THE TERMINATION PROCESS

THE TERMINATION PROCESS Anne Marie Estevez SEPTEMBER 2003 www.morganlewis.com Philadelphia n Washington n New York n Los Angeles n San Francisco n Miami n Pittsburgh n Princeton Palo Alto n Northern Virginia n Harrisburg n Irvine n London n Brussels n Frankfurt n Tokyo THE TERMINATION PROCESS Limitations on the Employer’s Right to Terminate Florida courts adhere to the doctrine of at-will employment. Accordingly, an employment relationship can be terminated at any time, for any reason or for no reason at all, at the will of either the employer or the employee, so long as the reason does not violate a statute. 1/ However, this doctrine is not absolute. There are several recognized exceptions to employment at-will. Some of these exceptions to the doctrine will be discussed at length in the following pages. Employment Contracts If an employment contract contains a definite term of employment, there is no atwill employment relationship. A contract for employment that provides an express provision of duration with no ambiguity is an enforceable employment contract. 2/ Once it is determined that the contract is enforceable, the construction of the contract becomes a question of law for the courts to interpret. 3/ In Maines v. Davis, 491 So. 2d 1233 (Fla. 1st DCA 1986), the court listed the rules according to which employment contracts are construed in Florida. They are as follows: (1) the contract should not be held void for uncertainty unless indefiniteness reaches a point where construction becomes futile; (2) ambiguities are to 1/ 2/ 3/ See Lurton v. Muldon Motor Co., 523 So. 2d 706, 708 (Fla. 1st DCA 1988) (explaining the employment at-will doctrine). See Story v. Culverhouse, 727 So. 2d 1128, 1130 (Fla. 2d DCA 1999) (“When a contract for employment provides a definite duration, the employment contract is enforceable.”) See Vienneau v. Metropolitan Life Insurance Co., 548 So. 2d 856, 859 (Fla. 4th DCA 1989) (“The construction of a written document, such as an employment contract, presents a question of law for the court, if its language is clear and unambiguous”) 1 ©2003 Morgan, Lewis & Bockius LLP be construed against the drafter; (3) the conduct of the parties through their course of dealings shall be considered to determine the meaning of the written agreement where the terms are in doubt; (4) the objects to be accomplished shall be considered, and to this end the court shall place itself in the position of the parties when the contract was entered into.” Id. at 1235 (citations omitted). Employers should also beware that even a letter drafted by the employee and signed by the employer that stated the terms and duration of the employment relationship was held to be an employment contract by the courts. 4/ However, not all letters received by an employee will constitute an employment contract. In Crawford v. David Shapiro & Co., P.A., 490 So. 2d 993, 996 (Fla. 3d DCA 1986) a letter referencing an annual salary, but with no duration of employment listed, was held by the court not destroy the at will relationship. The important detail in determining whether a letter constitutes a contract is if the letter lists a length of time which the employment will last. Therefore, if the employer does not wish to enter into an employment agreement, it should refrain from drafting letters that reference a specific time frame. Oral Agreements Florida courts have refused to recognize oral assurances of job security, that do not specify a length of time, as just cause employment contracts. 5/ For example, verbal assurances such as promises of “permanent” employment or employment so long as the 4/ See Olive v. Tampa Educational Cable Consortium, 723 So. 2d 883, 884 (Fla. 2d DCA 1998) (“Our review of the letter convinces us that it is an employment agreement.”) 2 ©2003 Morgan, Lewis & Bockius LLP company is in business, have been rejected as binding by Florida courts. 6/ In Linafelt v. Bev, Inc., 662 So. 2d 986, 989 (Fla. 1st DCA 1995) the court ruled that the defendants statements “that if [plaintiff] received passing grades for his department and followed the policies and procedures he could expect a job for life” was held not to be enough to constitute an employment contract. However, when there is a definite duration of employment stated, oral agreements have been found to be enforceable. 