WRONGFUL TERMINATION A brief history of employment-at-will and its slow erosion Jon Howard Rosen The Rosen Law Firm 705 Second Avenue, Suite 1200 Seattle, WA 98104·1798 (206) 652·1464 (206) 652-4161 (facsimile) [email protected]www.jonrosenlaw.com Second Annual ABA-LEL Annual CLE Conference Denver, Colorado September 12, 2007
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WRONGFUL TERMINATION
A brief history of employment-at-willand its slow erosion
Jon Howard RosenThe Rosen Law Firm705 Second Avenue, Suite 1200Seattle, WA 98104·1798(206) 652·1464(206) 652-4161 (facsimile)[email protected]
Second Annual ABA-LELAnnual CLE ConferenceDenver, ColoradoSeptember 12, 2007
I. HISTORICAL BACKGROUND
Employment contracts have been with us since time immemorial. The Book of
Genesis records that Jacob entered into an employment agreement with his mother's
cousin Laban in exchange for permission to marry Laban's daughter Rachel. Jacob
agreed to work for Laban for seven years as a shepherd at the end of which time he would
be free to marry his beloved Rachel. Genesis 29: 15-30. Laban then breached his
agreement by surreptitiously switching his older daughter Leah for the more comely
Rachel.
It is not mere coincidence that the development of the employment relationship
evolved as a part of an overall family relationship. The relationship between family and
employment continued through the Middle Ages. Employment law was viewed both in
England and on the European continent as a specialized branch of. family law. This
should not be surprising since under the feudal system, and for a period of time
thereafter, domestic servants and craftsman were a very real part of the household of the
lord or burgher. An employer was considered to be in a role akin to that of a husband or
a father. Digests, legal encyclopedias, and treatises still use the term "master and
servant" to describe the law of the employment relationship.
The family law aspect of employment relations dictated that the relationship was
more one of status than of contract. As will be seen, the evolution of employment law
has changed that concept dramatically.
It wasn't until 1875 that the British Parliament decriminalized the employee's
breach of an employment agreement and made it enforceable only in the civil courts.
Prime Minister Disraeli noted that as a result of the reform "For the first time in the
history of this country the employer and the employed sit under equal laws." 15 W.
Holdsworth, A History oj Ellglish Law, 20 (3d ed. 1927) quoted in Modern Law oj
Employment Contracts, C. Bakaly, Jr. and J. Grossman, 3 (1983).
II, THE AMERICAN RULE OF TERMINATION AT WILL
A. THE BASIS OF THE AMERICAN RULE
When a worker breached his "contract" of employment, whether in England or in
colonial America, an employer could obtain a court order enjoining the employee from
refusing to work. The refusal, moreover, was viewed as a crime for which the employee
could be imprisoned. The source of these laws was the Statute of Labourers, a series of
laws enacted between 1349-1351 in response to the effect of the Black Plague that swept
Europe, decimating the population and causing a severe shortage of workers. For the first
time, with laborers in demand, workers found themselves in a position to bargain for
whatever wages they desired. In passing the statute, King Edward III moved decisively
to limit this shift in bargaining power. The statute provided that if a person could work
he or she was required to do so and could charge no more than a reasonable rate for
services. As mentioned, criminal penalties were attached. The statute also provided for
penalties for the employer who paid higher wages than those considered reasonable.
American colonial law closely followed its British progenitors. Each of the
colonies, especially those in New England, adhered to the concept of compulsory labor.
In America, however, it was a religious principle that moved the colonial legislatures
rather than the economic forces that generated the law in England. Idleness, being "the
parent of all vices," was punished by whippings and fines.
With the decriminalization of the refusal to work, courts found that as a practical
matter it was difficult to tell a worker to fully comply with his civil obligation to perform
his employment responsibility. If forced to think back to our contracts class in law
school, we will remember the opinion in De Rivalinoli v. Corsetti, 4 Paige (N.Y.) 264
(1833) where the court reasoned that
I am not aware that any officer of this court has that perfect. knowledge ofthe Italian language, or possesses that exquisite sensibility in the oracularnerve which is necessary to understand, and enjoy with proper zest, thepeculiar beauties of the Italian opera, so fascinating to the fashionableworld. There might be some difficulty, therefore, even if the defendantwas compelled under the direction and in the presence of a master in
chancery, in ascertaining whether he performed his engagement accordingto its spirit and intent. It would also be very difficult for the master todetermine what effect coercion might produce upon the defendant'ssinging, especially in the livelier arias; although the fear of imprisonmentwould unquestionably deepen his seriousness in the graver parts of thedrama.
Id. at 270. Other courts adopted that reasonmg and likewise refused to enforce
employees' promises to work. See. e.g., Allegheny Base-Ball Club v. Bennett, 14 Fed.
