The Creation of the Employment-At-Will Rule.
Historically, the employment-at-will rule was a byproduct of the industrial revolution in England and the United States. Before the industrial revolution, the employer/employee relationship was more like the relationship between a master and servant. In fact, as late as 1823, it was a crime for an employee to terminate a relationship with a master prematurely. 4 Geo IV ch 34 (1823). The employer too was expected to retain the employee on at least a year to year basis, although this obligation was imposed not by statutory law but by common law and as a matter of public policy.
The industrial revolution changed the status of workers and employment soon became a purely economic relationship. By 1877, Horace G. Wood wrote an authoritative treatise on the law of master and servant and expressed the American rule as follows: "with us the rule is inflexible, that a general or indefinite hiring is prima facie hiring at-will..." H.G. Wood, A Treatise On The Law Of Master And Servant (1877). Under the "at-will-employment rule", an employee was free to terminate his or her employment relationship at any time for any reason and the employer was likewise permitted to terminate the employee with no reason. This nearly absolute employment-at-will rule remained the law until the rule began to be eroded through statutory exceptions.
Current Status and Statutory Developments.
The erosion of the employment-at-will rule began with exceptions being created for certain classes of employees. For instance, employees represented by trade unions and civil servants were given protection against arbitrary dismissals. Later, the protection was afforded to certain members of classes historically subjected to discrimination. Today, there are a whole host of statutory restrictions or exceptions to the employment-at-will rule.
Congress has enacted various statutes which prohibit termination for specific motives typically associated with the protection of groups of employees historically subjected to discrimination. Those statutes are discussed below.
- National Labor Relations Act (NLRA), 29 USC §158(a)(1)(3)(4).
The NLRA prohibits the discharge of employees for union activity, protected concerted activity, filing charges or giving testimony under the Act. The NLRA was passed in 1935 and established a federal policy to promote collective bargaining and to define employee rights in detail. In addition to prohibiting discharge of employees for unionizing activities, the NLRA also gave rise to labor unions which negotiated collective bargaining agreements restricting arbitrary termination of unionized employees.
- Fair Labor Standards Act (FLSA), 29 USC §215(a)(3), 216(b). The FLSA prohibits discharge of employees for exercising rights guaranteed by the minimum wage and overtime provisions of the Act. In general, the FLSA requires employers to pay time and one half to employees who work more than 40 hours per week. Certain employees are exempted from the provisions of the FLSA based upon their executive, administrative or professional status.
- Title VII, Civil Rights Act of 1964, 42 USC §2000(e)-23(a).
Title VII prohibits discharge of employees based on race, color, religion, sex or national origin. The Act also prohibits an employer from retaliating against an employee for exercising Title VII rights. In 1991, the Civil Rights Act was amended to broaden the coverage of the Act for jury trials and to provide for compensatory/punitive damages under certain circumstances.
- Age Discrimination Employment Act (ADEA), 29 USC §623, 631, 633(a).
The ADEA prohibits age based discharges of employees by private employers and the federal government and protects employees against retaliation for exercising statutory rights.
- Americans With Disabilities Act (ADA), 42 USC §1201 et seq.
The ADA was enacted in 1990 but was made effective in 1992 for entities of more than 25 employees. The purpose of the statute was to provide a clear comprehensive national mandate for the elimination of discrimination against individuals with disabilities. The Act prohibits discrimination against employees who have a physical or mental impairment that substantially limits them in one or more major life activities and requires employers to make reasonable accommodations to disabled employees.
- Employee Retirement Income Security Act of 1974 (ERISA), 29 USC §1140, 1141.
ERISA prohibits the discharge of employees in order to prevent vesting of pension rights and governs how pension plans are to be administered by private employers.
- Consumer Credit Protection Act (CCPA), 115 USC §1674(a).
The CCPA prohibits discharge of employees because of garnishment of wages for any one indebtedness.
- Uniformed Services Employment and Reemployment Rights Act (USERRA), 38 U.S.C.A. §§ 4301 - 4333. The USERRA requires reinstatement of employees who have served in the armed services and prohibits an employer from discriminating against those in the armed services.
Michigan has also enacted certain legislative provisions that often mirror the federal statutes prohibiting certain types of discharges.
- Elliott Larsen Civil Rights Act (ELCRA), MCLA §37.2101.
The ELCRA prohibits discharge based on race, color, religion, national origin, age, height, weight, marital status, or sex. The ELCRA provisions mirror, in many respects, the provisions of Title VII. The scope of coverage for Michigan employers is somewhat larger under the ELCRA.
- Michigan Persons with Disabilities Civil Rights Act (PDCRA), MCLA §37.1101.