7/ In Nunes v. Margate General Hospital, Inc., 435 So. 2d 916 (Fla. 4th DCA 1983) the court reversed and remanded the lower court’s order granting final summary judgment to the employer. The plaintiff alleged that he was lead to believe that he would have job during the school year unless he did “something really disastrous.” Id. at 917. He specifically told his employer that he needed the job for the whole year because he did not have time to look for another job, and that he would not take it unless he was assured that it would be for the whole year. The court felt that sufficient issues of fact were alleged that it was proper to send the facts the jury to determine whether the plaintiff’s employment was for a definite amount of time. Id. The issues was presented to the jury because determining the literal terms or the language of an oral contract is the responsibility of the fact finder. 8/ 5/ See McConnell v. Eastern Air Lines, 499 So. 2d 68, 69 (Fla. 3d DCA 1986) (“The first count of the complaint fails to state a cause of action for breach of an oral employment contract because the subject employment contract has no definite term of duration and thus was terminable at the will of either party”). See Hamlen v. Fairchild Industries, Inc., 413 So. 2d 800 (Fla. 1st DCA 1982) See Juvenile Research Foundation v. Rievman, 370 So. 2d 33, 37 (Fla. 3d DCA 1979) (holding that telephone conversations in which employment terms were discussed, including a one year time frame, constituted a binding oral agreement.) See Dickinson v. Auto Center Manufacturing Co., 594 F.2d 523, 529 (5th Cir. 1979) (applying Florida law). 6/ 7/ 8/ 3 ©2003 Morgan, Lewis & Bockius LLP As a defense, employers who do not wish to accede that the oral statements were in fact employment contracts have turned to the Florida Statute of Frauds as a defense. § 725.01, Fla. Stat. (2002) The statute requires that a contract “that is not to be performed within the space of one year” to be in writing. Id. Thus, if the oral agreement was intended to last longer than a year, it must be memorialized in writing for it to be enforceable. Therefore, an oral agreement that is for less than a year, is not barred by the statute of frauds. See Juvenile Research Foundation v. Rievman, 370 So. 2d 33, 37 (Fla. 3d DCA 1979). Also, oral contracts for lifetime employment or employment for an indefinite period, do not have to comply with the statute of frauds. See Hesston Corp. v. James M. Roche, 599 So. 2d 148, 152 (Fla. 5th DCA 1992) (reasoning that “lifetime employment” could be for less than a year.) Besides breach of contract, another cause of action that may be asserted by an employee seeking to establish an oral contract as enforceable, is fraudulent misrepresentation. In Hamlen v. Fairchild Industries, Inc., 413 So. 2d 800 (Fla. 1st DCA 1982) the court refused to enforce an oral promise of “permanent employment” even though the employee allegedly left another lucrative job to take the position with the defendant employer. The plaintiff, however, also asserted a claim of fraudulent misrepresentation which the court ruled was actionable. Id. at 802. Lastly, oral statements, even though not alleged to be enforceable agreements, can nonetheless still be used to supplement a written contract. In Elmore v. Tony Vatrano & Scott-McRae, Automotive Group, Inc., 485 So. 2d 888 (Fla. 1st DCA 1986) the plaintiff alleged that he had been promised a job as a general sales manager. Yet, when he commenced his employment, the defendant employer informed him that he was one of 4 ©2003 Morgan, Lewis & Bockius LLP four sales manager vying for the position of general sales manager. The defendant, however, produced a signed agreement by the plaintiff that stated that he had been hired on a probationary basis as a sales manager. To counter the agreement, the plaintiff offered into evidence an uncorroborated affidavit which directly contradicted the agreement produced by the defendant employer. The court reversed and remanded holding that such parole evidence should be admitted as it created genuine issues of material fact. Id. at 891. Personnel Policies and Handbooks Florida courts generally have rejected the theory that an employee handbook can form an implied contract for employment. Employee handbooks are usually taken to be “mere unilateral expectations, rather than the explicit mutual promises necessary to create a binding contractual term.” Bryant v. Shands Teaching Hospital & Clinics, 479 So. 2d 165, 168 (Fla. 1st DCA 1985). In Bryant, the hospital’s personnel policies allegedly called for dismissing employees only for just cause. Id. However, the court held that even if the employee handbook had such language, it was not enough to establish an employment contract. In LaRocca v. Xerox Corp., 587 F. Supp. 1002 (S.D. Fla. 1984), the defendant and the plaintiff produced conflicting policy manuals. Even under the more favorable one that the plaintiff produced, the court was still not satisfied because the handbook did not specify any duration of employment or indicate that it was to be treated as an independent contract. Id. at 1004. In Muller v. Stromberg Carlson Corp., 427 So. 2d 266 (Fla. 2d DCA 1983) the court held that an employer’s merit review policies did not establish a contractual obligations. Even though the court found that the policy was a “relatively extensive and sophisticated method of determining the future 5 ©2003 Morgan, Lewis & Bockius LLP status of an employee, ” the court felt that it was too dangerous to impose obligations on the company when the policy did not specify any duration of employment or indicate that the policy was contract. Id. at 266. In McConnell v. Eastern Air Lines Inc., 499 So. 2d 68, 69 (Fla. 3d DCA 1986) the court found that letters, employee handbooks ,and even executive memoranda that assured employees of only just cause terminations were not enforceable “without more.” There has been one case at least however, that has recognized the possibility that an employee handbook constituting a contract. In Falls v. Lawnwood Medical Center, 427 So. 2d 361 (Fla. 4th DCA 1983) the plaintiff alleged that the existence of a personnel policy which defined dismissal as termination “for cause.” The defendant produced its own personnel policy which stated that employment was “upon mutual consent, either the employee or the employer is privileged to terminate employment.” Id. at 362. The appellate court reversed and remanded the grant of summary judgment for the defendant employer instructing the trial court to resolve the factual dispute concerning whether the personnel policies were part of the nurse’s contract of employment. Id. Employers should thus be aware that statements written in either personnel documents, policies, and handbooks could be construed by courts to form an implied employment contract. Therefore, it is important that statements produced by the employer be carefully worded and considered. For instance, every offer letter, introduction to an employee handbook or policy manual should contain disclaimer language that affirms the at-will status of the employment relationship. The introduction should also establish that the handbook and/or manual: • is not a contract of employment 6 ©2003 Morgan, Lewis & Bockius LLP • • • does not create enforceable rights that the employment relationship is at-will that the employer retains the right to terminate employment at any time, for any reason or no reason • that the employee retains the right to resign employment at any time for any reason or no reason 7 ©2003 Morgan, Lewis & Bockius LLP Vulnerability to Claims of Retaliation The federal government prohibits terminating an employee as retaliation9/ under §704(a) of Title VII of the Civil Rights Act of 1964 10/, §4(d) of the Age Discrimination in Employment Act of 1967 (ADEA), and 42 U.S.C. §1981. In Florida, the Florida Civil Rights Act of 1992 prohibits discrimination in employment on the basis of race, color, religion, sex, national origin, age, handicap, or marital status 11/. It is also unlawful under the Act to discriminate against an employee for filing a charge, testifying, assisting, or participating in any investigation, proceeding, or hearing against the employer for discrimination. See Matthews v. City of Gulfport, 72 F. Supp. 2d 1328 (M. D. Fla. 1999). In Matthews the court set forth the plaintiff’s required showing in order to establish a prima facie claim of retaliation. The plaintiff must demonstrate that: “(1) a statutorily protected expression existed; (2) adverse employment action was taken; and (3) a causal connection existed between the protected expression and the adverse action.” Id. at 1336. Once the plaintiff has established the prima facie case, the burden shifts to 9/ Retaliation is any adverse action inflicted on an employee by an employer in response to the employee’s opposition to the employer’s discrimination. Section 704 of Title VII provides that “it shall be an unlawful employment practice for an employer to discriminate against any of his employees or applicants for employment because… he has opposed any practice made an unlawful employment practice by this title or because he has made a charge, testified, assisted, or participated in any manner in an investigation, proceeding, or hearing under this title.” Section 4(d) of the ADEA prohibits retaliation with similar language. The language of §1981 that has been interpreted to prohibit retaliation states that: “All persons… shall have the same right … to make and enforce contracts… and to the full and equal benefit of all laws… as is enjoyed by white citizens.” In addition, Section 704 has been held to bar retaliation not only against present employees, but also against applicants and former employees. See Robinson v. Shell Oil Co., 519 U.S. 337 (1997) (holding that the term “employee” in Section 704 included former employees within its meaning). § 760.01-760.11, Fla. Stat. (1992). The Act covers both public and private sector employers with 15 or more employees. Id. at § 760.02(7). 