Employment at Will Analysis, Research Paper Example

Abstract

This paper briefly describes the history behind the Employment of Will in the USA.  A legal term under common law that relates to the employment of contract, whereby such contract may be terminated by employer or employee at any time for any reason whatsoever; the term also referred to as terminable at will.  The Pro’s and Cons of the term will be discussed along with three major exceptions to this practice.  Finally, the legal limitations of the term.

Historic Origins

During the early 1980’s employment laws came under challenge in the USA.  The employees had registered a lot of discontent with the current rulings.  There was a continued decline in self-employed and those in the agricultural sector i.e. farm workers.  This meant that the bulk of the workforce found themselves being employed.  Workers being dismissed found themselves to be losing pension rights and other benefits.  This resulted in many legal claims for wrongful dismissal.  By the mid 1980’s, with job security improving, employees filing such legal actions became increasingly successful.  ” In 1987, California juries ruled in favour of the employees in over two-thirds of such cases and granted an average award of $1.5 million.” (Free Dictionary, 2010)

This legal doctrine is still in force across most states in America.  Although it can be interpreted and applied differently from state to state.  Some have established “exceptions” to this  and many courts apply the law of contract between employer and employee.  This can even be an implied contract and as such the courts will examine the history behind the employment relationship.  Those circumstances leading to termination of employment and dismissal will be examined along these lines.  There is also considerable Federal law in this area. ” an enormous body of federal and state law limiting an employer’s ability to terminate employees for reasons having to do with race, ethnicity, religion, marital or disability status and, in some cases, sexual orientation. Certain types of employee conduct are also explicitly protected”  (Bonfiglio, 2010)

So essentially the legal doctrine still exists but is not well supported. One attorney commented as follows: ” The doctrine of employment-at-will emerged in the nineteenth century in the United States in a climate of unbridled, laissez-faire expansionism, social Darwinism, and rugged individualism. It is often referred to as Wood’s Rule, named after Horace C. Wood, who articulated the doctrine in an 1877 treatise Master and Servant. No doubt the title of the treatise says all that need be said regarding Wood’s view of employment relations and, unfortunately, the view shared by most of his legal contemporaries”  (Standler, 2000)

The importance of the doctrine of employment of will is that this remains an ongoing agreement between both parties and this may be terminated, by either party, at any time for any reason whatsoever. The major benefit here is really to the employee as they can bargain for pay increases at any time or move to a more competitive job offer. From the employers perspective they can quickly get rid of any problem or non performing employees. The concept becomes much more business like without getting locked into legal complications. With regard to the termination of the employee, most US States require that the employer demonstrates ” just cause” for termination. This needs to be demonstrated before the action of dismissal can take place by the employer.  Where the employer feels that this has not been demonstrated they are entitled to bring a legal action against the employer and collect damages or compensation for the loss of income and employment due to illegal termination.  (Ericson, 2005)

Major Exceptions to This Practice

There are three major exceptions to this practice and these are generally upheld across 50 states in America.  The exceptions generally address termination of employment.

1. The most widespread exception stops any terminations that are deemed to violate an individual states public policy.
2. The prohibition of termination on an implied contract for employment. Once that contract is deemed to have been ratified and considered subject to the law of contract.  Such contracts can be verbal or implied contracts provided good faith existed between both parties. ” The second major exception to the employment-at-will doctrine is applied when an implied contract is formed between an employer and employee, even though no express, written instrument regarding the employment relationship exists. ”  (Muhl, The employment-at-will doctrine:, 2001)
3. The good faith covenant has been adopted by a minority of states, although this has somewhat varied in interpretation from state to state.  ” terminations must be for cause to meaning that terminations cannot be made in bad faith or with malice intended. Only six western States–Alaska, California, Idaho, Nevada, Utah, and Wyoming–recognize all three of the major exceptions.(4) Three southern States–Florida, Georgia, and Louisiana–and Rhode Island do not recognize any of the three major exceptions to employment at will.”  (Muhl, 2001)

All US states, in addition, have statutory protection for employees.  Most of these cover wrongful dismissal and embrace actions under the federal anti discrimination statutes.  These prevent terminating employees on the grounds of race, colour, origin, religion, sex, age or physical disability.  Employees may not fire employers who refuse to commit illegal acts. They cannot fire employees who need to take leave of absence for personal or family medical leave. This procedure being outlined in the Family Medical Act.  Employers are responsible for keeping and maintaining an employment terms and conditions. If the employer terminates  an employee without adhering to these procedures, then the  employee may potentially claim for wrongful termination.  ” Justice Harlan, dissenting in a 1905 United States Supreme Court case, gave voice to the growing sentiment in modern times that employers and employees “were not upon an equal footing, and that the necessities of the latter often compelled them to submit to such exactions as unduly taxed their strength.” (Austin, 2009)

Importance Relative to Corporate Culture

In the historic context, US employers had the ability to discharge employees for virtually any reason whatsoever.  In this regard there was little consideration of the individual employees rights.  Under this doctrine the law of contract was not applying to either employer or employee.  This creates a bad relationship between management and the employees, casting an air of uncertainty and suspicion.  It also allows for misrepresentation of the law and its’ interpretation in accordance with how employers wished to manipulate it.  The “at will” status was typically used by Trade Unions in part of their collective bargaining agreement.  Those outside of the Union would not be protected and as such their became a loss of equity in the legal context.  ” The United States is the only major industrial power that maintains a general employment-at-will rule. Canada, France, Germany, Great Britain, Italy, Japan, and Sweden all have statutory provisions that require employers to show good cause before discharging employees.”  (Free Dictionary, 2010).