Rep. 257 (W.O. Pa. 1882). The initial attempt of employers to circumvent the refusal to
require employees to work for them by seeking injunctions prohibiting the workers from
working for any other employer met with little success except in the limited situation
where an individual promised to perform unique or specialized services that could not
likely be duplicated by another. See, Lumley v. Wagner, I De G, M and G 604 (1852);
American Broadcasting Co. v. Wolfe, 52 N.Y.2d 394, 438 N.Y.S.2d 482, 420 N.E.2d 363
(1981).
B. THE BASES FOR EMPLOYMENT AT WILL
Requiring an individual to perform services for which he contracted was one
thing, giving him a right to continued employment was another. Initially, in England, it
was presumed that an indefinite hiring was for a term of one year and that continuation of
the relationship beyond the year gave rise to an additional one year term. Dismissal
during the term could occur only for "cause." By the nineteenth century, the English rule
permitted dismissal only upon furnishing notice customary in the trade 01; in the absence
of custom, reasonable notice. As permitted under the earlier rule, dismissal for "cause"
could take place at any time and without notice.
The English rule never took root in the United States. The Law of Master and
Servant, a treatise written in 1877 by Horace G. Wood, popularized and hastened the
adoption of a contrary rule that a hiring for an indefinite period was presumptively hiring
at will. Although heavily criticized in later years, it remained the law of the land for
almost a century and still prevails in a not insubstantial number of jurisdictions. Wood
stated
"With us the rule is inflexible, that a general or indefinite hiring is primafacie a hiring at will, and if a servant seeks to make it out a yearly hiring,the burden is upon him to establish it by proof. A hiring at so much a day,week, month, or year, no time being specified, is an indefinite hiring, andno presumption attaches that it was for a day even, but only at the ratefixed for whatever time the party may serve....[I]t is an indefinite hiringand is determinable at the will of either party, and in this respect there isno distinction between domestic and other servants.
H.G. Wood, The Law ofMasler and Servant, Sec. 134, at 272 (1st ed. 1877); Sec. 136, at
283 (2d ed. 1886).
The success of Wood's Rule, as it came to be known, was greatly a result of the
times. The industrial expansion and laissez-faire economics were fertile agar providing,
both the employer and the employee with freedom of action.
C. CONSTITUTIONAL SUPPORT FOR EMPLOYMENT AT WILL
Wood's Rule received apparent constitutional blessings from two early twentieth
century decisions. In 1908, the Supreme Court addressed the constitutionality of a
section of the Erdman Act, a precursor to the Railway Labor Act, which made it a federal
offense to discharge an employee because of membership in a union. The Court held that
Congress violated the due process clause of the Fifth Amendment in attempting to
compel an employer, in the absence of a contract, to accept or retain the services of
another. It reasoned that "the right of the employee to quit the service of the employer,
for whatever reason, is the same as the right of the employer, for whatever reason, to
dispense with the services of such employee." Adair v. Uniled States, 208 U.S. 161, 174
75 (1908). In Coppage v. Kansas, 236 U.S. I (1915), the Court, in a decision
invalidating a state statute similar to the Erdman Act, reaffirmed the employer's
constitutional right to hire and fire at will. See also, SI. LOllis S. WR. W Company v.
Wood's Rule also found support in the principles of contract law. Lack of
consideration or the absence of mutuality of obligation in view of the employee's
constitutional right to be free- from involuntary servitude were often cited as reasons for
refusing to consider an employee's challenge to the employment at will doctrine.
III. THE EROSION OF THE AMERICAN RULE
When the attack on Wood's Rule was launched in earnest it came from all sides.
Constitutional underpinnings were eroded. Modern contract law principles of intention
and reliance were cited by courts in response to the inflexibility of the rule. Statutory
exceptions to the rule have been and continue to be carved at all levels of government.
The courts are finding policy reasons to restrict an employer's previously unfettered right
to terminate the at-will employee.
Two excellent treatises on the history and erosion of the employment at-will
doctrine are Slater, Joseph, the "American Rule" that swallows the exception,
http://low.bepress.comJexpresso/eps/1696 (2006) and Perritt, Jr., Henry, Employee
Dismissal: Law & Practice, Fifth Edition, and annual supplements.
A. THE CONSTITUTION REDEFINED
Whereas in the first one and a half decades of the twentieth century the Supreme
Court embraced challenges to the constitutionality of the precursors of the Railway Labor
Act it rejected such a challenge on the Act itself in Texas and New Orleans R.R. Co. v.
Brotherhood of Railway and S.s. Clerks, 281 U.S. 548 (1930). Seven years later, in
NLRB v. Jones & Laughlin Steel Corp., 301 U.S. I (1937), the court upheld the Wagner
Act's prohibition of discharge of employees on account of union activity and its
provision for reinstatement with back pay of such employees.
Although neither case dealt specifically with an employer's power to terminate at
will employees, the rulings did signal a change in the Court's philosophy enunciated in
the Adair-Coppage line of cases. It has been the prevailing view since Jones & Laughlin
that legislation, either federal or state, proscribing discharge of employees for specific
reasons does not raise constitutional questions.