10/ 11/ 8 ©2003 Morgan, Lewis & Bockius LLP the defendant to show a non-discriminatory reason for its action. If the defendant succeeds, the burden shifts back to the plaintiff to show that the reason given by the employer is pretextual. Id. at 1337. Additionally, Florida passed a whistleblower statute in 1991 to protect private employees 12/. § 448.101, Fla. Stat. (1991). The law prohibits employers from taking retaliatory action against employees who disclose or threatened to disclose a violation of a law, rule or regulation to a government agency. Employees are also covered if they refuse to participate or object to any activity that is a violation of the law. In Baiton v. Carnival Cruise Lines, Inc., 661 So. 2d 313 (Fla. 3d DCA 1995) the plaintiff alleged that he was discharge after he agreed to testify in a co-workers’ personal injury claim against the defendant employer. When the defendant became aware of his intended participation, the plaintiff claims that he was asked by the defendant to give false testimony. When he refused, he was terminated. Id. at 314. The trial court dismissed the plaintiff’s complaint stating that it would be an abuse of an employer’s right to terminate an at-will employee for any reason if the complaint succeeded. The appellate court, however, reversed and remanded concluding that the plaintiff had alleged a proper cause of action under the Florida whistleblower statute. Id. at 317. On July 30, 2002, President Bush signed the Sarbanes-Oxley Act which includes two provisions, one criminal and the other civil, for the protection of employees who report improper conduct of corporate officers concerning securities fraud. SarbanesOxley Act of 2002, Pub. L. No. 107-204, 116 Stat. 745 (2002). The Act makes whistleblower retaliation a federal crime that can result in officers going to prison. Due to the 12/ § 112.3187, Fla. Stat. (1986) is the whistle-blower act for public employees. 9 ©2003 Morgan, Lewis & Bockius LLP fact that Sarbanes-Oxley was only just recently enacted, there are almost no cases relative to the Act and the termination of employees. However, these retaliatory claims under the Act will invariably soon commence, therefore an employer should protect itself from future liability. Other statutes that could have potential retaliation claims include the: Clean Air Act (42 U.S.C.A. § 7622); Energy Reorganization Act of 1974 (42 U.S.C.A. § 5851); Federal Water Pollution Control Act (33 U.S.C.A. §1367); Fair Labor Standards Act (29 U.S.C.A. §§ 215(a)(3), 216(b)); Labor Management Relations Act (29 U.S.C.A. §§ 158(a)(1), 158(a)(3)), 158(a)(4); and Occupational Safety and Health Act of 1970 (29 U.S.C.A. §660(c)). Employers should familiarize themselves with these laws and assure themselves that they are compliant, thereby reducing potential retaliatory claims. State and Federal Wage Issues Florida has no state law which requires that an employee be paid upon termination, or within any time period after termination. However, it is in the best interest of the employer to pay the terminated employee all unpaid wages as soon as possible. In addition, Florida Statute 532.01 states that an employer, on demand, must pay “any order, check, draft, note, memorandum, or other acknowledgment of indebtedness issued in payment of wages or salary due or to become due … without discount.” The Fair Labor Standards Act, which establishes federal wage an hour standards for employees, also prevents employers from deducting from an employee’s salary. 29 U.S.C. §§ 201-219. If an employee is being terminated due to a disciplinary infraction, the only deductions from salary that may be made are those that are imposed 10 ©2003 Morgan, Lewis & Bockius LLP in good faith for major safety violations. 29 C.F.R. § 541.118(a)(5). An example of such is a violation of a rule prohibiting smoking near explosives. Id. In addition to wages, guaranteed bonuses also have to be paid after termination. In Felice v. Moss Manufacturing, Inc., 461 So. 2d 209, 210 (Fla. 3d DCA 1984) a contract that promised a “guaranteed bonus” which was “to be paid during December 1981” was held enforceable even though the plaintiff was not employed with the company at the time. Florida has no law guaranteeing severance pay. However, if the employer wishes to execute a separation agreement, the employer should consider paying severance pay as consideration. Documenting the Decision and the Process Before actually terminating an employee, the employer should review the employee’s file and consider the findings. One of the most important considerations is avoiding potential liabilities. Obviously, it is illegal to terminate