A Return to At-Will Employment

A Return to At-Will Employment – Statistical Data Included

Matthew Heller

It’s a hard fall for some employees, but a decision by the trend-setting California Supreme Court might bring business back to real employment at will.

John Guz appeared to have a lot going for him. He’d started out as an administrative assistant at Bechtel Corp., earning $750 a month, and had risen by age 49 to financial reports supervisor. His salary had increased to $5,940 a month, and his employer, a San Francisco-based defense contractor, had given him generally favorable performance reviews.

But in December 1992, Guz’s immediate superior dropped the bombshell. His unit was being disbanded, the manager said, and he was being laid off. A confirmation letter from Bechtel referred to “the downturn in our workload.”

Guz did not go quietly. He sued Bechtel, alleging wrongful termination and hoping to take advantage of California law that protects at-will employees. According to the landmark 1988 ruling in Foley vs. Interactive Data Corp., employees who meet certain criteria–including longevity, promotions, raises, and favorable reviews– can show an “implied-in-fact” contract, to be dismissed only for good cause.

The case of Guz vs. Bechtel National, Inc., went all the way to the California Supreme Court. The court’s unanimous ruling, issued in October, turned out to be another bombshell.

The so-called Foley criteria established 12 years earlier do not, in and of themselves, “constitute a contractual guarantee of future employment security,” the justices said. Since Bechtel’s own written personnel documents “imposed no restrictions upon the company’s prerogatives to eliminate jobs or work units, for any or no reason,” Guz had no implied-contract case to take to a jury.

Plaintiffs’ attorneys were shocked. “The implied contract that [an employee] had an option of proving based on the Foley decision is now almost impossible to prove,” laments David H. Fielding, a partner with the firm of Bushnell, Caplan & Fielding in San Francisco.

While the Guz case applies only to California, its impact may be more widely felt. As labor law experts note, the state has led the country in moving away from reliance on at-will language in employee manuals to more nuanced theories of implied contract. At least 20 states from Maine to Hawaii limit discharges in particular circumstances. “Some have been moving [toward implied contracts] a piece at a time, others more rapidly,” says Peter Eide, director of labor law policy at the U.S. Chamber of Commerce.

Montana in 1987 enacted a comprehensive statute making termination without good cause unlawful. But the act al so severely limited the amount of compensation that employees could receive for a wrongful discharge.

In California, the presumption of at-will employment goes back to the 19thcentury. Section 2922 of the Labor Code states: “An employment, having no specified term, may be terminated at the will of either party on notice to the other.” However, starting in the politically more liberal 1970s, courts began applying the doctrine of implied contracts to the employment relationship.

In 1973, Wayne Pugh was fired by See’s Candies after 32 years with the candy maker. When he asked for a reason, See’s president told him only to “look deep within [him]self.” Eight years later, a state court of appeals handed Pugh a landmark victory in his wrongful termination case. Reversing a trial judge, the court said there was evidence that See’s had breached an implied promise not to discharge without good cause.

With the Foley case, employers attacked the Pugh precedent. Complaining that it “destroys the centuries-old solid and settled principle” of at-will employment, they urged the state supreme court to accept only express contract provisions as evidence that an employee required good cause for termination. But the court held fast, concluding that the Pugh decision “correctly applied basic contract principles in the employment context.” The Foley case, which involved a plaintiff who had worked his way up the corporate ladder from dishwasher to vice president, also endorsed Pugh’s criteria for proving an implied contract. “Plaintiff here alleged repeated oral assurances of job security and consistent promotions, salary increases, and bonuses during the term of his employment, contributing to his reasonable expectation that he would not be discharged except for good cause,” the court said.

HR departments took notice. They made it their standard practice to avoid liability by stressing at-will provisions in their employee materials and by documenting good cause. “There can be … close to no doubt that there are actual grounds for termination,” says Marty Palecki, HR director for Rancho Santa Fe Technology in San Diego. Adds Fielding: “Every HR department is always very concerned about having justified their actions” in terminating an employee. And California cemented its reputation as one of the more pro-employee states.