The Handicappers' Act prohibits discharge based on a handicap which is unrelated to the individual's ability to perform the particular job or position. The statute mirrors in many respects, the Americans With Disabilities Act. A review of the differences between the two statutes is beyond the scope of this manual.
- Michigan Whistleblowers' Protection Act (MWPA), MCLA §15.362.
The Whistleblowers' Protection Act prohibits retaliatory discharge of employees for reporting a violation or suspected violation of law, regulation, or rule of state or political subdivision, unless the employee knows the report is false. The Act also prohibits the discharge of an employee requested to participate by a public body in an investigation, hearing, inquiry, or court action. The Act imposes strict time limits on employees who wish to pursue the Whistleblower claims.
- Retaliatory Discharges.
Certain statutes in Michigan also prohibit the discharge of an employee because he or she chooses to exercise rights under that law. e.g. Michigan Occupational Safety and Health Act (MI-OSHA), MCLA §4081001 et seq.
In 1980, the Michigan Supreme Court revolutionized this area of law with its decision in Toussaint v Blue Cross and Blue Shield of Michigan, 408 Mich 579 (1980). In that case, the court found an employment contract of indefinite duration was enforceable. This position was contrary to a century of Michigan law which had held that "special consideration" in addition to services rendered was necessary to create an enforceable employment contract when the contract was not for a definite term. More importantly, the Toussaint court also held that a contract of such indefinite duration could be created by an express, oral, or written agreement or "as the result of employee's legitimate expectations grounded an employer's policy statements." In cases that followed Toussaint in the mid-1980's, juries found such "legitimate expectations" and, as a result, awarded sizable verdicts, based on verbal assurances of an employer that the employee would have a job "so long as he did a good job," or words to that effect. Often these verbal contracts were made by supervisors who were no longer with the company or who could not recall whether such a statement was ever made to the employee. Even when the person who allegedly made the statement testified that he never said such a thing, the employee nevertheless prevailed on his contract claim by relying on a probation policy or progressive discipline policy, set forth in an employee handbook or another supervisor's statement that the policy of the company was to discharge only for cause.
Toussaint also expressly condoned a practice of explicitly informing employees of that at-will nature of the employer's employment policy. The court in Toussaint explained:
[If] the employers had desired, they could have established a company policy of requiring prospective employees to acknowledge that they served at the will or pleasure of the company and, thus, avoided the misunderstandings that generated this litigation. 408 Mich App 612.
This method of protection calls for employers to refrain from making any promises of job security and to explicitly inform their employees that they can be terminated with or without cause. This "just cause disclaimer" method of avoiding wrongful discharge litigation has proven successful for companies that are willing to risk the adverse impact that the disclaimer may have on employee recruiting efforts and on the employer's ability to thwart a union-organizing campaign.
Since the Toussaint decision, Michigan courts have consistently upheld the dismissal of implied employment contract claims on the strength of language which explicitly provides for at-will status. Ironically, the most successful employer in this regard has been a company that drafted an employment application which included the at-will language prior to the court's decision in Toussaint. Sears Roebuck & Company has successfully defended numerous implied contract cases by arguing that it took the precise steps outlined by the Toussaint court to preclude employees from gaining a legitimate expectation of just cause employment. See Reid v Sears Roebuck Co, 790 F2d 453 (6th Cir 1986); Summers v Sears Roebuck & Co, 459 F Supp 1157 (ED Mich 1982); and Eliel v Sears Roebuck & Co, 150 Mich App 137 (1985).
The language used in the Sears Roebuck & Company employment application states:
In consideration of my employment, I agree to conform to the rules and regulations of Sears Roebuck & Company and my employment and compensation can be terminated with or without cause and with or without notice, at any time and at the option of either the company or myself. I understand that no store manager or representative of Sears Roebuck & Company, other than the President or Vice President of the company, has any authority to enter into any agreement for employment for any specified period of time or to make any agreement contrary to the foregoing.
This language is incorporated into an employment application which is signed by each employee before they begin working for the company.
Throughout the mid to late 1980's, most wrongful discharge cases based on oral promises or "legitimate expectations" created by employee handbooks revolved around the sufficiency of at-will disclaimers. In fact, most employers adopted at-will disclaimers on the advice of counsel to protect against the type of claim that was raised by the employees in Toussaint. Toussaint proved to be the "high water mark" for employees and recently the pendulum has swung back to restrict the types of claims that can be characterized as exceptions to the at-will-employment rule. Nevertheless, there are four clearly defined exceptions to the rule that still remain.
Perhaps the easiest way for an employee to establish a just cause contract is to produce a written employment contract for a specific term. The Toussaint decision recognized that a just cause arrangement was implied in a contract for a particular period of time, e.g. a written contract for a two year term. In other words, unless a contract for a specific term expressly contains language supporting the employer's right to terminate at will, it will be construed to require a good reason for termination.