an employee based on: • • • • • • • • race creed sex color national origin religion age martial status 11 ©2003 Morgan, Lewis & Bockius LLP • • • • • • • physical or mental disability union activity sexual orientation pregnancy medical condition parental status military status Since all employees fall into two or more of these categories, employer should assure that: • all procedures in the handbook are strictly followed, especially the progressive disciplinary procedures • • • all pending investigations are fully resolved proper notice is given that all similarly situated employees are being treated the same. Some courts have imposed a “reasonable notice” requirement before terminating at-will employees 13/. In Crawford v. David Shapiro & Co., 490 So. 2d 993, 996 n.7 (Fla. 3d DCA 1986), the defendant was held liable for “special” damages the plaintiff incurred as the result of not being given reasonable notice. However, in Malver v. Sheffield Industries, Inc., 502 So. 2d 75 (Fla. 3d DCA 1987) the defendant was able to circumvent the notice requirement because he gave the plaintiff one week’s severance pay. 13/ See Perri v. Byrd, 436 So. 2d 359 (Fla. 1st DCA 1983) (“The party terminating the contract, however, must give reasonable notice to the other party.”). 12 ©2003 Morgan, Lewis & Bockius LLP An employee also has the right of a witness to be present during the termination meeting. In National Labor Relations Board v. J. Weingartne, Inc., 420 U.S. 251 (1975) the Court held that an employer had violated § 8(a)(1) of the National Labor Relations Act 14/ when they did not let an employee have a union representation present during an investigation. The court found that the employee had the right to have a union representative present under § 7 of the Act. The court limited the situation in which an employee could request a representative to those where the employee “reasonably believe[s] the investigation will result in disciplinary action.” Id. at 257. Additionally, the employer does not have to offer the employee the presence of a representative, nor does the request, if the employee makes one, have to be granted. Id. at 257-59. Although, if the employer refuses to grant the request, the employee cannot be forced to attend the investigation or meeting. The employer at this point, may proceed with the investigation without the assistance of the employee. In situations where a representative is requested and is present, the representative has no right to change the character of the meeting. For example, the employer does not have to negotiate with the representative, nor is the representative allowed to speak whenever they want to. Id. Courts have also held that a co-worker, not just a union representative, may be requested. In National Labor Relations Board v. Columbia University, 541 F.2d 922, 931 n. 5 (2d Cir. 1976) the court states: “The representative right is guaranteed and therefore the right cannot be made to depend upon whether the person accompanying the employee 14/ 29 U.S.C.S. § 157 13 ©2003 Morgan, Lewis & Bockius LLP is a union member or is non-union.” Also, the employee himself does not have to belong to a union in order to assert his right to representation15/. Insurance and Benefits Continuation/Conversion Issues The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) is a federal law that requires most employers to extend group health plan coverage to terminated employees. See 29 U.S.C. §§ 1161-1168. Congress enacted COBRA to provide coverage to terminated employees and their families regardless of the circumstances of employee’s termination16/. Employers with twenty or more employees are required under most circumstances to make available to departing employees and covered dependents continuing coverage under the employer’s group health plan, at the employee’s expense, for a period of eighteen to thirty-six months. 29 U.S.C. § 1162 (2)(A)(ii). Any employee covered by employer’s the group health plan is a “qualified beneficiary” and thus eligible for COBRA. See § 1161(a). A “qualifying event” that triggers COBRA coverage is defined as: “[t]he termination (other than by reason of such employee’s gross misconduct), or reduction of hours, of the covered employee’s employment.”17/ Id. at § 1163(2). The meaning of “gross misconduct” is not defined 15/ See Johnson v. Express One International, Inc., 944 F.2d 247, 250 (5th Cir. 1991) (“a nonunion employee is entitled to the company of his co-worker at an investigatory interview”). See Cabral v. Olsten Corp., 843 F. Supp. 701 (M. D. Fla. 1994) (holding that plaintiff was entitled to receive COBRA coverage even though defendant employer alleged “gross misconduct” on her part). There are five other “qualifying event[s],” however, for the purposes of this article, the discussion will be limited to termination. Please refer to §1163 for further information regarding the five other “qualifying event[s]”. 