Cihon/Castagnera, Employment & Labor Law, 7e Ch 2 Instructor’s Manual 1
Chapter 2: Employment Contracts and Wrongful Discharge
INTRODUCTION
The second chapter focuses on employment contracts, employment at will, and wrongful discharge. The chapter begins with a discussion of employment at will; a term first introduced in chapter one. The student should have an understanding of employment at will, and the chapter proceeds to identify all of the many exceptions to this legal theory and when they apply. Generally, the exceptions to employment at will are when the termination violates a public policy, an implied employment contract, a covenant of good faith and fair dealing, or one of the many federal, state, or municipal statutes that protect employees from termination based on basis of some protected characteristic. Termination under any of these situations is called a “wrongful discharge.” An employee who has been wrongfully discharged may be entitled to redress.
OUTLINE
I. Employment - At - Will
A. Historical Roots
1. The doctrine of employment-at-will in its purest (and harshest) form held that an employee without a contract could be fired at any time, for any, or no, reason.
2. While legislation has limited the employment-at-will doctrine in some areas¾such as the NLRA’s prohibition on terminating an employee for engaging in concerted activities and Title VII’s prohibition of any discharge for racially discriminatory reasons—these laws still leave a zone of discretion to private sector employers.
3. Advocates of employment-at-will point out that the employee is free to sever employment at any time, and that employees can use bargaining power to attempt to demand an employment contract covering a specific term.
a) However, individuals often lack the bargaining power to demand such a set contract¾that's one reason why they join unions.
b) But the freedom of employees to quit the employment relationship is an important issue underlying the employment-at-will doctrine.
B. Wrongful Discharge Based on Public Policy
C. The most common limitation on employment-at-will is the public policy exception¾the employer cannot fire an employee for a reason that undermines or violates a "clear mandate of public policy."
D. Most state courts have adopted this exception, although some state courts restrict the "public policy" to some right or duty clearly spelled out in a statute.
1. Geary v. U.S. Steel (PA Supreme, 1978) is an example from Pennsylvania.
2. Also, if the statute provides for a remedy or cause of action, the courts are reluctant to allow the employee another remedy in the form of a suit alleging wrongful discharge.
CASE 2.1 KNOX V. BOARD OF SCHOOL DIRECTORS OF SESQENTA SCHOOL DISTRICT
585 Pa. 171 888 A.2d 640 (2005)
SUMMARY:
Background: in 1987, the District’s Board of School Directors elected Knox to a three-year term as business administrator. No written employment contract was ever provided as evidence, either for the first three-year term of employment or for subsequent employment. Seven years later, the Board passed a resolution terminated Knox’s appointment. Knox requested a hearing, but the Board refused. Knox then filed suit in the Court of Common Pleas. Applying Section 10-1089, (a statute that addresses employment of public officials, which Knox was as a business manager of the school district) the court determined that Knox had a property right in his job because the law specifically spelled out the due process owed to a person in Knox’s position, if the employment agreement did not contain terms under which the contract could be terminated. Due process included a right to be told what he had done wrong and limited the reasons for termination to wrongdoing. The District appealed to the Commonwealth Court.
That court determined that Section 10-1089 was not intended to apply to persons who do not have a written employment contract. It was intended as a default provision in the case that a written contract did not provide for the conditions under which a public official could be removed from, as protection for the business manager (public official). It is not intended to alter the employment at will doctrine recognized by Pennsylvania law, in the case that an employee does not have a written employment agreement. Knox appealed to the Pennsylvania Supreme Court.
Issue: Does Section 10-1089 apply to Knox, if he had no written employment contract?
Decision: Perhaps. The Court determined that the Commonwealth Court had misinterpreted the statute to protect only those with a written employment agreement. In fact the statute is intended to protect a public official from being unfairly removed from his position. However, when the General Assembly decides to grant a public official a life tenure in a position, the statute clearly indicates this. There is no indication that a District Business Manager position is intended to be a lifetime position subject only to removal for cause, therefore no property right exists in the job. The question to be answered is was Knox removed from his position during it’s term, thus invoking the protections of Section 10-1089, or was the Board simply refusing to renew a term that had come to an end, thus rendering Section 10-1089 irrelevant? No prior court had addressed this question, therefore the case was sent back to the lower court to resolve that issue.
