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Employment at Will
The employment-at-will doctrine:
three major exceptions
In the United States, employees without a written employment contract generally can be fired for good cause, bad cause, or no cause at all; judicial exceptions to the rule seek to prevent wrongful terminations
Charles J. Muhl
Charles J. Muhl, formerly an economist with the Bureau of Labor Statistics, Washington, DC , is an attorney in Chicago, Illinois.
Work joyfully and peacefully, knowing that right thoughts and right efforts will inevitably bring about right results —James Allen
See only that thou work and thou canst not escape the reward —Ralph Waldo Emerson
L
ike Allen and Emerson, many workers in the United States believe that satisfactory job performance should be rewarded with, among other benefits, job security. However, this expectation that employees will not be fired if they perform their jobs well has eroded in recent decades in the face of an increased incidence of mass layoffs, reductions in companies’ workforces, and job turnover. In legal terms, though, since the last half of the 19th century, employment in each of the United States has been “at will,” or terminable by either the employer or employee for any reason whatsoever. The em- ployment-at-will doctrine avows that, when an employee does not have a written employment contract and the term of employment is of indefi- nite duration, the employer can terminate the employee for good cause, bad cause, or no cause at all.^1 Traditionally and as recently as the early 1900s, courts viewed the relationship between employer and employee as being on equal foot-
ing in terms of bargaining power. Thus, the em- ployment-at-will doctrine reflected the belief that people should be free to enter into employment contracts of a specified duration, but that no ob- ligations attached to either employer or employee if a person was hired without such a contract. Because employees were able to resign from po- sitions they no longer cared to occupy, employ- ers also were permitted to discharge employees at their whim. The Industrial Revolution planted the seeds for the erosion of the employment-at-will doctrine. When employees began forming unions, the col- lective bargaining agreements they subsequently negotiated with employers frequently had provi- sions in them that required just cause for adverse employment actions, as well as procedures for arbitrating employee grievances. 2 The 1960s marked the beginning of Federal legislative pro- tections (including Title VII of the 1964 Civil Rights Act) from wrongful discharge based on race, religion, sex, age, and national origin. 3 These protections reflected the changing view of the relationship between employer and employee. Rather than seeing the relationship as being on equal footing, courts and legislatures slowly be- gan to recognize that employers frequently have structural and economic advantages when nego- tiating with potential or current employees. The recognition of employment as being central to a person’s livelihood and well-being, coupled with
Employment at Will
the fear of being unable to protect a person’s livelihood from unjust termination, led to the development of common-law, or judicial, exceptions to the employment-at-will doctrine begin- ning in the late 1950s. The bulk of the development of these exceptions did not take place until the 1980s, but as we enter the new millennium, the employment-at-will doctrine has been significantly eroded by statutory and common-law protec- tions against wrongful discharge. This article focuses on the three major exceptions to the employment-at-will doctrine, as developed in common law, including recognition of these exceptions in the 50 States. The exceptions principally address terminations that, although they technically comply with the employment-at-will require- ments, do not seem just. The most widespread exception pre- vents terminations for reasons that violate a State’s public policy. Another widely recognized exception prohibits termi- nations after an implied contract for employment has been established; such a contract can be created through employer representations of continued employment, in the form of ei- ther oral assurances or expectations created by employer handbooks, policies, or other written assurances. Finally, a minority of States has read an implied covenant of good faith and fair dealing into the employment relationship. The good- faith covenant has been interpreted in different ways, from meaning that terminations must be for cause to meaning that terminations cannot be made in bad faith or with malice in- tended. Only six western States—Alaska, California, Idaho, Nevada, Utah, and Wyoming—recognize all three of the ma- jor exceptions.^4 Three southern States—Florida, Georgia, and Louisiana—and Rhode Island do not recognize any of the three major exceptions to employment at will. (See exhibit 1.)
