuits than with inciting union action or public boycotts.

Whereas employers claim they are simply reasserting their rights under the traditional at-will doctrine, employee advocates believe that many companies may be attempting to cheat workers out of the job security gains they have achieved through several decades of wrongful-dismissal lawsuits. They propose legislation that would protect at-will employees from unjust discharge and provide for arbitrators to handle disputes. This solution, they suggest, would be fair to employees and employers alike. Such legislation would protect at-will employees, not just those who fall under the exceptions and who can afford to pursue a lawsuit that may take years to complete. Businesses would benefit not only because employee morale might improve, but also because relief could be limited to back pay and reinstatement rather than possibly including punitive and compensatory damages.

Some state legislatures have enacted legislation that struggles to balance the rights of the employee and the employer. In 1987, Montana passed the Montana Wrongful Discharge from Employment Act (Mont. Code Ann. § 39-2-901). This law limits the rights of employees claiming wrongful discharge, by restating the principle that at-will employees may be dismissed for "any reason considered sufficient by the terminating party." However, a discharge could be considered wrongful even under this principle if it was in retaliation for the employee's refusal to violate public policy, if it was not for good cause, or if the employer violated the express provisions of the employer's own personnel policy.

The Montana statute limits the remedies of a discharged employee who sues the former employer. The employee may be awarded lost wages and fringe benefits but only for a period not to exceed four years, and punitive damages may be sought only when there is clear and convincing evidence that the employer engaged in actual fraud or malice in the wrongful discharge. In addition, any earnings that were or could have been accrued following the discharge must be deducted from the amount awarded in lost wages. The Montana Supreme Court upheld the constitutionality of the act in Meech v. Hillhaven West, 776 P.2d 488 (1989).