Binding Contracts for Wrongful Termination

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					Chapter 18
Individual Employees
Terminating an Employee                     1

• For an employee, the loss of a job can be life-
  altering, affecting his ability to care for himself and
  his family, damaging career prospects, and
  damaging self-esteem.
• For an employer, the undertaking is stressful,
  sometimes dangerous, and apt to prompt legal
• Terminations are more likely than any other human
  resource action to result in legal claims.
     Terminating an Employee                    2

• The legal standards governing termination differ greatly
  for public sector employees or unionized employees,
  and private sector employees.
• Most of this chapter deals with private sector, non-union
  employees, the standard for which may be called
  “employment at will with exceptions”.
• For unionized and public sector employees, the more
  stringent standard of “just cause/due process” controls.
• Legal standards differ for terminations of individual
  employees, than for terminations of groups of
  employees because of downsizings and the like.
    Constructive Discharge                  1

• Disputes over whether an employee quit or was fired
  are common.
• If the employee truly resigned, he/she cannot sue for
  wrongful termination.
• But employers cannot avoid the legal consequences
  of terminations by effectively, but not officially,
  discharging employees (essentially, forcing them out).
    – A quit is a termination when an employer creates
       intolerable working conditions with the intention of
       forcing an employee to quit - a constructive
    – The quit is construed as a termination if, under the
       circumstances, a reasonable person would have
       felt compelled to quit.
 Constructive Discharge               2

• To determine whether an employee who
  resigned was constructively discharged, a
  court considers:
   – demotions
   – cuts in salary
   – reductions in job responsibilities
   – reassignment to menial or degrading work
   – reassignment to work under a younger
   – badgering, harassment, and humiliation
      calculated to encourage resignation
   – offers of early retirement on terms less
      favorable than the employee’s former status
Just the Facts
•   A long-time employee received a negative
    performance appraisal after some other employees
    and a customer had complained about him. The
    employee was presented with the choice of either
    retiring with a severance package or being evaluated
    under a 30-day performance improvement plan. The
    plan would include an assessment of his
    performance, leadership, support for peers and
    managers, teamwork, and customer satisfaction. He
    was also told that if his supervisor received even one
    complaint about him during this 30-day period, he
    would be terminated without severance pay. The
    employee was given 30 days to consider the offer.
    After 25 days, he took the severance package.
    Subsequently, the employee sued his former
    employer for wrongful termination. Was he
    constructively discharged?
     – Saville v. IBM, 2006 U.S. App. LEXIS 15839 (10th
       Cir.); cert. denied, 127 S. Ct. 1143 (2007)
  Termination Standards
• Employment at will
   – Existed prior to 1937
   – There was no such thing as wrongful termination.
• Employment at will with exceptions
   – An employer may terminate an employee for any
     reason except prohibited reasons (exceptions)
     developed by statute or common law since 1937.
   – Applies to a significant majority of the workforce
• Just cause/due process
   – Employers bear the burden of proving that
     terminations were proper and based on good
   – Applies to about 20% of workforce
Impermissible Grounds for Termination
          • Legal protections for wrongful discharge may
            be categorized as arising from these grounds:
             – Constitutional
             – Statutory
             – Common law
                • contractual
                • tort claims
          • Some protections are available only to public
            sector employees, union employees, or
            employees with individual employment
Elements of a Claim –
Breach of an Implied Contract
           • A specific promise was made.
           • The promise was made frequently and
           • The source of the promise was someone with
             authority to offer it.
           • The promise was communicated to the employee.
           • The promise was not highly conditional.
           • The employer’s entire “course of conduct” was
             consistent with the promise.
           • There was an exhaustive listing of dischargeable
             offenses in a handbook.
           • A change to a less-protective policy was not
             communicated to employees.
           • There was no effective disclaimer.
       Dillon v. Champion Jogbra
•   Facts: Linda Dillon appealed from a grant of summary
    judgment to Champion on her wrongful termination claim,
    contending that her at-will employment status was modified
    by the firm’s employee handbook and practices. Although the
    manual contains a “no contract” disclaimer, a progressive
    discipline system was adopted which established an implied
    contract. Less than 2 months after she was promoted to a
    new position, she was terminated without any effort to correct
    or improve her performance, in violation of the implied
•   Issue: Whether an implied contract exists, and whether the
    employer fired the employee in breach of that implied
•   Held: Because the employment manual was ambiguous,
    material questions of fact exist, so that summary judgment
    was improper. Case reversed and remanded for trial.
    Effect of Disclaimers
• Disclaimers in an employment context are
  written statements in employment documents
  that deny that statements in those documents
  create any contractual rights binding on the
• Recommended: To maintain employment at will,
  employers should incorporate disclaimers into
  employee handbooks and other documents
  defining the employment relationship.
• Disclaimers should be communicated to
  employees and employees should acknowledge
  receipt in writing.
Public Policy Exception
to Employment at Will       1

