"At Will" Default Rule and its Limits Flashcards
What does At Will mean?
“At-Will”: default rule for employment, meaning it governs in the absence of an agreement to the contrary, an employer may terminate and employee at any time, for any reason, or no reason at all. Prevailing rule in US (except Montana). US is unique among other developed countries.
* Other POSSIBLE default rules (NOT USED HERE IN US): Just cause (used widely elsewhere in the world), definite term (months, years, seasons), rate of pay (paid monthly – term is monthly)
How to overcome the At-Will Presumption?
Four Areas:
* Express modifications (lifetime, definite term, and “for cause” contracts)
* Promissory estoppel (Reliance)
* Implied-in-fact contract
* Employee handbooks & manuals.
Default Rule?
- Default Rule: absent an express term of employment or “additional consideration” to the employer, a contract of employment is deemed terminable “at will.”
* (1) At-will presumption rebutted only by clear evidence that there is a definite period.
i. Courts must look to the circumstances surrounding the parties’ agreement.
Cases for At Will general
Hanson: (Traditional Approach) - Needs to be additional consideration for lifetime K’s. No express duration. Lack of mutuality of obligaiton.
Greene: (newer trend/more fleixble approach) - upholds At-Will but it softens apporach on how to overcome it. the at-will presumption is rebutted **only by clear evidence that parties contracted for a definite period. **
Lifetime K’s and definite term k’s
promises of “lifetime employment,” “permanent employment,” or “long-term employment (five-year)” usually treated as ordinary at-will relationship.
there is a “second default rule” whereby even if there is a definite term contract, there is an implied “just cause” contract. The term is not a guaranteed employment, rather it is guaranteed unless the employer does not have “just cause” to fire employee. This is implied, but can be overcome by express agreement to something else.
Promissory Estoppel
Restatement (Second) of Contracts §90 - can be used where the plaintiff acted to her detriment in order to avail herself of the promised employment.
Reliance on Offers of Employment.
Damages arising from reasonable reliance on a promise.
Case for PE
Goff-Hamel: P left old job for new job, new employer reneged day before P was to start. Was there a right to rely on at-will employment offer? yes, in some circumstances.
* MAJORITY –
(1) Quoting famous Grouse decisions – hired employee has right to assume he will be given a good faith opportunity to perform his duties
(2) Damages can be based on wages on prior employment (based on the detriment).
**Courts often require that there be a very definite, concrete promise before PE can be invoked the promise must be clear and definite. **
conceptual problem of at-will cant promise anything because it is at will. how can there be remedy when they can technically fire her a week after she starts for any reason with no consequence?
Courts split on remedy
Courts Split on “good faith” theory.
Cocchiara: turned down offer from other company because current company offered him a better paying position. fell through, he quit and took a different position that paid less. Court says that at-will does not preclude PE Theory. might mean stronger reliance when already working for employer. Remedy here is different - court recognizes front-pay.
Shebar – employee resigned, then employer promised a job for life and raise if the would stay. Despite assurance the employee was later fired.
(1) Court distinguishes lifetime (definite term) from indefinite term contract for cause. **Recognized claim for the latter, not the former.
**
Different Contact Terms:
-** (1) For cause:** protects one’s job security unless the employer can demonstrate a
legitimate reason for termination.
(2) Lifetime; can only fire for breach of original contract; external forces ARE NOT
cause for breach/firing.
- (3) Definite term: can only fire for specific rules; must be a serious (material) breach; external
forces ARE cause for firing.
Need to determine what kind of contract was in place in order to determine if the firing
was appropriate/allowable in the circumstances.
Indefinite v. Definite
(1) Indefinite Term K: there CAN be an indefinite contract, but the agreement is that the employer will NOT terminate the employee without just cause
(i) Although considered to be an indefinite term contract, it is a definite term in the sense that the party will be employed “for life” (the defined term) unless there is a “just cause” termination (similar to “lifetime K”)
(ii) Just cause in indefinite k – may sweep in other reasons (like economic downturn).
