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Avoiding a terminal case of wrongful discharge.

Avoiding a Terminal Case Of Wrongful Discharge

Between 1982 and 1987, the number of wrongful discharge cases in this country doubled. According to a study released in February 1989 by the Bureau of National Affairs, damages were awarded in 78.9 percent of all defamation claims against former employers, and 25,000 such cases are now pending. Average compensation in California, for example, has been $388,500, although awards have soared to nearly $2 million and have been conferred across the nation.

Clearly, employment termination is an area of concern to everyone--employers, employees and risk managers. In the last five years, 4.7 million people, having held their jobs for three years or more, have been dismissed from employment. TIME magazine recently stated, "The dominant mood in a lot of American companies is one of fear and anxiety. Loyal corporate soldiers used to believe their employers would reward good work with job security, full benefits and decent pay. Now, they have serious doubts about whether they can expect anything beyond the next paycheck."

The article cited "drastic cost-cutting programs and massive layoffs" due to "ferocious global competition, unfriendly takeovers and unprecedented new levels of corporate debt." It said further that this leads to a determined slashing of labor costs bought with "discarded traditional notions about job security, compensation and seniority."

A result of this tumultuous situation is that a corporation's president and managers will, for the first time, align with workers against the corporation in a wrongful discharge situation. It has been traditional, in any company dispute, for management to side with the corporation against the labor force. But this is no longer the case. In the current, uncertain climate anyone can be fired for just cause or no cause. Each worker, like each company, on occasion needs to be concerned about how to "save itself." And yet, each side needs the other, advancing the possibility of a mutually-beneficial compromise.

Until recently, contract law has been generally applied to employment matters. These matters were controlled, in turn, by the concept of "terminable at will," which means an employer is free to terminate the oral employment contract at any time. The employee could also choose to leave the firm at any time. This does not appear to be the best way to do business--for either the corporation or the employee.

In recent California courtroom practice, the application of contract law has led to employees first being allowed punitive damages for breach of good faith and fair dealing in wrongful discharge suits. It also has led to punitive damages being rescinded and replaced by compensatory damages only. This is in view of a recent California Supreme Court ruling that held the employment relationship is fundamentally contractual; therefore, only contractual remedies should be available to repair the contract "paper" tear.

While the latter application of contract law was a significant victory for employers in California, it merely brought the state in line with others around the country. Contract law is essentially negative. It enforces whatever the parties in question agree upon and refuses to question the agreement's terms, fairness or the relative strengths of each party. Contract law says only that non-written contracts are "terminable at will." This concept represents an easy way out for the judicial system. However, employment issues deserve specific decisions regarding job security, seniority and severance rights and all other contestable aspects of the employment relationship. Unfortunately, this is an undertaking our court system has successfully avoided so far.

Public awareness of the employer-employee relationship has been limited to such naive beliefs that an employer must have just cause for termination, and that seniority means preferential treatment in a cutback situation. As the TIME article noted, however, the public no longer believes these myths and is likely to be wary of the hidden exit sign behind corporate doors.

The courts, for their part, are starting to respond to the need for greater articulation of the employment contract. In the recent case of John Novosel v. Nationwide Insurance Company decided by the United States Court of Appeals for the Third Circuit, the court stated that custom, practice or policy is a "factual matter." It thereby demonstrated a willingness to cope with employment facts, as opposed to the consummate fiction of the current "terminable at will" policy.

In 1987, the Montana state legislature passed a law giving all employees the right to hold their jobs unless "just cause" for termination could be found. However, a limit was placed on the damages employees can collect from their former employers if they are terminated.

This kind of compromise, giving each side of the employment bargain something to work with, will probably characterize future actions occurring in courts or enacted by state legislatures. Greater security will be given to the employee, but limits will be set on recoverable damages, which will probably be confined to compensatory damages for past economic losses. Future losses (front pay) will probably be limited to a certain number of years. It is a good idea for risk managers to keep up-to-date regarding the decisions made by courts in their respective jurisdictions.

Wrongful Discharge

Another kind of action, the so-called wrongful discharge lawsuit, is currently available to the disgruntled former employee. This action technically offers compensatory damages to the employee, as well as punitive damages if it can be established that the termination was a direct violation of a significant public policy.

A landmark opinion handed down by the Supreme Court of Pennsylvania in 1974, Geary v. United States Steel Corporation, stated that a clear violation of public policy supports a legal action for wrongful discharge. Subsequent cases have amplified the definition of public policy by establishing that an employer cannot terminate an employee for the fulfillment of jury duty; seeking workers' compensation benefits; utilizing the right to freedom of speech in the employee's off hours; or reporting illegal company activity to a government agency.

We can expect the courts to further define and refine the boundaries of public policy in future wrongful discharge cases. Examples of cases pending in this area include one in which an employer terminated an employee being attacked by a union. This occurred after the employer asked that employee to testify in the company's behalf against the union. Another case involved an employer who placed an employee at risk when the employee refused to certify a falsified government form.

We can also expect further definition, through tests in the courtroom, in the area of discrimination based on race, religion, national origin, sex, age and handicap.

The best way to minimize risk of lawsuits in the area of employment termination is to give each employee a written employment contract. It can be a simple document stating with absolute clarity the employer's expectations regarding employee performance, salary, benefits, vacation time, sick leave, etc.

In addition, a clause should state terminations will not occur without just cause as well as a section of the written agreement spelling out the specific procedure to be followed when an employee decides to leave, or when the employer has just cause to end the employment relationship. This will give both sides a clear idea of what is expected and what constitutes a transgression of the contract. An employer might also want to stipulate that confidential company information cannot legally leave the office along with a terminated employee. In addition, an employer may want to set boundaries around the legal burden the company is expected to carry if a work-related disability occurs.

The best preventive measure is the written employment contract. But if the employer is faced with an employment claim, the next best stop is to gather written documentation of all the facts surrounding the termination in question. If the matter reaches the courtroom, this written record could prove invaluable. The next best step is to consult an attorney familiar with this area of the law. The attorney will be able to gauge the likelihood of courtroom success and recommend the best course of action, often an out-of-court settlement. In most cases, the negotiation of a severance pay agreement through an experienced attorney will provide the best possible outcome by ending the threat of an employment termination lawsuit.

Whatever the outcome of individual cases or the changes that occur in the laws of individual states, one thing is patently clear: The landscape of employment termination is rapidly changing. Despite many difficulties, there may come a day when inequities will not appear so insurmountable and the workplace will again stabilize on far better footing than before.

Hyman Lovitz is a partner in the Philadelphia-based law firm Lovitz and Gold, P.C.
COPYRIGHT 1990 Risk Management Society Publishing, Inc.
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Author:Lovitz, Hyman
Publication:Risk Management
Date:Jan 1, 1990
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