Legal Trends

By Jathan Janove May 1, 2005
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HR Magazine, May 2005Employment at will preserves needed flexibility, but dont arbitrarily give employees the boot.

HR professionals are familiar with the “employment-at-will” doctrine, which essentially means an employee hired for an indefinite period may be discharged for any or no reason, cause or no cause, unless specifically prohibited by law. This rule has been under attack in recent decades as being arbitrary, unfair and no longer appropriate.

This article takes the position that the doctrine not only is still viable and important, but also provides fair and reasonable employers with the important legal freedom needed to effectively manage their human capital.

That being said, employers should show restraint. Trying to test the limits of the at-will doctrine will often prove impractical and legally risky—and give critics that much more ammunition to argue for its abolition.

At Will Under Fire

Recently, critics have attacked the at-will doctrine with increased vigor and on a number of fronts. Some argue, for example, that the legal foundation of the at-will doctrine is flawed. Going back half a millennium to English common law (on which American common law is based), there was no such thing as employment at will. According to the great 18th century English law commentator Sir William Blackstone, a hiring for an indefinite period of time was construed to mean employment for a year. Even after a year, employees could be terminated only if employers gave them at least three months’ advance notice or had “reasonable cause.”

Others insist that the at-will doctrine is unfair and out-of-date. For example, in the November 2004 issue of the Washington State Bar Journal, attorney James Hopkins advocated eliminating the at-will rule because “whim, capriciousness, prejudice or malice should not be the standard on which the employer/employee relationship rests as we move into the 21st century.”

Detractors also point out that other industrial nations (France is a leading example) don’t follow the at-will rule. American workers, too, they argue, should be guaranteed some form of security or assurance of fairness in the workplace.

Finally, some argue that state and federal laws already carve out so many exceptions that there’s no point in preserving the at-will rule. Laws protect employees from termination because of their race, gender, religion, age, disability, etc. Other provisions bar employers from terminating employees for engaging in various forms of protected activity, such as filing a discrimination claim or opposing an employer’s unlawful activities.

Given the numerous exceptions, why not simply finish off the doctrine and require just cause for all dismissals? After all, Montana effectively ended employment at will with its Wrongful Discharge from Employment Act (WDEA). Following a probationary period (six months if not otherwise specified), a Montana employee may not be terminated except for “good cause.” This law has been on the books since 1987. Nevertheless, employers in that state have managed to survive.

Attorney Glenn Solomon describes the at-will rule as “insanity” in You Could Be Fired For Reading This Book (Berrett-Koehler, 2004). He contends that adopting a universal for-cause standard would substantially reduce employment discrimination claims against employers, by requiring them to ensure that each termination is substantively and procedurally fair before carrying it out.

Given these arguments, should you support legislation like Montana’s WDEA and seek to demolish employment at will in your jurisdiction?

To help answer this question, I asked attorneys in firms affiliated with the Worklaw Network, an international consortium of independent labor and employment law firms that represent employers, as well as David M. Safon, a Ford & Harrison partner in New York, whether it was time to put the at-will doctrine out to pasture. Their response was a resounding and unanimous “No!”

Defenders Respond

None of the management attorneys I queried thought eliminating the at-will rule would reduce claims. All predicted the opposite. A brand-new right to sue for wrongful termination will mean lots of brand-new employee lawsuits—it’s as simple as that. The argument that eliminating at-will employment will reduce discrimination claims ignores the reality that plaintiffs’ lawyers working on a contingency fee basis—that is, getting a percentage of any recovery or settlement, as opposed to an hourly fee—will be more willing to take cases if they have two bites at the apple by filing both a discrimination claim and a wrongful discharge claim.

Most employers already are very cautious about firing employees—in many instances too cautious. Adding a new legal claim that any terminated employee potentially can use will only heighten employers’ caution. Predictable results? Employers increasingly will tolerate poor performance, attendance or workplace conduct—thus eroding their effectiveness and forcing workers to coexist with fellow employees that don’t belong.

Eliminating the at-will rule will weaken employers’ leverage to get employees to conform to their legitimate business expectations. Problem employees themselves may miss out on finding a better fit with another company if their employer continues to tolerate their poor performance.

We’ve already learned that fear of defamation suits prompts employers to give neutral job references, which, in turn, causes them to pass bad employees from one to another. Similarly, employers’ fear of a new basis for a lawsuit will deter them—to the detriment of all—from firing bad or misfit employees. Moreover, as a French entrepreneur once observed to me, the difficulty and cost of firing problem employees tends to make employers excessively cautious in hiring people in the first place—another unintended negative consequence of laws that are overly protective of workers’ jobs.

Another point that critics of the at-will doctrine overlook is that it works both ways. “Employment at will is a ‘free enterprise’ concept,” observes Steven M. Nakashima of Marr Hipp Jones & Wong in Honolulu. “The law allows employers and employees to enter into a more formal or defined relationship based on a contract. But that is a choice that can and should be made by the parties.”