• Under this exception, employers are liable in
  tort for wrongful discharge when they
  terminate employees for taking actions that
  public policy requires or commends.
• Allowing the terminations to stand would
  offend and undermine public policy.
• This type of wrongful discharge claim is
  recognized in about 43 states.
Elements of a Claim -
Public Policy Exception

 • Plaintiffs must show:
        1. The existence of a clear public policy
   relevant to their conduct (clarity element);
        2. That discouraging the conduct in
   which they engaged would jeopardize this
   public policy (jeopardy element);
        3. That engaging in conduct supportive
   of public policy resulted in termination
   (causation element).
 • If Plaintiff establishes these elements,
   the employer must show that there was
   an overriding justification for the
Public Policy Exception
to Employment at Will          2

• Four kinds of the public policy exception
  are recognized: termination for:
       1) refusing to commit an illegal act,
       2) exercising a legal right,
       3) performing a public duty, and
       4) reporting illegal activity (i.e.,
• Rule: Employers must not terminate
  employees for refusing to commit an
  illegal act, exercising a legal right,
  performing an important public duty, or
  reporting illegal activities of employers
  and their agents.
Whistleblower Protection Statutes            1

• Most states have whistleblower protection
  laws, although some apply only to public-
  sector employees.
• Some whistleblowers are protected under
  laws that pertain to specific safety-
  sensitive industries (including aviation and
  nuclear power).
• A variety of federal environmental laws
  incorporate whistleblower protections for
  employees reporting environmental
  violations by their employers.
Whistleblower Protection Statutes                  2

• Federal government employees are
  covered by the federal Whistleblower
  Protection Act (WPA).
• The WPA prohibits taking or failing to take
  a personnel action because an employee
  or applicant has disclosed information that
  is reasonably believed to show:
   – 1) A violation of a law, rule, or regulation; or
   – 2) Gross mismanagement, gross waste of
     funds, abuse of authority, or a substantial
     and specific danger to public health or

• Publicly traded company may not take
  adverse employment action against
  employee providing information or
  assisting in proceedings regarding
   – Mail, wire, bank, or securities fraud
   – Violation of SEC rule or regulation
   – Federal law protecting shareholders against
Whistleblowers under SOX
• Entitled to
   – Reinstatement with all rights
   – Compensatory damages including back pay
     with interest
   – Special damages, such as attorneys fees and
     expert witness fees
Off Duty Conduct Laws
• Most employees believe that their personal
  lives off the job are none of their employer’s
  business, and should not affect their
  employment status.
• This view is not shared by their employers.
• About half of the states have off-duty conduct
  laws, but these are generally limited to
  protecting employees’ off-duty use of tobacco
  and other lawful products.
 Elements of a Claim –
 Discriminatory Termination             1

• Plaintiffs must show:
       1. The protected class characteristic(s)
  relevant to the case.
       2. Prior to termination, the employee had been
  meeting the employer’s legitimate performance
       3. The employee was terminated (formally or
       4. The employer sought a replacement or hired
  one with contrasting class characteristics, or
       5. A similarly situated person with different
  protected class characteristics engaged in similar
  conduct, but was not terminated.
Elements of a Claim –
Discriminatory Termination          2

• If Plaintiff proves a prima facie case, the
  employer must prove a nondiscriminatory
  reason for the termination.
• If the employer proves a nondiscriminatory
  reason, plaintiff must show that the
  articulated rationale is pretext and that the
  decision was more likely motivated by
Just Cause/Due Process
• Most employees are governed by the doctrine of
  “employment at will with exceptions”.
• The stronger standard is “just cause /due
• Generally, terminations of employees who are
  unionized, work for government agencies,
  reside in Montana, or have contracts of
  employment must meet a just cause/due
  process standard.
• Under this standard, employers bear the burden
  of showing that they had good reasons for their
  termination decisions and followed reasonable
Unionized Employees
• The legal status of unionized employees
  derives from language in labor agreements
  that limits discipline and discharge to situations
  in which there is “just cause.”
• Almost all labor agreements include grievance
  and arbitration procedures to challenge
  discipline and discharge decisions.
• Determinations as to whether unionized
  employees have been terminated for just
  cause are made by arbitrators rather than
    – Arbitrators are typically given broad authority.
    – If an arbitrator decides that a discharge was
      not for just cause, he/she can overturn the
      decision or modify it.
Factors Determining “Just Cause”