Public-policy exception
Under the public-policy exception to employment at will, an employee is wrongfully discharged when the termination is against an explicit, well-established public policy of the State. For example, in most States, an employer cannot terminate an employee for filing a workers’ compensation claim after being injured on the job, or for refusing to break the law at the re- quest of the employer. The majority view among States is that public policy may be found in either a State constitution, statute, or administrative rule, but some States have either restricted or expanded the doctrine beyond this bound. The public-policy exception is the most widely accepted ex- ception, recognized in 43 of the 50 States. (See map 1.) Although the significant development of exceptions to em- ployment at will occurred in the 1980s, the first case to recog- nize a public-policy exception occurred in California in 1959. In Petermann v. International Brotherhood of Teamsters , 5 Peter Petermann was hired by the Teamsters Union as a busi-
Exhibit 1. Recognition of employment-at-will exceptions, by State, as of Oct. 1, 2000
Total................. 43 38 11 Alabama............... no yes yes Alaska.................. yes yes yes Arizona................. yes yes yes Arkansas.............. yes yes no California.............. yes yes yes Colorado............... yes yes no Connecticut........... yes yes no Delaware............... yes no yes District of Columbia yes yes no Florida.................. no no no Georgia................ no no no Hawaii.................. yes yes no Idaho................... yes yes yes Illinois.................. yes yes no Indiana................. yes no no Iowa..................... yes yes no Kansas................. yes yes 1 no Kentucky.............. yes yes no Louisiana.............. no no no Maine................... no yes no Maryland............... yes yes no Massachusetts...... yes no yes Michigan............... yes yes no Minnesota............. yes yes no Mississippi............ yes 1 yes no Missouri................ yes no^1 no Montana............... yes no yes Nebraska.............. no yes no Nevada................. yes yes yes New Hampshire...... yes yes no^1 New Jersey........... yes yes no New Mexico........... yes yes no New York............... no yes no North Carolina........ yes no no North Dakota......... yes yes no Ohio..................... yes 1 yes no Oklahoma............. yes yes no Oregon................. yes yes no Pennsylvania......... yes no no Rhode Island......... no no no South Carolina....... yes yes no South Dakota........ yes yes no Tennessee............ yes yes no Texas................... yes no no Utah..................... yes yes yes Vermont................ yes yes no Virginia................. yes no no Washington........... yes yes no West Virginia......... yes yes no Wisconsin............. yes yes no Wyoming............... yes yes yes
State
Public- policy exception
Implied-contract exception
Covenant of good faith and fair dealing
SOURCE: Data are from David J. Walsh and Joshua L. Schwarz, “State Common Law Wrongful Discharge Doctrines: Up-date, Refine- ment, and Rationales,” 33 Am. Bus. L.J. 645 (summer 1996). Case law was shepardized (verified) to update the recognition of exceptions through Oct. 1, 2000.
(^1) Overturned previous decision that was contrary to current doctrine.