Of course, even if the contract is construed to be terminable only for just cause, it may still contain a specific provision limiting damages for breach of the contract. There are few reported cases discussing written contracts since those contracts typically contain explicit provisions dealing with termination.
Oral promises still constitute a proper basis for establishing the existence of a just cause employment contract. Richards v Detroit Free Press, 173 Mich App 256, affirmed; 433 Mich 911 (1989). Currently, however, Michigan courts apply an extremely rigorous standard for finding that oral promises are sufficient to create a just cause employment contract.
In Rowe v Montgomery Ward & Co, 437 Mich 627 (1991), the Michigan Supreme Court retreated from Toussaint and held that special circumstances must be present before oral representations rise to the level of creating a just cause employment contract. In that case, the employee was told that she "would have a job as long as" she met her sales quota, and the employee signed Rules of Conduct providing for dismissal in the case of theft or dishonesty. In holding no just cause relationship existed, the court stressed the plaintiff's failure to inquire about job security before accepting the position and her failure to engage in pre-employment negotiations about job security. Prior to Rowe, it had not been necessary for an employee to show that she had inquired about job security or engaged in negotiations over job security before she accepted the position.
In Rood v General Dynamics Corp and Schippers v SPX, 444 Mich 107 (1993), the Supreme Court expanded upon its analysis in Rowe and further restricted the oral promises prong of Toussaint. In Rood, the court found that a reasonable juror could not conclude that a reasonable employee in the plaintiff's position could interpret certain oral statements as a promise of just cause employment. The assurances were in the nature of statements that the employee's job "was fine, it's secure" and that he was a "key player." Id. at 128. The employee in Schippers also raised oral assurances that would have been sufficient to create a just cause contract before the Rowe decision. Before accepting a transfer to a less secure position, Schippers specifically inquired about job security. He was told by a member of management that "as far as he was concerned, unless something was really wrong (Schippers) would be there for retirement." Id. at 120. The Supreme Court nevertheless concluded that the parties had not discussed job security in the sense of requiring just cause for Schippers' termination. Id. at 124.
Based upon the analysis of the Supreme Court in Rowe, it will be a rare case where an employee can allege the specific facts necessary to create an oral contract of employment. For instance, in Prysak v R.L. Polk Co, 193 Mich App 1 (1992), the court found that a manager's statement that "you can't just go firing people for no reason... you got to have a reason," was insufficient to create a just cause employment contract because the statement was not a clear and unequivocable promise of job security. The court also noted that the statement was not made during pre-hire negotiations. Similarly, in Biggs v Hilton Hotel Corp, 194 Mich App 239 (1992), the defendant's general manager's statements during a pre-employment interview that "he saw plaintiff as a person who would go places" and that the relationship "would be a good one in which there would be an opportunity to grow and maintain some type of long term relationship" were found insufficient to create a just cause contract.
Cases recognizing that a just cause contract may be based upon oral statements include Snell v UACC MidWest, Inc, 194 Mich App 511 (1992), where the plaintiff was told during pre-employment negotiations, "if you mind your p's and q's and do your job, you really have to screw up to get terminated." Significant to the court was the lack of any contrary statement regarding the lack of employment security in an employee handbook.
In Barnell v Taubman Co, 203 Mich App 110 (1993), pre-employment negotiations involving the recruitment of a Vice President of Finance were found sufficient to create an oral employment contract. During several job interviews, the plaintiff in Barnell had specifically inquired about job security and was told that the defendant had a policy of just cause employment. Barnell is also significant because the defendant employer published a memorandum stating that all employees were at-will eight months after the plaintiff accepted the position. Plaintiff refused to sign the memorandum acknowledging his at-will status and the court refused to void the enforceable oral express contract of employment on the basis of the memorandum. The court noted that an express contract of just cause employment may only be modified with the employee's consent.
As discussed above, Toussaint recognized that a just cause employment contract can be proven through language contained in policy manuals and employee handbooks. This is the so-called "legitimate expectations" prong of the Toussaint decision. The legitimate expectation doctrine does not rely upon traditional contract principles. In fact, there need not be any meeting of the minds on the subject, there is no requirement for pre-employment negotiations and the employee need not even learn of the policy until after he or she is hired. Toussaint explained the rationale for the legitimate expectations doctrine as follows:
It is enough that the employer chooses, presumably in its own interest, to create an environment in which the employee believes that, whatever the personnel policies and practices, they are established and official at any given time, proported to be fair, and are applied consistently and uniformly to each employee. The employer has then created a situation "instinct with an obligation".
Toussaint, 408 Mich at 613.
