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How to avoid wrongful discharge litigation.


Simple guidelines can help employers prevent or prevail in employee lawsuits.

Your office manager has worked for you for 12 years. She is now 59 years old and is no longer carrying her share of the work load. She doesn't have her work completed when you need it. She isn't willing to learn how to use the new computer. And she can't seem to get along with your new employees. She is holding back your business--and costing you money. Can you discharge her? After all, you like her and couldn't bring yourself to hurt her feelings. Over the years, you have given her nothing but outstanding evaluations and she has never received any sort of counseling or warning. So what are your rights--and what are the office manager's?

New laws and recent court decisions have radically altered why and how someone may be discharged. An employer, even one with only a few employees, who is unaware of these new legal standards and isn't careful to uphold them may well face costly litigation or judgments. This article details the legal framework behind the increasing number of employee lawsuits and suggests simple measures for avoiding litigation.


Historically, the law in most states said an employer could discharge an employee at any time, for any reason or for no reason at all, with or without prior notice. However, in recent years, both the legislatures and the courts in many jurisdictions have established a number of exceptions to this "at will" employment rule.

Statutory prohibitions. Here are some key federal statutes:

* Title VII of the Civil Rights Act of 1964 prohibits discrimination, including discharge, on the basis of race, creed, color, religion, sex or national origin.

* The Immigration Reform and Control Act of 1986 forbids discrimination as a result of citizenship status.

* The Age Discrimination in Employment Act governs employment decisions based on age. In addition, the Employee Retirement Income Security Act, which regulates retirement plans adopted or administered by employers, precludes discharge to deny an employee's vested pension rights or the opportunity to become vested.

Many states protect other categories of employees from discrimination. For example, the California Fair Employment and Housing Act includes marital status, pregnancy, medical condition and physical handicap as prohibited grounds for employment decisions. New York's Civil Rights Law covers blind or deaf employees and Florida protects employees who carry the sickle-cell trait. Some local ordinances preclude discharge for various other reasons, such as having AIDS in Austin, Texas, or sexual orientation and preference in San Francisco.

Public policy. Recent court decisions have further eroded the at will employment doctrine. In most states, an employee may sue for wrongful discharge if he or she is fired in violation of public policy. The employee can claim the discharge was in retaliation for the assertion of a statutory right, such as voicing a safety complaint or serving on a jury. Or he might claim he was discharged for refusing to perform an illegal act or for reporting one to appropriate authorities.

Breach of contract. Many courts also have allowed employees to recover wrongful discharge damages based on a contractual commitment that overrides at will employment. The document need not be in writing. Rather, the commitment may be implied by something the employer did or said that merely indicated discharge would occur only under certain conditions.

An employee also may claim he was discharged in violation of policies in an employee handbook or manual or in work rules. He may allege a promise, either written or oral, of "permanent employment," "employment as long as he did a good job" or "discharge only for good cause." In 1987, the Illinois Supreme Court followed Minnesota precedent and found that language in a handbook created an enforceable contract right limiting the at will employment relationship.

California courts have held that, even in the absence of employer policies or rules, an implied contract requiring good cause for discharge may exist because of a "totality of circumstances," including duration of employment, commendations and promotions and a lack of criticism of the employee's work. Other states, such as Pennsylvania, recognize a contract for permanent employment if the employee has given up another job or provided other consideration, such as executing a confidentiality agreement, above and beyond the usual performance of services.

The laws and court decisions force businesses to exercise care when discharging employees. There are steps employers can take to help minimize the possibility of wrongful discharge actions or to put themselves in better positions to defend against lawsuits.


Since the courts have interpreted employee handbooks and written work rules as contractual commitments, employers must not promise more than they are willing to deliver. The language in manuals, handbooks, employment application and any other documentation should not suggest employment is permanent or that discharge will occur only for good cause.