B. THE CHANGING EMPHASIS ON CONTRACT LAW PRINCIPLES
The mutuality doctrine has come under heavy siege. In some jurisdictions it has
been taken prisoner and executed. See 36-4 Record of the Association of the Bar of the
City of New York, 170, 174 (April, 1981). The concept has been repudiated by
Restatement (Second) of Contracts, § 79(c) (1979).
In Toussaint v. Blue Cross and Blue Shield of Michigan, 408 Mich. 579, 292
N.W.2d 880 (1980), the Supreme Court of Michigan held that employee reliance on the
existence of an employer policy requiring discharge would only be for "cause" created an
environment "instinct with an obligation,"
We hold that employer statements of policy, such as the Blue CrossSupervisory Manual & Guidelines, can give rise to contractual rights inemployees without evidence that the parties mutually agreed that thepolicy statements would create contractual rights in the employee, and,hence, although the statement of policy is signed by neither party, can beunilaterally amended by the employer without notice to the employee, andcontains no reference to a specific employee, his job description orcompensation, and although no reference was made to the policystatement preemployment interviews and the employee does not learn ofits existence until after his hiring.
lei. at 892; see also, Snell v. UACC Midwest, Inc., 487 N.W.2d 268 (1992). While
Toussaint has been followed in most jurisdictions, it has not become universal law by any
means. Some states tenaciously maintain adherence to the principle of unfettered at-will
employment despite several opportunities to embrace the policy manual exception while
others evolved in fits and starts. See, for example, Hayes v. Eateries, Inc., 905 P.2d 778
(Okla. 1995); Todd v. South Carolina Farm Bureau Mutual Insurance Company, 276
S.c. 284, 278 S.E.2d 607 (1981); Small v. Springs Industries, Inc., 357 S.E.2d 452
(1987); School Committee of the City of Providence v. Board of Regents for Education,
112 R.I. 288, 308 A.2d 788 (1973); Roy v. Woonsocket Inst. for Sav., 525 A.2d 915
(1987); Galloway v. Roger Williams Univ., 777 A.2d 148 (2001); County of Giles v.
Wines, 546 S.E.2d 721 (Va. 2001). Other states such as New York have accepted the
modification on limited bases. See Weiner v. McGraw Hill, Inc., 443 N.E.2d 441 (1982);
Rooney v. Tyson, 697 N.E.2d 571 (1998).
Employers have been able to avoid liability with ever increasing success by
adding language to employee handbooks that contain express provisions limiting
employment rights. Commonly known as "disclaimers," the notices generally take the
form of something such as
nothing in this employee manual should be construed as creating acontract of employment or in any way modifying the at-will nature of therelationship between you and the company. Only the president of thecompany can, in writing, modify the at-will nature of your employment.
Courts typically require that the disclaimer be prominently displayed and/or highlighted.
Most wise employers, of course, ask each new employee to sign a form indicating that he
has read the employee manual or handbook, understands its concepts and recognizes that
the employment relationship is at-will and can be terminated at any time with or without
notice by either the employee or the company. While some manuals will contain
language advising the employee that the company reserves the right to change the policy
at any time without giving the employee notice, some courts have found the reservation
to be ineffective where an employee relied on the former policy without notice of its
change or, even, without additional consideration. As can be expected, an excellent
summary of the defenses and decisions in which they were accepted or rejected is found
in Henry Perritt's treatise at § 6.17.
A second contractual approach to limiting an employer's authority to discharge at
will has been to find an implied obligation of good faith and fair dealing as an inherent
part of the employment relationship. See, Fortune v. National Cash Register Company,
373 Mass. 96, 364 N.E.2d 1251 (1977); Cleary v. American Airlines, III Ca.App.3d 443
(1980); Lucas v. Brown & Root, Inc., 736 F.2d 1202 (8th Cir. 1984); Wynn v. Boeing
Military Airplane Company, 595 F. Supp. 727 (D. Kan. 1984); Charles v. Interior
Regional Housing Authority, 55 P.3d 57 (Ak. 2002); Woerth v. City of Flagstaff, 808 P.2d
297 (Ariz. 1990); Foley v. Interactive Data Corp., 765 P.2d 373 (Cal. 1988); Decker v.
Browning-Ferris Industries, 931 P.2d 436 (Colo. 1997); E.I. Du Pont de Nemouris v.
Pressman, 679 A.2d 436 (Del. 1996); SB. Milford v. de LaSala, 666 P.2d 1000 (Ak.,
1983); Eklund v. Vincent Brass and Aluminum Company, 351 N.W.2d 371 (Minn. App.
1984). But see Ring v. R. J. Reynolds Industries, Inc., 597 F. Supp. 1277 (N.D. Ill., E.D.
1984); Thompson v. St. Regis Paper Company, 102 Wn.2d 219, 685 P.2d 1081 (1984);
American Cast Iron Pipe Co. v. Williams, 591 So.2d 854 (Ala. 1990); Snow v. Rude,
McClosky, Smith, Schuster & Russell, P.A., 896 So.2d 787 (Fla. 2005); Harrison v. Sears