Employment at Will
Palmateer alleged that he was fired from his job with Interna- tional Harvester after he provided information to local law enforcement authorities about potential criminal acts by a coworker and indicated that he would assist in any criminal investigation and subsequent trial. The court noted that the traditional employment-at-will rule was grounded in the no- tion that the employment relationship was based on recipro- cal rights, and because an employee was free to end employ- ment at any time for any condition merely by resigning, the employer was entitled to the same right in return. Rejecting this “mutuality theory,” the court pointed to the rising num- ber of large corporations that conduct increasingly special- ized operations, leading their employees’ skills to become more specialized in turn and, hence, less marketable. These changes made it apparent to the court that employer and em- ployee are not on equal footing in terms of bargaining power. Thus, the public-policy exception to the employment-at-will doctrine was necessary to create a “proper balance...between the employer’s interest in operating a business efficiently and profitably, the employee’s interest in earning a livelihood, and society’s interest in seeing its public policies carried out.” 10 The Illinois court found that matters of public policy “strike at the heart of a citizen’s social rights, duties, and responsi- bilities” and could be defined in the State constitution or stat- utes.^11 Beyond that, when the constitution and statutes were silent, judicial decisions could also create such policy, the court said in creating a broad scope for its exception. In this case, nothing in the Illinois Constitution or statutes required or permitted an employee to report potential criminal activity by a coworker. However, the court found that public policy favored citizen crime fighters and the exposure of criminal activity. Thus, Palmateer brought an actionable claim for retal- iatory discharge. Two years after Palmateer , the Wisconsin Supreme Court rejected such an expansive definition of public policy and limited the application of this employment-at-will exception in its State to cases in which the public policy was evidenced by a constitutional or statutory provision. In Brockmeyer v. Dun & Bradstreet , 12 the court found that the public-policy excep- tion should apply neither to situations in which actions are merely “consistent with a legislative policy” nor to “judicially conceived and defined notions of public policy.”^13 In Brockmeyer , the plaintiff worked for Dun & Bradstreet from August 1969 to May 1980, the last 3 years as district manager of the Credit Services Division in Wisconsin. Brockmeyer had an above-average performance record, but in February 1980, his immediate supervisors learned that he was vacationing with his secretary when it was understood by others that he was performing his normal duties as district manager. The supervisors also learned that Brockmeyer had smoked marijuana in the presence of other employees. The supervisors confronted him with the allegations and stated
unequivocally that he would be terminated or reassigned if his performance did not improve. They also suggested that either he or his secretary would have to find a reassignment within Dun & Bradstreet so that they would not continue to work together. When Brockmeyer tried unsuccessfully to find another position for his secretary, the supervisors sought and obtained her resignation. After leaving, the former secretary filed a sex discrimination claim against Dun & Bradstreet; Brockmeyer indicated to his supervisors that he would tell the truth if called to testify at a trial regarding this complaint. Dun & Bradstreet settled the sex discrimination suit, and Brockmeyer was fired 3 days later. Brockmeyer contended that his termination violated Wis- consin statutes that prohibited (1) perjury, (2) willful and ma- licious injuring of another in his or her reputation, trade, busi- ness, or profession, and (3) the use of threats, intimidation, force, or coercion to keep a person from working. Rejecting these claims, the Wisconsin Supreme Court found that Dun & Bradstreet did not engage in any behavior that violated these statutes. Dun & Bradstreet had legitimate reasons for termi- nating Brockmeyer, and no evidence demonstrated that Dun & Bradstreet had asked him to lie in the event that the sex discrimination action by his secretary went to trial. The court held that it was not the State’s public policy to prevent dis- charge of an employee because the employee may testify in a manner contrary to his employer’s interests. The court in Brockmeyer decided to limit the application of the public-policy exception to “fundamental and well-defined public policy as evidenced by existing law” and held that a wrongful-discharge claim should not be actionable merely because an “employee’s conduct was praiseworthy or be- cause the public may have derived some benefit from it.”^14 The court justified its limitation by saying that it would safe- guard employee job security interests against employer ac- tions that undermine fundamental policy preferences, while still providing employers with flexibility to make personnel decisions in line with changing economic conditions. Later, the court issued a clarification to the effect that public policy could support a wrongful-termination suit in cases where an explicit constitutional or legislative statement did not evidence that policy, as long as the policy was evident from “the spirit as well as the letter” of the constitutional and legislative pro- visions. 15 The court also now permits public policy to be evidenced by administrative rules and regulations. 16 Seven States have rejected the public-policy exception in its entirety: Alabama, Florida, Georgia, Louisiana, Nebraska, New York, and Rhode Island.^17 In Murphy v. American Home Products Corporation , 18 the Court of Appeals of New York (the State’s highest court) forcefully argued that such excep- tions to the employment-at-will doctrine were the province of legislators, not judges. While recognizing that many other jurisdictions had created a public-policy exception, the court
found that legitimacy of the principal justification for such adoption—namely, inadequate bargaining power on the part of employees—was better left to the New York legislature to evaluate. The court found that legislators have “greater re- sources and procedural means to discern the public will” and “elicit the view of the various segments of the community that would be directly affected”.^19 Because the recognition of such an exception requires some sort of principal scheme for its application, the configuration of that scheme must be deter- mined by the legislature after the public has had its opportu- nity to communicate its views, according to the court. Finally, the court found that any such change in the employment-at- will doctrine would fundamentally alter rights and obligations under the employment relationship and thus should be ap- plied prospectively by the legislature, rather than retrospec- tively by the court. 20 To summarize, the vast majority of States do recognize some form of a public-policy exception to the employment-at-will doctrine. Such a regulation prevents employees from being terminated for an action that supports a State’s public policy. The definition of public policy varies from State to State, but
most States either narrowly limit the definition to clear state- ments in their constitution or statutes, or permit a broader definition that enables judges to infer or declare a State’s pub- lic policy beyond the State’s constitution or statutes.