But states such as New Mexico, Nevada, and Idaho have remained resolutely pro-business. Longevity and a policy of warning be fore discharging an employee are not sufficient to infer an implied contract, an Idaho appeals court ruled in 1996. And now California, with the Guz decision, appears to have turned back the clock.

In his lawsuit, Guz claimed that he and Bechtel had an agreement that he would be employed as long as he was performing satisfactorily and would be discharged only for good cause. While there was no express understanding, he said it could be inferred from several of the Foley criteria. Bechtel, on the other hand, insisted that Guz’s at-will status was “conclusively reinforced” by its own personnel policy, which specified that employees “have no…agreements guaranteeing continuous service and may be terminated at [Bechtel’s] option.”

The Supreme Court conceded that “disclaimer language in an employee handbook or policy manual does not necessarily mean an employee is employed at will.” But after declaring that Guz’s longevity was not enough for him to require good cause, it then described Bechtel’s written personnel documents as “the sole source of any contractual limits on Bechtel’s rights to terminate Guz.” And those documents, in turn, “imposed no restrictions upon the company’s prerogatives to eliminate jobs or work units, for any or no reason, even if this would lead to the release of existing employees such as Guz.”

The court’s ruling left Guz with virtually no case to take to a jury. It left plaintiffs’ attorneys dismayed. “The court was out of sync with reality,” says Fielding, noting the way HR departments have adapted to Foley’s restrictions. “They placed undue reliance on the at-will language in the Bechtel employee manual.” But those who represent employers believe that the justices returned to fundamental legal principles. “This is a sign that California is going to honor what the [Labor Code] statute says–employment can be made at will,” says Wendy M. Lazerson, an employment attorney at Holland & Knight in San Francisco. “Maybe the courts are realizing that if you’re going to have a healthy economy, you can’t make it so difficult to do business.”

Lazerson does not see the ruling as anti employee. “It’s just a balanced decision. [After Foley], things were so skewed to employees, there were really no rules that employers could follow.” At the California Chamber of Commerce, general counsel Fred Main calls the implied contract “close to a fiction,” for plaintiffs to use in order to avoid at-will provisions. Employees can still claim wrongful termination on the basis of a violation of public policy, such as discrimination, he says. But “run-of-the-mill claims…are going to have a very difficult, if not impossible, hurdle to overcome.”

Main does warn, however, that the labor lobby may turn to the California legislature. “I would be very surprised if there’s not some bill [this year] that either completely overturns Guz by eliminating at-will doctrine or substantially limits it,” he says. One limit could establish length of service as evidence of an implied contract.

“The ability to limit in some way at-will employment has been an issue for 20 years,” Main adds. “I think it would be another tough fight.”

Matthew Heller is a freelance writer based in Los Angeles. E-mail editors@workforce.com to comment.

Ways of Assuring At-Will Clarity

How should HR professionals respond to the California Supreme Court’s decision in Guz vs. Bechtel? The consensus answer from experts: Don’t get carried away. “You still have to be careful of any language that could be an implied con tract,” says HR director Mary Palecki.

Employment attorney Wendy Lazerson agrees. “Don’t let your guard down just because of Guz. Continue to make at-will status extremely clear.”

HR departments have been doing that for at least the past couple of decades, tending almost toward overkill in their use of at-will language in personnel materials. “People tend to think they better have a way to back [a termination] up,” Lazerson notes. But the overkill may no longer be necessary.

“You don’t have to put ‘at will’ [17] times over,” says Palecki, who also is president elect of the San Diego affiliate of the National Human Resources Association. “You can relax a little bit… A simple statement can suffice.”

The California Chamber of Commerce has three suggestions, all posted on their Web site, www.hrcalifornia.com:

* Be sure your employee handbook contains a strong statement that employment is at will, and can be terminated at any time with or without cause, and with or with out notice.

* Review the rest of your company handbook to ensure it does not contain policies which would be contrary to employment at will. Examples include a progressive discipline policy that promises a certain number of warnings prior to termination, or a policy that requires employees to give two weeks notice prior to leaving.

* Inform managers and supervisors that they do not have the authority to promise job security to employees. Employees may claim a promise of job security if they, have been told by their manager, “do a good job and you will always have a job,” or, “don’t worry, we’ll always find a place for you here.” -Matthew Heller

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