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Employment at-will: dead in Utah?

Employment At-Will Dead in Utah?

Shauna Hodges' nightmare began the day she came to work and Chad Crosgrove, the store manager, accused her of stealing $500.

Hodges, a part-time bookkeeper for Gibson Products, would come in each morning and balance the prior day's receipts, which Crosgrove had stored overnight in moneybags. Though Hodges and Crosgrove were the only two employees with access to the moneybags, the company failed to investigate whether Crosgrove had stolen the money. Instead, it pointed the finger of blame at Hodges.

Company officials suspended Hodges and told her they would allow her to resign if she paid back the money. She refused, claiming she was innocent. In response, the company went to the police, and Hodges was arrested, handcuffed, and charged with theft.

The company subsequently learned that Crosgrove had embezzled some $9,000 in cash and merchandise from its store. Two months later, on the eve of Hodges' criminal trial, the company informed the prosecutor of Crosgrove's thefts, and the prosecutor immediately dismissed the charges against Hodges. The company then fired Hodges for "failing to follow proper procedures."

Hodges sued her employer claiming she had been wrongfully discharged. After a trial, the jury found that the company's discharge of Hodges violated "public policy," and it awarded her $88,000 in damages. The company appealed the verdict and this spring, nine years after she was fired, the Utah Supreme Court affirmed the jury's verdict.

Three Major Limitations

The Hodges case represents a significant development in Utah employment law for both employers and employees because it sets a new limitation on a Utah employer's absolute right to fire employees. Traditionally, Utah employers have felt free to discharge employees at any time, without notice, relying on the Utah courts' unwavering recognition of the employment "at-will" rule. Under this legal doctrine, a person hired for an indefinite period can be terminated at any time for any reason, or even for no reason at all. In Hodges, the Utah Supreme Court for the first time held that an employer may not fire an indefinite term employee if the dismissal violates "public policy."

Over the last 15 years, various courts have criticized the harshness of the at-will rule and have recognized three major limitations.

* The public policy exception. The question still to be resolved in Utah is, "What interests are of such substantial public importance that they limit an employer's right to discharge employees." In other states, courts have found public policy violations in situations where an employee was fired for refusing to do something illegal, or for blowing the whistle on an employer's corrupt or illegal practices, or for exercising a statutory right such as serving on a jury.

* An employee's claim that the firing violates the terms of an implied agreement between the employer and the employee. Does an employee handbook spell out certain grounds for termination in such a manner as to imply that those are the only reasons an employee may be fired? Do personnel procedures require that an employee must receive oral or written warnings before being fired? Did a supervisor orally promise that an employee would only be fired for cause? Does the company have a practice of firing employees only after placing them on probation? Courts have found that written policies, employee handbooks, oral statements or even past employment practices may create a contract which restricts an employer's right to terminate at-will.

Two years ago the Utah Supreme Court recognized the "implied agreement" exception in the landmark decision of Berube v. Fashion Centre Ltd. The Berube case holds that an employee handbook or manual which provides that the employer would only terminate an employee for cause, or only in accordance with certain procedures, may be as binding as a written contract.

* The "implied covenant of good faith and fair dealing." This exception goes the furthest in eroding the at-will rule and has been embraced in only a few states, most notably California. Under this theory, an employer has an implied duty to act with fairness by terminating employees only in good faith and for just cause. This theory has been criticized as being an amorphous concept which essentially allows a jury to second-guess every termination decision by an employer.

The Effect of an Employment Manual

One month after deciding the Hodges case, the Utah Supreme Court issued its long-awaited decision in Brehany v. Nordstrom. The Court unanimously reversed a $285,000 wrongful discharge verdict awarded to three former employees who had been fired for alleged drug-related activities. Brehany laid to rest the notion that Utah, under any circumstances, would recognize the implied covenant of good faith theory as a basis for bringing a wrongful discharge claim. This is an important victory for Utah employers.

Brehany also discusses the circumstances under which employment manuals may create an implied agreement which would prevent an employer from discharging employees at-will. In Brehany, the employer's handbook listed various types of misconduct, some of which "may result in discharge after a written warning," and others which "may result in immediate dismissal" without warning. The Court found that it was unclear whether the offenses listed were intended to constitute the exclusive grounds for discharging employees. If so, the employer could only terminate an employee who violated one of the rules. If not, the employer would be free to terminate at-will.

The court noted that two of the employees had admitted to using drugs while on buying trips for the employer. Because the employment manual listed both drug use and the violation of any criminal law as grounds for immediate dismissal, the court determined that the employer was justified in firing these two employees and their wrongful discharge claims were dismissed. With respect to the third employee, however, the court remanded the case for another trial in which the jury would determine whether the employer intended the list of offenses to be exclusive and, if so, whether the remaining employee committed any acts which would subject her to immediate discharge under the terms of the employment manual.

The Right to a Jury Trial

Accordingly, based on Brehany, if an employment manual purports to limit or modify the employer's unfettered right to discharge its employees, then an employer risks having a jury determine whether the terms of the manual have created an implied agreement which is binding on the employer. In making this determination, a jury may consider not only the language of the manual, but also the employer's conduct, and any pertinent oral representations which the employer or its supervisors may have made.