Implied-contract exception
The second major exception to the employment-at-will doc- trine is applied when an implied contract is formed between an employer and employee, even though no express, written in- strument regarding the employment relationship exists. Al- though employment is typically not governed by a contract, an employer may make oral or written representations to em- ployees regarding job security or procedures that will be fol- lowed when adverse employment actions are taken. If so, these representations may create a contract for employment. This exception is recognized in 38 of the 50 States. (See map 2.) A common occurrence in the recent past was courts find- ing that the contents and representations made in employee handbooks could create an implied contract, absent a clear and express waiver that the guidelines and policies in such
be advancing certainty in business relationships by provid- ing meaningful criteria that lead to predictable consequences. The court had “serious reservations as to the advisability of relaxing the requirements of definiteness in employment con- tracts considering the concomitant uncertainty which would result in the employer-employee relationships.” 31 The court added that the inequality of bargaining power between em- ployers and their employees was not a sufficient basis to cre- ate implied contracts of employment based on oral or written assurances. Texas refused to recognize the implied-contract exception in the 1986 case Webber v. M. W. Kellogg Company. 32 In that case, the court found that a letter offering a position of employ- ment, the classification of an employee as “permanent” rather than “temporary,” and the identification in company docu- ments of a scheduled retirement date for the employee some 22 years after employment was initiated were insufficient in sum to create an implied contract of employment for a specific
duration. Likewise, in Richardson v. Charles Cole Memorial Hospital , 33 the Supreme Court of Pennsylvania rejected the implied-contract exception, finding that policies published in an employee handbook did not create a “meeting of the minds,” one of the traditional standards for evaluating whether a contract has been created between two parties. Because the terms of the handbook were not bargained for in the tradi- tional sense, the court reasoned, the benefits conferred upon the parties by the handbook were mere gratuities and not rights that were contracted for. To summarize, then, employers’ oral or written assurances regarding job tenure or disciplinary procedures can create an implied contract for employment under which the employer cannot terminate an employee without just cause and cannot take any other adverse employment action without following such procedures. Employers can prevent written assurances from creating an implied contract by including a clear and unambiguous disclaimer characterizing those assurances as
Employment at Will
company policies that do not create contractual obligations. Oral assurances must create a reasonable expectation in the employee in order for an implied contract to be created.