Indeed, in citing English common law principles against employment at will, critics fail to note that the employer/employee relationship was mutually binding. According to Blackstone in his Commentaries on the Laws of England (1765–1769), “No master can put away his servant, or servant leave his master” except upon advance notice or reasonable cause.

The at-will doctrine “favors employees just as much as it does employers,” says Stephen A. Brandon of Lehr Middlebrooks Price & Vreeland in Birmingham, Ala. Employees can acquire training, knowledge and skills, and develop relationships while with one employer, then freely choose to leave and take these “soft” assets with them.

All the attorneys consulted also debunked the notion that employers routinely fire people based on “whim, capriciousness, prejudice or malice,” even when they theoretically have the ability to do so. “How do we know that the typical employer has no interest in firing an employee capriciously or at whim?” Brandon asks rhetorically. “Because it costs so much damn money to replace him, that’s how!”

What about the notion that there are already so many exceptions that it would be no big deal to end the rule? The fact is that each of the statutory exceptions is based on a determination that a specific and compelling public interest (e.g., protecting minorities from workplace discrimination) was sufficient to offset employers’ countervailing interest in managing their workforce without undue fear of litigation.

Court-made exceptions also are based largely on the identification of specific and compelling public interests. For example, most courts have recognized a cause of action for wrongful discharge in violation of “public policy” when an employer fires an employee for refusing to commit a crime. The public interest lies against forcing employees to choose between keeping their jobs and acting as responsible citizens.

We live in an era of increasing global competition. Creating new restrictions on employers’ ability to make tough judgment calls about their employees will not help to maintain U.S. competitiveness. (The French example of guaranteed employment is probably not the best model to adopt if economic competitiveness is the goal.)

What about the Montana example? Shouldn’t it be a beacon for change? Before traveling too far on this path, consider that the WDEA was largely an employer initiative in response to the fact that Montana courts had become among the most employee-friendly in the country, allowing various common law causes of action against employers with uncapped compensatory and punitive damages. Gargantuan plaintiffs’ awards sparked employers to push for legislative action.

Although the WDEA effectively ends employment at will, it also effectively eliminates huge damages awards. General compensatory, emotional distress, pain and suffering damages are gone. With only an extremely limited exception, it also prohibits punitive damages. Lost wages and benefits are capped at four years—minus what the employee could have earned with reasonable diligence. Prevailing plaintiffs do not get their attorneys’ fees reimbursed by the employer. The statute of limitations has been drastically reduced to one year, arbitration is encouraged, and employers are granted the right to establish internal grievance procedures that an employee must exhaust before filing a lawsuit. Thus, although the WDEA reduces some employer rights, the trade-off—eliminating potentially ruinous jury verdicts and dampening down contingency fee lawsuits—generally has been considered worth it in that state.

With respect to the rest of the country, however, employment at will remains viable. “The value of the employment-at-will doctrine is not to protect unscrupulous employers engaged in capricious action, but rather to protect decent employers from having every employment decision go on into the current litigation morass,” sums up Charles E. Feuss of Seaton, Beck, Peters, Bowen & Feuss in Minneapolis.

He adds, “Good employers will continue to follow just cause principles and use a fundamental fairness approach to employment decisions; they just don’t have to worry about spending thousands of dollars defending those decisions in unwarranted wrongful termination suits.”

Preach, but Don’t Practice

Although the employers’ attorneys polled emphasized the importance of preserving the at-will doctrine, all of them counseled against employers relying on the rule in the way they treat their employees. Given the many exceptions to the at-will rule and the number of protected classes, at-will employers can never be sure their employment decisions won’t be subject to legal scrutiny. If challenged, the manner in which an employer treated an employee will be critical to its credibility and its defense.

“When an employer calls me for advice on whether it can legally terminate an at-will employee, I tell the employer to assume that the employee in question can only be fired for cause,” says David J. Reiwald of Bullard Smith Jernstedt Wilson in Portland, Ore. “I do that because if we ever have to litigate the termination, the jurors that decide the case will be looking to see whether the employee was treated fairly, and I don’t want to be left telling the jury that we didn’t worry about whether there was a good reason to fire the employee.”

So what steps or approaches should at-will employers remember to take?

“I always tell my clients to check four basic criteria before making an adverse employment-related decision about an employee,” says Susan G. Fentin of Skoler Abbott & Presser in Springfield, Mass. “Is the proposed action fair, consistent, done for business-based reasons, and is there good documentation to support the first three? If any of those is missing or flawed, the employer might be better off reconsidering the decision until it can substantiate the reasoning behind it.”

Here are some additional recommendations:

Maintain a progressive discipline policy. Except for acts of serious misconduct, a disciplinary policy should give employees an opportunity to close the gap between management’s expectations and employees’ performance, attendance or conduct—and to do so before the employer decides an employee must go.

