The “At Will” Default Rule and Its Limits: Contractual Rights of Terminated Employees

1. The “At Will” Default Rule and Its Limits: Contractual Rights of Terminated Employees

2. Job Security and At-Will Employment • Default rule: employment “at will” • Employer free to fire • Employee free to quit • "The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread.” • Is the default rule based on: • Parties’ intent? • Social policy? • Economic efficiency?

3. Hanson v. Central Show Printing Co. • Hanson, a longtime employee of Δ, offered a job from competitor. • Δ: “I will guarantee you 40 hours work per week thru out the entire year each year until you retire of your own choosing.” • πturned down competing offer. • 2 years later, π fired without cause.

4. Hanson (cont.) • “Additional consideration” needed to depart from the default rule? • “additional” to what? • Inquiry into “adequacy of consideration”? • Revival of “mutuality” of obligation? • Either riff on consideration doctrine reveals s great deference to at-will presumption • Twisting of normal contract doctrine • To what end?

5. Hanson Notes: • “At will” theoretically a default rule parties may vary • But how easy to opt out? • “Permanent” or lifetime” employment is often construed by courts as at will • Too indefinite? • Policy against such long-term commitments? • Are court seeking party intent or something else? • The origins of the at-will rule • Horace G. Wood, Master & Servant § 134 (1877) • Not so well-founded in the cases cited? • Why did it so quickly become law in the U.S?

6. Greene v. Oliver Realty Inc. • 1959: Greene agrees to work for Grant Building below scale in exchange for “lifetime” work • 1975: Grant Building taken over by Oliver • 1975: Oliver promises to honor Grant’s obligations • 1983: Greene laid off • 24 years after original promise • 8 years after the new president’s assurance • Greene, needless to say, still alive!

7. Greene(cont.) • Rationales for “at will” presumption • Freedom of contract • Mutuality of obligation • Expectation of “at will” employment • Juries too sympathetic to promises of lifetime employment • Employers lack remedy against employees breaching lifetime contracts.

8. Greene(cont.) “Totality of the circumstances” test • For whether the default rule has been varied • Additional consideration one factor in totality test • “Casual aside”? • “Purely aspirational”? • No intent to contract? • Isn’t this always an inquiry in Contracts cases? • What is the court looking for in this totality search?

9. Greene Notes: • Is “at will” what most parties expect? • The law because it’s what’s expected? • Or it’s expected because it’s the law? • Contrary presumption under • Montana Wrongful Discharge Act • Model Employment Termination Act. • Only Montana has switched the default • Is at will a response to agency problems? • Employer agents over-promising? • Successor liability restricts firm marketability?

10. More Greene Notes: • More on jury biases • Is it true? • If true, is it appropriate consideration? • Revisiting mutuality • Unilateral contract theory • How significant the “presumption”? • Extracorporeal : “permanent” too broad to be enforced? • What would work?

11. Are Hanson and Greene so different? Problem 2-1

12. Oral/Implied Contract Rights to Job Security Roadmap: • Reliance on offers of employment: = “front end” of employment relationship • Assurances of continued employment = “back end” of employment relationship • Written manuals, handbooks, policies: anywhere during an ongoing relationship

13. Reliance on Offers of Employment • Grouse v. Group Health Plan: • Employee has right to “good faith opportunity to perform his duties to the satisfaction” of the employer after starting work • Relief may be limited to reliance damages • Expectation is salary from new employer • How long? • Is reliance the lost job from the prior employer? • How long?

14. Goff-Hamel v. Obstetricians & Gynecologists • Goff-Hamel had left her employer of 11 years based on Δ’s offer of employment • 2 months after she accepted the offer, and one day before she was to start, Δ told her not to report to work • No contract claim • Promissory estoppel lies • Dissent finds result inconsistent with at will doctrine

15. Goff-Hamel Notes • “Good faith opportunity to perform” • One day not enough • One month? • Is it reasonable to rely? • Party actual expectations v. legal entitlements • What constitutes reliance? • Quitting prior job • Relocating • Anything else? • Proof that the action taken was really in reliance on the promise

16. Schoff v. Combined Insurance Co. of America • Schoff gave up a 16 year position to accept an offer as a Δ’s sales representative • Δterminated Schoff for • failure to disclose his criminal record • failure to get bonded • Schoff must show “clear and definite promise” • That bonding wasn’t necessary or • That felonies/nondisclosure wouldn’t bar bond • How likely is that?