In Renny v Port Huron Hospital, 427 Mich 415 (1986), the Michigan Supreme Court held that an employee handbook containing a list of disciplinary violations and a penalty for each violation and an optional grievance procedure was sufficient to create a legitimate expectation of just cause employment. Essentially, in Renny, the court held that such policies will be construed to create a just cause contract if the handbook does not contain an express at-will statement or disclaimer.
In Rood v General Dynamics Corp, and Schippers v SPX Corp, 444 Mich 107 (1993), the Michigan Supreme Court discussed in detail the legitimate expectations prong from the Toussaint decision. The plaintiff in Rood was a plant physician claiming he was wrongfully discharged when his position was replaced by a new employee. Dr. Rood's claim was based on a combination of oral assurances, an elaborate performance appraisal system and personnel policies governing the circumstances for termination. There was no disclaimer of just cause employment. The Michigan Supreme Court concluded that a jury should resolve the issue of whether or not the combination of circumstances in Rood was sufficient to create a just cause contract.
In Schippers, the plaintiff was a truck driver who agreed to transfer to a less secure position with the defendant. He claimed that he only agreed to the transfer because of oral assurances of job security. He also relied upon an employee handbook that discussed fairness, but did not discuss or even mention just cause as controlling or limiting management termination decisions. There was certain language in the handbook proporting to disclaim a just cause contract, but the language was not the explicit just cause disclaimer language upheld in the Sears Roebuck line of cases.
The court in Schippers held that the plaintiff's evidence was insufficient to create a legitimate expectation question for the jury. The court found that written statements guaranteeing fairness were insufficient to permit a reasonable juror to conclude that the employer had given up its right to discharge employees at-will. The court also rejected a non-exclusive list of shop rules to be sufficient to create a just cause contract. One issue left open in the Michigan Supreme Court decisions to date is the so-called mixed message cases involving employee handbook language that arguably creates a just cause termination policy and, at the same time, declares all employees at-will through the use of ambiguous language.
In Lytle v Malady, (On Rehearing), 458 Mich 153 (1998), the court held that the company’s employee handbook was insufficient to create a jury question over whether the plaintiff had a legitimate expectation of just cause employment. The particular language involved stated, "no employee will be terminated without proper cause or reason and not until management has made a careful review of all facts." The handbook also contained a disclaimer stating that the text of the book did not constitute a contract between the employer and any group of employees. The court held that the employer's explicit policy statement which forbade discharge except for just cause could not have reasonably created a legitimate expectation of just cause employment. The court accepted the employer's argument that the language providing that the handbook did not create a contract was a sufficient at-will disclaimer. The Lytle case rejected the argument that a jury issue is created when an employer sends "mixed signals" to its work force regarding the nature of the employment relationship. In other words, so long as the employer has an at-will disclaimer in place, it negates any reliance upon other provisions in the handbook which may create a legitimate expectation of just cause employment.
Employers are precluded from discharging employees, even employees who are employed at-will, when the discharge would violate settled public policy. Wrongful discharge actions for violating public policy can be premised on one of three grounds:
a) Explicit legislative statements prohibiting discharge, discrimination or adverse treatment of employees who act in accordance with the statutory right or duty;b) "Legislative expression of policy" - for example, discharging an employee for refusing to violate the law during employment; or,c) Retaliatory discharge.
The leading case in this area is Trombetta v Detroit, 81 Mich App 49 (1978). Trombetta involved an employee who was terminated for refusing to forge reports on behalf of his employer. Trombetta is somewhat unique in that there was no express legislative provision involved which prohibited retaliatory discharge. In Dudewicz v Norris-Schmid, Inc, 443 Mich 68 (1993), the court held that a claim based on a violation of public policy cannot be raised when an applicable statute prohibits a retaliatory discharge for the plaintiff's conduct. Under those circumstances, the statute provides the plaintiff exclusive remedy.
The statute most involved in retaliatory discharges is the Workers' Disability Compensation Act of 1969 (WDCA), MCLA §418.101 et seq. In Sventko v Kroger Co, 69 Mich App 644 (1976), the court held that cause of action is stated when an employee is discharged in retaliation for having filed a Workers' Compensation claim. In Philip's v Butterball Farms Co, 448 Mich 239 (1995), the Michigan Supreme Court resolved a conflict in the Court of Appeals and held that a claim of retaliatory discharge sounds in tort and not in contract. Consequently, the full tort remedies are available for a retaliatory discharge in violation of public policy. The Whistleblowers' Protection Act (WPA), MCLA §15.361 et seq. is a subset of the public policy exception to the at-will-employment rule. The WPA provides that an employer cannot discharge, threaten, or otherwise discriminate against an employee because the employee reports or is about to report a violation or suspected violation of federal or state statute or regulation to a public body.
There is an exceedingly short Statute of Limitations for claims under the Whistleblowers' Protection Act. An action must be brought within 90 days after the occurrence of the alleged violation of the Act.
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