The risk of a jury trial for an employer can be substantial because juries, who are generally employees themselves, are usually sympathetic to an employee's claims. A 1985 study of California's wrongful-discharge jury verdicts is staggering. It reflects a 95-percent employee success rate with an average award of $450,000.

In a subsequent study released by Rand Corp. in 1988, the trend continued. The Rand study analyzed California wrongful discharge suits filed over the last several years and revealed that employees won 67.5 percent of the cases that went to trial, with an average damage award of just under $650,000. Many cases, of course, never go to trial and many plaintiffs recover nothing. While there are several reasons to suggest that employees filing wrongful discharge cases in Utah will not be as successful as their California counterparts, these studies underscore an employer's need to proceed with caution in terminating employees.

The Value of a Disclaimer

In light of Brehany, employers may ask what an employment manual can and cannot say to preserve the employer's right to terminate at-will. The Utah Supreme Court's most recent decision on this issue, Johnson v. Morton Thiokol (September 1991) provides some answers.

In Johnson, the employer fired an employee for failing to conduct an adequate inspection verifying the proper placement and seal of the redesigned O-rings used in the space shuttle rocket motors. Specifically, the employee failed to notice that certain hoses had been improperly installed, which caused damage to the motor when it was later tested.

Thiokol's employment manual detailed various policies regarding disciplinary, appraisal, and grievance procedures. Johnson claimed that these policies limited Thiokol's right to terminate at-will and created an implied agreement to terminate him only for cause. The court disagreed, noting that the manual included "clear and conspicuous language disclaiming" that the manual created a contract and "stating Thiokol's intent to maintain an at-will relationship with its employees." A majority of the court held that the disclaimer prevented the disciplinary procedures in the manual from becoming part of an implied-in-fact contract.

The court concluded that Thiokol's termination of Johnson had followed the procedures laid out in the manual, which all five justices agreed was a sufficient basis for a decision in favor of Thiokol. Three of the five justices went further, however, announcing that the disclaimer effectively maintained the at-will status of Thiokol employees, despite anything else contained in the manual that might have been interpreted otherwise.

Where Do We Stand Now?

Taken together, the Hodges, Brehany, and Johnson decisions go a long way in clarifying employment law in Utah. And, though there is still some confusion over what the Utah Supreme Court may do next, these cases help employers and employees better gauge their respective rights.

To increase chances of avoiding or prevailing in a wrongful discharge lawsuit, employers should consider doing the following:

* Give only managers the authority to make employment offers; make only written offers containing an at-will proviso and a caveat that the offer is complete and supersedes any oral promises made.

* Require new employees to sign a disclaimer acknowledging that they've been hired as at-will employees who can be terminated at any time, without cause or notice.

* Consider having every employee sign an express, written employment agreement to the effect that employment is terminable at will.

* Train supervisors to refrain from making oral promises and assurances of continued employment, job security, terminations only "for cause," or other conditions of employment which undercut an employer's right to terminate at-will.

* Review employment manuals, personnel procedures, and any other written policies to eliminate provisions or statements which may create an implied agreement limiting the employer's right to terminate at-will.

* Make sure your employment manual clearly states that it is not a contract, that the employer has the right to change the terms of the manual at any time and for any reason, that employees are hired for an indefinite period of time, and that employment may be terminated at any time, without cause or notice.

* Assume that written personnel policies will be contractually binding. Limit your policies to those you can live with. Be sure your policies state exactly what is meant, and then follow them to the letter in every case.

To protect or enforce their right to job security, employees should consider the following:

* Upon being hired, consider bargaining with the employer for a written contract for a definite period of time, and seek specific written guarantees regarding job security.

* If your employer will not agree to a definite term contract, carefully review your employment application and employee manual. If either states that your employment is at-will, that probably means the employer has the right to fire you at any time for any reason, with or without notice, unless doing so would be discriminatory or be contrary to a significant public interest.

* Request advance notice of termination or pay in lieu thereof and negotiate reasonable severance pay.

* Encourage your employer to adopt rules and guidelines outlining performance expectations, specifying what conduct may result in termination, and setting forth a progressive discipline procedure requiring warnings where appropriate and otherwise ensuring fairness in termination decisions.

* Make and retain written notes of promises of job security made by your supervisors.

* Take careful note of any changes or modifications in your employer's written manual, policies, or procedures. The Utah Supreme Court has stated that the employer may unilaterally change its employment policies. Such changes may make your job either more or less secure.

If you think you have been fired unfairly, consider the following:

* Did your termination violate the terms of a employee manual or other written policy?

* Were you dismissed in violation of some public interest? For example, were you fired for whistleblowing, for refusing to violate the law, for serving in the military or on a jury, or in retaliation for asserting a protected right?

* Was your termination discriminatory? Were you dismissed because of your race, religion, sex, or age, or because of a pregnancy-related condition or a disability?

If you can answer any of these questions affirmatively, you may have an enforceable right to reinstatement or damages.

Ideally, the recent changes in Utah employment law will result in fairer and more productive places of work. Utah's competitiveness in a global economy depends on it.

Stanley J. Preston and Stephen J. Hill are attorneys with Snow Christensen & Martineau.
COPYRIGHT 1991 Olympus Publishing Co.
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Title Annotation:employee dismissals under Utah employment law
Author:Preston, Stanley J.; Hill, Stephen J.
Publication:Utah Business
Date:Dec 1, 1991
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