17. Schoff Notes • Distinction between promises and representations • Possible statutory protection for arrest/conviction records • Robert Hillman’s study suggest promissory estoppel more viable in the classroom than the courtroom

18. Assurances of Continued Employment • Long-term employees have incentives to sue • Shebar v. Sanya: oral contract • Pugh v. See’s Candies: implied contract

19. Shebar v. Sanyo Business Systems Corp. • Shebar, national sales manager for Sanyo, obtained an offer from Sony • Sanyo’s president’s assured πof employment for life with a large raise soon • Shebar then turned Sony down • 3 months later, Shebar fired without cause

20. Shebar(cont.) • True lifetime employment is extraordinary, requiring clear and convincing proof • “Plaintiff acted in reliance on the alleged promise by forgoing the job opportunity he had secured at Sony.” • This was the extra consideration needed for a claim

21. Shebar Notes • Contract or estoppel? • Life time employment v. for cause protection • Statute of frauds for oral promises • Shebar a slam-dunk on remand? • Racial and ethnic themes • Can culture + workplace practices create contractual rights?

22. Pugh v. See’s Candies, Inc. • Pugh worked for See’s Candies for 32 years • From dishwasher to Vice President • 1973: π terminated without explanation

23. Pugh (cont.) • At-will presumption overcome by evidence of express or implied agreement • All circumstances bearing on implied agreement should be examined • “Independent consideration” serves only “evidentiary function” • π prima facie case of breach of contract shift burden to the employer to show sufficient reason • Ultimately π lost on sufficient reason

24. Pugh Notes • Are some seemingly employee-friendly decisions ultimately of little value to workers? • Should expectations of job security translate into obligations of the employer? • Must the employer foster them? • Must they be reasonable? • Can they be reasonable in light of at will rule? • Guz v. Bechtel • Consistent with Pugh, or a retreat? • “Life cycle justice” per Dean Schwab

25. Problem 2-2 Promissory Estoppel? Oral Contract? Implied-in-Fact Contract?

26. Problem 2-3 Risk Management

27. Written Employment Manuals and Policies • Employment Manuals • Promise of job security • Disclaimers • Modification

28. Woolley v. Hoffman-La Roche, Inc. • 1969: π hired as engineering section head • 1969: πreceived personnel manual: • “It is the policy of Hoffmann-La Roche to retain to the extent consistent with company requirements, the services of all employees who perform their duties efficiently and effectively” • 6 types of terminations specified: layoff, discharge due to performance, discharge disciplinary, retirement and resignation. • 9 years later πwas fired after writing a report on a piping problem

29. Woolley (cont.) • Manual should be “construed in accordance with reasonable expectations of employees” • Manual = offer of unilateral contract • Continued employment = acceptance • Employers can avoid words of commitment • And/or insert disclaimers in personnel materials.

30. Woolley Notes • Contract interpretation or broader policies? • But is at will merely interpretive? • “Legalizing” of personnel policy a reaction to unions? • Are relational norms morphing into contractual commitments? • Should they?

31. Conner v. City of Forest Acres • 1984-1993: Conner police dispatcher for City • 1993: πterminated • Π reprimanded and given 90-day probation • Grievance committee voted to reinstate π • City Council rejected that decision

32. Conner (cont.) • Jury question whether handbook created contractual rights despite disclaiming language • City can’t have its cake and eat it too • Words of promise must be avoided even if disclaimers/acknowledgments used • If π had rights, Δ must have a “reasonable good faith belief” in sufficient cause • N.B. Employer need not be correct • Difference between grievance committee and City Council might bar summary judgment

33. Conner Notes • Effective disclaimers should be clear and conspicuous language • Even well-drafted disclaimer might not trump words of promise • Can an employer violate its procedures for termination even when sufficient reason exists? • What’s the appropriate remedy?

34. Problem 2-4 Limiting language of commitment Adding a disclaimer

35. Demasse v. ITT Corporation • 1989: Employer modified handbook to add: • An “at will provision” • A clause permitting unilateral modification • 1993: Δ announced layoff would be based on performance, not seniority • What inspired the 1989 change? • What inspired the 1993 change?

36. Demasse (cont.) • Certified question: whether the employer can unilaterally change seniority policy, assuming it was contractually binding to begin with? • Majority finds in favor of the workers • Workers’ consent necessary • Offer/acceptance/consideration • Dissent: strongly influenced by desire to preserve managerial flexibility

37. Demasse Notes • “Separate” consideration requirement • Is majority resurrecting a dead concept to protect workers? • How to advise corporate clients in the face of legal uncertainty? • Is contract really the appropriate framework for assessing enforceability of handbooks?

38. Problem 2-5 Applying Demasse to Asmus