(p. 21 - 24)
ANSWERS TO CASE QUESTIONS
KNOX V. BOARD OF SCHOOL DIRECTORS OF SESQENTA SCHOOL DISTRICT
585 Pa. 171, 888 A.2d 640 (2005)
1. The Pennsylvania Supreme Court’s ensures the plaintiff’s continued employment with the school district only if the plaintiff’s term of employment has not come to an end, and the plaintiff had not engaged in any activity that would warrant termination for cause under Section 10-1089. If the plaintiffs term of employment had come to an end, the plaintiff was not entitled to another term of employment.
2. The plaintiff must prove that he was removed before the end of his term of employment.
Tenure is granted to those in public jobs when it is in the public interest that the persons in those jobs are not subject to termination at the whim of the political party that happens to be in charge at the time. Tenure is only allowed when granted by statute. And, in order to qualify for tenure, the employee must first meet the qualifications. The plaintiff appeared to claim that he was entitled to tenure. The Supreme Court opined that administrative personnel responsible for implementing policy decisions should be responsible to the governmental authority that appointed them. Therefore tenure is not appropriate for this position.
3. The Court determined that removal occurred when a person was denied the opportunity to complete the term of expected employment, whereas, continued employment means beginning a new employment term.
4. This is a good class discussion question. Students might argue that the decision does narrow the Commonwealth’s historic adherence to pure employment-at-will by recognizing that in the case of a mid-contract removal, the plaintiff must be accorded some due process rights, and that indeed the reasons for which the public employer may remove him were limited to the several specified in the statute. The counter argument is that at the end of the express contract’s term (and the Pennsylvania courts have always recognized—as they must—that at-will employment can be constrained by written mutual agreement of the parties), the municipal or state employer may refuse to renew the employment for any reason or no reason, to use the classic at-will wording.
(p. 24)
E. Express* and Implied Contracts* of Employment
1. While some employees are covered by a collective bargaining agreement or an individual contract of employment, many are not. Those employees have sometimes attempted to persuade the courts that an implied contract of employment has been created. (p. 25)
a) Contracts may be implied from the firm's personnel manual or the statement of disciplinary procedures that will be followed. (p. 25)
*Express Contract: A contract in which the terms are explicitly stated, usually in writing. (p. 25)
*Implied Contract: A relationship between the parties, the behavior of which leads to an inference of a contract. (p. 25)
CASE 2.2 ASMUS V. PACIFIC BELL
23 Cal. 4th 1 (Cal. Supreme Ct. 2000)
SUMMARY:
Background: Pacific Bell implemented a Management Employment Security Policy (MESP) offering employees job security through retraining and reassignments to other management positions, even if their jobs are eliminated. The policy stated, “This policy will be maintained so long as there is no change that will materially affect Pacific Bell’s business plan Achievements.” The policy was terminated in 1992. Sixty workers were affected by the cancellation, however they continued to work for Pacific Bell for several years after the termination of the policy. Eight employees brought this claim.
Issue: Once an employer has unilaterally adopted a policy (which will remain in effect indefinitely unless certain business circumstances arise) and the policy has become part of the employment contract, may the employer unilaterally terminate the policy, even though the specified conditions have not occurred?
Decision: Yes, as long as the employer provides reasonable notice to the employees and it does not interfere with vested employee benefits.
(p. 26)
CASE 2.3 MARKUS V. KFG EMPLOYMENT SERVICES, INC.
2009 WL 1167849 (Michigan Ct. App.)
SUMMARY:
Background: Marcus was a staff assistant, pursuant to an employment agreement. Additionally, he was provided with an employee handbook. He worked for KFG Employment Services, Inc. for two years. During that time, Marcus did not receive a performance evaluation or a raise. Marcus’ employment ended. Subsequently he filed a suit claiming breach of contract because the employer did not follow the employee handbook outlining a performance evaluation and raise policy.
Issue: Are the performance evaluation and raise provisions of the employee handbook part of the employment contract?