• Arbitrators consider these factors:
   – Was there a rule or standard prohibiting the
     behavior that was engaged in by the
   – Was the rule or standard clearly
     communicated to employees?
   – Is the rule or standard a reasonable one?
   – Has the rule or standard been consistently
   – Was the employee afforded due process?
   – Is there sufficient proof that a rule was
   – Was progressive discipline applied?
   – Was the discipline commensurate with the
   – Are there any factors calling for imposition of a
     lesser penalty?
  Public Employees           1

• Most governmental bodies have civil service
  laws, designed to insure that employment
  decisions are not based on politics, but on
• Teachers and professors in public schools
  and universities sometimes enjoy the
  protection of tenure laws, designed to
  protect the central purposes of academic
    – to raise questions,
    – express controversial ideas,
   – and pursue the truth wherever it leads.
Public Employees          2

• Public employees are protected from
  wrongful termination by:
   – The due process rights in property and
     liberty afforded by the 5th and 14th
     Amendments to the U.S. Constitution,
   – The freedoms of speech, religion and
     association afforded by the 1st
     Amendment to the U.S. Constitution.
Public Employees            3

• In general, public employers are responsible
  for affording their employees due process,
  both pre-termination and post-termination.
• Prior to termination, a hearing must be held
  that provides public employees with
   – notice of the charges against them,
   – explanation of the evidence, and
   – opportunity to present their side of the
• Following termination, a more elaborate
  hearing with opportunities to confront
  witnesses and present evidence is required (if
  requested by terminated employees).
 Public Employees           4

• Constitutional protection on free speech
  grounds is afforded only to a public employee
  who is speaking as a citizen on matters of
  public concern, not as an employee.
• Public employers must respect the
  constitutional rights of their employees to
  freedoms of religion, speech, and association.
• Termination or other disciplinary action
  should be imposed only when the exercise of
  these rights clearly interferes with an
  employee’s ability to do his job or with
  accomplishment of the public agency’s
 Montana Wrongful Discharge Law

• The Montana Wrongful Discharge From
  Employment Act (WDEA) eliminated
  employment at will in Montana.
• The Act provides that a discharge is
  wrongful if:
       1. It was in retaliation for an employee’s
  refusal to violate public policy or for reporting
  a violation of public policy.
       2. The discharge was not for good cause,
  and the employee had completed the
  employer’s probationary period.
       3. The employer violated the express
  provisions of its own written personnel policy.
Handling Terminations             1

• Employers should consider alternatives to
  termination, including retraining,
  transferring, demoting, suspending, and
  signing last-chance agreements.
• The option of resignation is best pursued
  when there are growing concerns about the
  performance or conduct of an employee, but
  a termination is not yet imminent.
• Resignations should be documented in
  writing and stipulate the voluntary nature of
  the resignation.
• Employees should be placed on
  administrative leave if circumstances
  warrant their removal prior to completion of
  an investigation or proper review of a
  termination decision.
Handling Terminations             2

• The reasons for termination decisions and the
  process followed should be solidly
• These materials should be in writing, should
  be produced prior to the termination decision,
  and should support the decision to terminate.
• Employers should provide employees with a
  clear and succinct statement of the reason(s)
  for their termination.
• Employers should generally avoid making
  public statements about terminated
  employees and the reason for their
• Discharges should be handled in a
  reasonable, dignified manner.
Handling Terminations             2

• Unless there are compelling security concerns,
  terminated employees should be allowed a
  reasonable amount of time to clear out their
  offices and take care of other business, rather
  than be ushered out of the workplace.
• Final wages should be paid quickly and within
  any period provided for under state law.
• Unless termination is for gross misconduct,
  terminated employees should be notified of
  their right to health insurance coverage under
• Employers should consider offering severance
  pay in exchange for releases of legal claims
  related to terminations.
• For employees over 40, compliance with ADEA
  is required.

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