16/ 17/ 14 ©2003 Morgan, Lewis & Bockius LLP within the statute. However, in Paris v. F. Korbel & Brothers, Inc., 751 F. Supp. 834, 838 (N.D. Cal. 1990) described such misconduct as: conduct evincing such willful or wanton disregard of an employer's interests as is found in deliberate violations or disregard of standards of behavior which the employer has the right to expect of his employee, or in carelessness or negligence of such a degree or recurrence as to manifest equal culpability, wrongful intent or evil design or to show an intentional and substantial disregard of the employer's interest or the employee's duties and obligations to his employer. citing Amardor v. Unemployment Insurance Appeals Board, 677 P.2d 224 (1984). 18/ An additional consideration of special import to employers is the notice requirement imposed by COBRA. The employer must notify the discharged employee of his rights under COBRA within 30 days of the termination. See § 1166 (2). If the employee fails to notify the employee within 30 days, the employee becomes eligible for penalties against the employer pursuant to 29 U.S.C. § 1132(c)(1). 19/ For employers who employ fewer than 20 employees, the state has enacted the Florida Health Insurance Coverage Continuation Act. § 627.6691, Fla. Stat. (2002). The Act has few, if any, substantive differences from COBRA. Separation and Release Agreements Separation agreements, if properly executed, significantly reduce the risk of litigation. Employers must give the employee added consideration which the employee 18/ See also Adkins v. United Int'l Investigative Servs., Inc., 1993 WL 345186 (N.D. Cal. 1993) (holding that leaving post unattended and falsifying records to receive additional paychecks constituted gross misconduct); Conery v. Bathy Assocs., 803 F. Supp. 1388, 1396 (N.D. Ind. 1992) (holding that misappropriation of funds constituted gross misconduct). See also Wright v. Hanna Steel Corporation, 270 F.3d 1336, 1344 (11th Cir. 2001) (imposing penalties on an employer for failing to notify a former employee.) 19/ 15 ©2003 Morgan, Lewis & Bockius LLP would not otherwise receive (e.g. additional pay or enhanced retirement benefits). Also, the employer must give the employee sufficient time to review the terms of the agreement. In addition, the employer must assure that it meets the requirements set forth by the Older Workers Benefit Protection Act (OWBPA). 29 U.S.C.A. §626 (f). Congress enacted the Act in 1990 to permit knowledgeable waivers of ADEA claims so long a minimum conditions are met. 29 U.S.C. § 621 (1994 & Supp. IV 1999). The minimum conditions required by the OWBPA are as follows: (1) the agreement must be in understandable language; (2) the waiver must specifically refer to rights or claims under the ADEA; (3) the agreement must not apply to any prospective claims; (4) the waiver must be supported by adequate consideration; (5) the agreement must advise the employee in writing to consult with an attorney prior to signing the waiver; (6) the agreement must give the employee at least 21 days (and in the case of group incentives 45 days) to consider the offer; and (7) the agreement must give the employee at least seven days to revoke the agreement. See 29 U.S.C. § 626(f)(1)(A)-(G). The agreement does no become effective until after the revocation period ends. Although, the employer should make sure that once the revocation period does end, that the employee has signed the agreement. In addition, if the legality of the agreement is ever disputed, it is “the party asserting the validity of the waiver [that] has the burden of showing that the waiver was knowing and voluntary.” Griffin v. Kraft General Foods, Inc., 62 F.3d 368, 371 (11th Cir. 1995). Conclusion 16 ©2003 Morgan, Lewis & Bockius LLP Clearly, terminating an employee is not an easy task. There are a myriad of complex issues that must be fully considered and resolved before the final decision to terminate an employee is taken. As the relevant case law demonstrates, it is vital for employers to keep abreast of the evolving issues. Being fully informed of all the issues and acting in accordance with the laws, will significantly reduce potential liabilities. ________________________________________________________________________ If you would like additional information regarding the issues discussed in this briefing, please contact: Anne Marie Estevez 305.415.3308 aestevez@morganlewis.com Morgan, Lewis & Bockius LLP 5300 Wachovia Financial Center 200 South Biscayne Boulevard Miami, Florida 33131-2339 http://www.morganlewis.com 17 ©2003 Morgan, Lewis & Bockius LLP