Decision: No. The employment agreement contained specific language declaring that it was the entire agreement between the parties. Marcus could not expand the contract to contain additional terms.
(p. 26)
CASE 2.4 KRITZER V. CURATORS OF THE UNIVERSITY OF MISSOURI
2009 WL 1286027 (Missouri Ct. App.)
SUMMARY:
Background: Kritzer was terminated from your position for alleged misconduct related to maintenance of patient records. The university had a grievance policy outlining several layers of appeal, culminating with an appeal to the Board of Curators (the fifth step). At the fourth step, a professional arbitrator, arranged by the grievance committee, arbitrated Kritzer’s case. Pursuant to the arbitrator’s decision, the grievance committee recommended against the termination and in favor of reinstatement but a two-week suspension. The University appealed to the Board of Curators. The Board upheld termination.
Issue: Is the University bound by the arbitrator’s decision rendered in step 4?
Decision: No, the fact that Kritzer was entitled to a hearing before a grievance committee and an appeal to the Board of Curators did not change her at will status. The Board of curators retained the ultimate authority..
(p. 27)
THE WORKING LAW
The Model Employment Termination Act is not a real success story. The purpose of the act is to offer the states a uniform law protecting employees from being terminated except for good cause. The committee charged with developing the act do not agree on it’s terms. If adopted by many states, this law would fundamentally change the employment at will culture that defines employment in the United States. Only one state (Montana) has adopted a form of this law.
(p. 27 – 28)
F. Protection for Corporate Whistleblowers
1. In the wake of the Enron and Worldcom scandals, the Sarbanes Oxley Act (SOX) was passed. Among other things, SOX amended the Security Exchange Act and several other statutes to include criminal and civil protection of employees who report improper conduct concerning securities fraud and corruption by corporate officials. (p. 28)
2. Many other employment laws such as Occupational Safety and Health Act (OSHA) and Title VII contain anti-retaliation provisions. (p. 28)
3. Additionally, many states have passed laws protecting employees who engage in whistleblower type activities. (p. 28)
4. Where there is not a federal, state, or municipal law directly protecting whistleblower activities, employees may still seek protection under the theory of public policy, where an employee provides proof that termination of employment was in retaliation for reporting or restricting supervisory illegal activity. (p. 29)
5. Despite this, many who seek to be protected by whistleblower laws find that enforcement is lacking and remedies are ineffective. (p. 29)
6. SOX protections are not limited to the reporting of securities fraud. It covers the reporting of any federal offense.
G. Civil Liability Under SOX
1. SOX only protects employees of publically traded companies.
CASE 2.5 BRADY V. CALYON SECURITIES (USA)
406 F. Supp. 2d 307 (S.D.N.Y. 2005)
SUMMARY:
Background: Brady was a 52 year old research analyst for Calyon Securities (USA). He held many licenses to work in the securities industry and was registered with and licensed by the New York Stock Exchange (NYSE) and National Association of Securities Dealers (NASD). Calyon Securities (USA) was a brokerage firm. In 2001, Brady was promoted. Under the reporting structure, he reported to Schindler, the head of the investment banking department. SOX rules forbid a research analyst from being supervised or controlled by anyone in the investment banking department as did the NYSE and NASD. Brady voiced his concerns of these violation to the CEO in 2003. Dejected, that his complaints seemed to go nowhere, Brady attempted to resign. At this, the CEO assured him that the situation would be immediately corrected. Thus, turning down another job offer, Brady consented to remain. However, Schindler began to harass Brady for his “military-like” adherence to the rules, and rated him poorly on his performance review for getting in the way of the investment banking department. Additionally, he repeated referred to Brady as the “old man.”
In 2004, Brady complained, in writing, to the Head of Compliance that the research department was being controlled and supervised by the head of the investment banking. Brady was terminated that day.
Calyon (USA) is not a publically traded company, but acts as an agent for publically traded companies in so far as it brokers securities that are owned by publically traded companies and provides research information to these companies. Brady contends that he is protected from retaliation by the SOX whistleblower provisions under the theory of agency. The company contends that it is not an “agent” of a publically traded company and therefore SOX does not apply.