Remind managers to document all disciplinary steps in writing and to share them with employees. Used most effectively, such documents confirm the key points of a disciplinary meeting just held. Here’s an example:

“Bill, this memo summarizes our discussion this morning in which I pointed out that this is the third consecutive month your sales have been at least 20 percent below quota. We previously met to discuss this problem, and I explained that your sales level had to increase to quota level. As I noted, if you’re not able to close the gap this month and keep it closed, it will become necessary to terminate your employment. You said you understood. Bill, if you have any questions or if this memo doesn’t accurately summarize our meeting this morning, please see me immediately.”

Another value-added step is to plug HR into the disciplinary procedure. Before putting status-changing decisions about employees into effect, managers first should run them by HR. A second set of eyes and ears can help to ensure that all the ducks are in a row, including issues such as:

  • Whether management properly followed company policy.
  • Whether the employee is being treated consistently with how other employees have been treated.
  • Whether there is anything in the employee’s personnel file that might mitigate against firing (for example, a recent “false positive” performance evaluation).
  • Whether there are any special circumstances, such as health issues, warranting legal review.

HR can see to it that the manner in which the decision is carried out respects the dignity of the employee. All too often, it is not the injury but the perceived insult that motivates the employee to seek a lawyer. HR can help frame the termination message in a way that avoids criticism, judgment or insensitivity. Instead of saying or implying that Bill is lazy and incompetent, say, “For your position to be successful as we see it, sales have to consistently equal or exceed the monthly quota. Unfortunately, this has not happened, and, as a result, we have to terminate your employment.”

Train supervisors. A well-written progressive discipline policy is not worth much if supervisors haven’t been adequately trained to follow it. In fact, the policy may prove to be counterproductive. A plaintiff’s lawyer will exploit an employer’s failure to follow a policy by attacking management’s credibility, claiming that the real motive for a discharge was race, sex, age or some other prohibited reason. If the employer’s stated reason for discharge is true, plaintiff’s counsel will ask, “Why didn’t the employer follow its own policy?”

Training should include teaching supervisors how to:

  • Set and communicate expectations.
  • Hold employees accountable in constructive ways.
  • Use written communication techniques to redirect employees without formally disciplining them. (For example, use the confirming memo technique illustrated above not as a disciplinary warning, but to make sure employees understand what’s expected of them.)

Also train supervisors to identify when a situation needs to escalate from redirection to reprimand. When discipline is called for, supervisors must know how to administer it fairly, consistently and with attention to proper documentation.

Adopt a grievance procedure. Even in nonunion settings, a grievance or internal dispute resolution policy and procedure can be very helpful. At first blush, such procedures might appear to undercut the at-will nature of the employment relationship. They really don’t, as long as appropriate disclaimers (discussed below) are in place.

An internal procedure can preserve morale by conveying a sense of the employer’s fairness to the aggrieved employee and to co-workers. Moreover, if the employer’s handbook or other written policy requires employees to use the internal procedure to resolve complaints, an employee’s failure to do so may help the employer defend against a legal claim.

An internal procedure has side benefits to the employer as well. “A grievance or other complaint procedure affords the employer an opportunity for ‘discovery’ before the employee has obtained counsel,” notes Ford & Harrison’s Safon. “It creates the chance to pin down the complaining employee—and any witnesses—to their positions and factual allegations before those positions and allegations can be molded and shaped for purposes of filing a legal action.

“In addition, a complaint procedure just may highlight a practice or problematic supervisor that needs correction. All good things. And, properly designed, it need not undercut employment at will.”

Contract disclaimers. To preserve employees’ at-will status, disciplinary and dispute resolution policies and procedures must include language designed to prevent them from being deemed binding contractual obligations on the employer. Disclaimers should include an overall statement of employees’ at-will status provided not only in the handbook but in an acknowledgment page signed by each employee.

The progressive discipline policy should express the employer’s right to skip steps and go directly to termination at the company’s discretion.

The grievance or dispute resolution procedure should include language stating that it is not a contract and does not change employees’ at-will status. There should also be an expression of finality in the dispute resolution, such as a statement that the final step listed (e.g., review by the company president) conclusively ends the process.

Conclusion

Employers should fight to maintain the right to be arbitrary, capricious, whimsical, mean, cruel, etc. They just shouldn’t act that way.

The beauty of the at-will rule is that, when combined with the practice of treating employees fairly and consistently, employers are able to effectively close gaps in employee performance, attendance or conduct. They do so by communicating to employees, orally and in writing, what’s necessary so that employees make the desired changes.

If employees are unable or unwilling to do so, management makes the change in employment status with fairness and consistency, while respecting the employee’s dignity, and—last but not least—without intrusion of the legal system.

Editor’s Note: This article should not be construed as legal advice. For specific situations, qualified employment counsel should be consulted.

Jathan Janove is a principal in the law firm of Janove Baar Associates LC, an affiliate of the Worklaw Network. He not only defends claims but also helps employers prevent them through management training and consulting. A member of the Utah, Idaho, Wyoming and New York Bars, he is the author of Managing to Stay Out of Court: How to Avoid the 8 Deadly Sins of Mismanagement , co-published by the Society for Human Resource Management.
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