(2) Definite Term K: provides for employment during that specific term even if it does not specify that a party can be terminated for just cause, there is an implied “just cause” clause in the contract. Just cause in definite k - employer must demonstrate some type of material breach.
(i) This is functionally the same as an indefinite term contract if the term defined is a lifetime lifetime Ks hard to prove, but if you can prove it, lifetime Ks are considered “definite Ks”
Difference for “Just Cause”
(3) In indefinite term contracts sometimes courts will consider things such as change in environment or economic downturn as “just cause”
(4) **In definite term contracts ** usually this is something that amounts to a material breach (related to something the employee did)
Implied-In-Fact K’s
Assurance of continued employment doesn’t have to be expressed, it may be implied by
the circumstances (e.g., long relationship, good-cause policies, actions by the employer
of assurance(s), industry custom, employer practices, worker expectations, organizational culture)
Cases for Implied-in-Fact K’s
**Pugh: **
(2) Pugh recognizes implied in fact promise despite lack of actual promise.
(a) What is sufficient? According to Pugh court looks at: duration of employment, commendations and promotions, lack of any direct criticism of work, assurances, and employer’s acknowledged policies.
Court adopted burden-shifting framework** (influential but not followed in all states):**
(1) P must prove implied contract exists
(2) Then, P must prove that employer lacked “good cause”.
i. Traditional “just cause” - employer bears burden to show a legally sufficient reason for terminating the employee. Employer must actually demonstrate a reason actually exists. (poor performance, attendance, economic exigency). Not enough for employer to simply say it existed or say it thought it existed, it must have actually existed and they must show it.
ii. Pugh’s “good cause” - (burden flip) employee bears burden that employer lacked a fair and honest cause for reason. This is more like an objective good faith standard. Sufficient for employer to have fair and honest belief that it had cause. Like an objective good faith standard. Might mean that no reason needed to actually exist, but its good so long as employer had fair and honest belief that it existed.
iii. Different approaches to good faith supporting good cause:
(1) mere good faith (subjective) did the employer honestly believe the employee
committed a fireable offense or that economic circumstances warranted firing?
(2) good faith (objective) needs to honest &&& reasonable.
(3) employer must be right the employee actually committed the fireable offense or economic circumstances actually warranted firing.
**Guz: (this case narrowed Pugh):
Court accepts thoery of Implied K’s but need MORE than in Pugh, need to somehow show REASONABLE EXPECTATION or demonstrate party’s INTENDED to have more than at-will contract.
Plaintiff MUST show that parties had ACTUAL UNDERSTANDING than something different in the at-will. Court says no CGFFD in at-will k’s.
Employee Manuals and Handbooks
essentially implied-in-fact k’s based on reps to the entire workforce. sometimes can be contractually binding. sometimes may create a for-cause relationship.
Individual employees DO NOT have to actually read the manual - relaince is presumed b/c its so difficult to prove actual reading.
cases for Employee Manual and handbook
Woolley: court deemed the manual an offer and continued employment was the acceptance which created the unilateral contract. Reliance can be presumed. Possible out for employers? A PROMINENT DISCLAIMER to say not a binding k and relationship remains at-will.
Conner: court says disclaimers NOT enough since overall language of the manuals implied there was more than at-will. so this is a conflict and it was up to a jury to decide.
General lesson for employers: for disclaimer to work it must be clear and conspicuous.
Demasse: Modifying the contract later requires additional consideration given by employer. Unilateral mod DOES NOT create new K. must be new acceptance and consideration which unilateral k does not provide. performace is consideration for OG handbook, but something more must be given for change.
**Employers can get around this by making yearly bonuses contingent on signing a new contract; would allow them to make everyone at-will and give them a bonus (consideration) for the mod of employment status. (MENTION ON EXAM).
Woolley
Woolley: court deemed the manual an offer and continued employment was the acceptance which created the unilateral contract. Reliance can be presumed. Possible out for employers? A PROMINENT DISCLAIMER to say not a binding k and relationship remains at-will.