Employers may consider expressly defining their employee discharge policies as at will. They can include an at will employment statement in the application form or require employees to sign at will employment agreements. However, since such a disclaimer may hurt morale, employers might instead wish to adopt detailed rules advising employees of what conduct will result in discharge. Remember, though, that a list of infractions may inadvertently omit some grounds for discharge. Whichever method is chosen, the rules must be clear and complete.

Many employers require newly hired employees to serve a probationary period during which they can be discharged for little or no reason. The validity of this concept has been brought into question by recent court decisions. Further, once an employee has successfully completed the prescribed probationary period, there is an implication that discharge thereafter may be only for good cause. To avoid this possibility, employers might discontinue the probationary period and observe new employee performance informally, documenting any deficiencies.


Employees should receive periodic evaluations of their work. Unfortunately, many employers seek to avoid the sometimes difficult subject of less than adequate work by overstating an employee's performance. Since an inflated evaluation can be used against an employer later, this practice is strongly discouraged. An evaluation should accurately reflect how well the employee has met the employer's standards and expectations. Employers may have to justify dismissals based on the contents of periodic evaluations and other employment documentation.

If an employee's performance is so poor that he is in danger of disciplinary action or discharge, the evaluation should specify problem areas, give a set time frame within which the employee is to show improvement and inform the employee of the consequences if there is no change in performance.

Employees should be provided with copies of their evaluations and given opportunities to comment on and sign them. If an employee chooses not to exercise this right, that fact should be witnessed. The employer should keep the signed evaluation, along with other relevant documents, such as employment applications, warning notices and termination reports, in confidential personnel files.


Except in rare cases, such as theft or intoxication at work, progressive discipline should precede discharge. In other words, an employee ought to be given one or more warnings, and some other type of discipline, such as a suspension, demotion or transfer, before being discharged.

Disciplinary notices also should be honest and direct. The employee once again should be fairly informed of the reason for the warning or discipline, allowed an opportunity to meet the employer's stated standards and advised of the consequences if he doesn't. The employee must have an opportunity to comment on and sign the warning notice. He should be given a copy and the original should be kept in his personnel file.


Discharge is not the only solution when someone is not performing satisfactorily or has violated employer rules and policies. If an employee has a long record of good service but has recently been promoted to a job that appears to be beyond his ability, the employer might consider demotion, possibly to a job the employee previously performed adequately. If the employee has a personality conflict with peers, counseling might be the answer. Other alternatives to dismissal include disciplinary suspension without pay or outplacement assistance and other benefits in exchange for a written release of claims against the employer.


When an employee must be discharged, the reasons should be put in writing. They must be given in full detail since, in subsequent administrative or judicial proceedings, the employer can point only to the grounds originally presented to the employee, even if there were others. The discharge interview is not the time to try to avoid hurting someone's feelings by being less than absolutely candid.

This is not to say that the final meeting between employer and employee ought to be a name-calling session. To the contrary, it is important that the interview be handled tactfully. It should be held privately and, while other employees ought to be informed of the termination, it is usually best not to give them detailed explanations.

Discharged employees or their prospective employers often ask about references. A former employer may feel an obligation to give a positive reference to help the employee get a new position, but this contradicts the reason given for discharge and may be used against the employer in subsequent litigation. The employer should give a neutral reference that covers only length of service, final position held and salary at termination.


The suggestions in this article are designed to help employers prevent or defend against wrongful discharge litigation, but are not intended as specific legal advice. Employers should consult lawyers knowledgeable in the area of employer--employee relations about the application of these ideas to their businesses.

The rules on employee discharge are still evolving. One rule, however, is firm: If an employer demonstrates fairness with its employees, a lawsuit is less likely and, if brought, the employer has a better chance of prevailing.

ANDREW B. KAPLAN, JD, is a partner of the law firm of Silver & Freedman, Los Angeles.
COPYRIGHT 1990 American Institute of CPA's
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1990, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
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Author:Kaplan, Andrew B.
Publication:Journal of Accountancy
Date:May 1, 1990
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