Covenant-of-good-faith exception
Recognized by only 11 States (see map 3), the exception for a covenant of good faith and fair dealing represents the most significant departure from the traditional employment-at-will doctrine. 34 Rather than narrowly prohibiting terminations based on public policy or an implied contract, this exception— at its broadest—reads a covenant of good faith and fair deal- ing into every employment relationship. It has been interpreted to mean either that employer personnel decisions are subject to a “just cause” standard or that terminations made in bad faith or motivated by malice are prohibited. 35 As with the public-policy exception, California courts were the first to recognize an implied covenant of good faith and fair dealing in the employment relationship. In Lawrence M. Cleary v. American Airlines, Inc. , 36 an American Airlines employee who had worked satisfactorily for the company for 18 years was terminated without any reason given. A Califor- nia appellate court held that, in virtue of the airline’s express policy of adjudicating personnel disputes and the longevity of the employee’s service , the employer could not fire the em- ployee without good cause. The court stated that “Termina- tion of employment without legal cause after such a period of time offends the implied-in-law covenant of good faith and fair dealing” and that, from the covenant, “a duty arose on the part of...American Airlines…to do nothing which would deprive...the employee...of the benefits of the employment...having accrued during [the employee’s] 18 years of employment.”^37 This California appellate case was decided in 1980, and the factual situation included an implied employment contract. However, the court did not hold that a covenant of good faith and fair dealing was actionable only if an employee had an express or implied employment contract from which the covenant could arise. Rather, the appellate court found that a tort action could be maintained for breach of the covenant of good faith and fair dealing in every em- ployment relationship, not just those covered by an express or implied contract. The California Supreme Court subse- quently rejected this formulation and eliminated the tort action. 38 Later, however, in Kmart Corporation v. Ponsock , the Su- preme Court of Nevada permitted a cause of action in tort for breach of an implied covenant of good faith and fair dealing in every employment relationship.^39 Ponsock was a tenured em- ployee at Kmart, hired until retirement or as long as economi- cally possible. At trial, the jury found that Kmart terminated Ponsock to avoid having to pay him retirement benefits. As part of his case, he claimed that Kmart’s discharge was in
“bad faith” and that, even without a contract,^40 such a termi- nation gave rise to tort liability. The court agreed, citing the employer-employee relationship as one of the “rare and ex- ceptional cases that the duty [of law] is of such a nature as to give rise to tort liability.”^41 In its opinion, the court recognized the changes that many feel have occurred in the employment relationship:
We have become a nation of employees. We are dependent upon others for our means of livelihood, and most of our people have become completely dependent upon wages. If they lose their jobs they lose every resource except for the relief supplied by the various forms of social security. Such dependence of the mass of the people upon others for all of their income is something new in the world. For our genera- tion, the substance of life is in another man’s hands. 42
The court found that Ponsock was dependent on Kmart’s commitment to extended employment and to retirement ben- efits based on that employment and that the “special relation- ships of trust” required a tort remedy in addition to any avail- able contractual remedy if the employer conducts an “abusive and arbitrary” dismissal. Providing such a remedy, the court reasoned, would deter employers from engaging in such mali- cious behavior. Because the termination in Ponsock was mo- tivated by the company’s desire to serve its own financial ends, the employee was entitled to recover for a bad-faith agreement. The vast majority of courts have rejected reading such an implied covenant into the employment relationship. The rea- soning used by a Florida appellate court in Catania v. East- ern Airlines, Inc. , 43 is representative. Four employees alleged that Eastern had wrongfully discharged them and claimed, among other things, that they were entitled to a good-faith review of the discharge. The court summarized the plaintiffs’ argument as follows:
To require employers to demonstrate valid grounds and meth- ods for an employee’s discharge does not unduly restrict em- ployers; it merely provides some balance of power. It is ap- parent that there is not truly freedom of contract between an employer and employee; the individual employee has no power or ability at all to negotiate an employment contract more favorable to himself. And the traditional common law [the employment-at-will doctrine] totally subordinates an in- terest of the employee to the employer’s freedom.
Rejecting the “plaintiff’s invitation to be a ‘law giver’” and applying reasoning that had been accepted by the Nevada Supreme Court, the Florida court found that the burden on courts of having to determine an employer’s motive for termi- nating an employee was too great an undertaking.
THE EMPLOYMENT RELATIONSHIP IS FOREVER EVOLVING. Additional statutory and common-law exceptions to the employment-at-