It is fair to say that the legal guidelines covering the “at will” doctrine still remain very blurred in many states.  This is evidenced by the continuing legal debates over the subject matter.  Many legislatures and courts arguing over the validity of termination of employment and how wrongful dismissal applies to “at will” employees.  It is the question of allowing Companies the right of personal freedom in their decision making whilst considering individual human rights in the context of the law.  The large number of successful law suits for wrongful dismissal has truly alarmed Corporate America.  The result of which can leave business faced with high legal costs, court costs and potential damages.  It has caused Companies to re-examine and re-evaluate their employment handbooks and to remove statements that pose a potential legal threat.  It has resulted in recruiters being told to ensure no promises are made about just cause or the term of employment.  ” Companies are also turning more frequently to severance pay settlements, in which discharged employees receive a reasonably generous compensation package in exchange for waiving all future claims based on the employment or its termination.”  (Free Dictionary, 2010)

The fall in Trade Union Power and that of collective bargaining has resulted in the employers having greater freedom of movement  in the employment contract clauses. The Companies emphasis being to protect themselves from costly lawsuits other than union actions or individual actions.  In the state of Montana statutes are in place that limit the amount of remedies available to a discharged employee, where he sues his former boss. Damages may be awarded but these have been restricted to a 4 year time period. Punitive damages may only be sought where the claimant can clearly show evidence that the employer was committing an act of fraud or showed deliberate malice to the employee.

It is important that Employers take seriously the context in which the “at will” doctrine is defined in their employee handbook.  Many Companies have found it necessary to re-visit the legality of the wording and to ensure that this is written in such a way to be unambiguous and protect the rights of the Company.  This needs to be accomplished by a lawyer and independently verified ” depending on the wording of the current workplace policies, employers may have unintentionally created a contract. It is very important that employers include a separate well-written at-will statement in their handbook and refer back to it throughout. Clearly state that no oral or written promises can change the at-will relationship and that company policies are not intended to create a contract”  (Hildebrand, 2007).

The ruling of “at will” in overall terms clearly was designed more to protect the rights of the employer and is now somewhat out dated as fit for purpose in a modern industrialised society. The fact alone that the USA is somewhat isolated in its adoption, in the context of international comparisons, adds weight to this argument.  Moving more towards employee law of contract creates a much more equitable solution and one which is more clearly defined in legal terms.  This also enables much more standardisation of process and procedures across the different state jurisdictions and would help the courts in the determination of wrongful dismissal cases.  Most of the large Corporate forms should support that doctrine and it removes the less ethical firms from hiding in the shadows of outmoded procedures.

A good example of an “At Will” State is that of Illinois.  “An employment at will relationship contains no specified duration and may be terminated at any time by either the employer or employee for good cause, bad cause or no cause”  (Anon, 2002).  Although this still remains the legal position in Illinois, nevertheless demonstration of good cause still is the best legal line of defence.  The concept of an “At Will” contract alone will not guarantee the employer a successful verdict .  One of the most widespread exceptions to this doctrine is that where it violates State law or public policy.  A certain minority of States have introduced what is known as an ‘implied covenant of good faith’, adding the concept of fair dealing to the contractual relationship.  Oddly enough since the introduction of this it has been legally interpreted in different ways bringing in concepts of malice and bad faith into the dismissal interpretation.

Evolution of Benefits to Employer and Employee

Employee benefits generally fall under three main categories:

1. Retirement Benefits –  Contribution plans to support retirement income, IRA’s etc
2. Medical Health Insurance Benefits
3. Welfare Benefits,  Paid Leave, sick pay, vacation pay

Some firms in addition pay out performance bonuses, mainly within the financial services sector.

The US Bureau of Economic Analysis shows some alarming trends over the last 10 years.  The rate of personal savings has been in a sharp decline.  The number of workers per beneficiary is in sharp decline.  Health care costs have risen dramatically  by 59% in the last 5 years and leaving employers with the problem of how they will pay for these increased costs.  This has resulted in a response from the employers to try and move more of this burden to the employees.  The adoption of cost avoidance programs like health and wellness, non -smoking policies, introduction of gymnasiums.  Also pushing the approach of increased consumerism with employees regarding choices.  From a society perspective Employers will need to consider that retirement income will be a high agenda item for employees.  The concept of medical support as life expectancies continue to increase.  The labour force participation will continue to decline from age 55 onwards and this will have a significant impact in the labour market during the “baby boomer period” where there will be a large swing away from employment into retirement and leisure based activities.  Hence looking forward a clear linkage will emerge between retirement income and continued health coverage. This could place social security benefits in peril , particularly so for the more vulnerable in the lower paid income bracket.

Potential re-alignment with international accounting standards may have a considerable adverse effect on US Pension schemes ” Anticipated FASB rule—the timing is unclear—that would bring U.S. accounting rules into line with international standards is generating growing anxiety among employers and pension experts. Pension experts predict the rule could have a dramatic negative effect on many plan sponsors’ financial reports, which in turn could accelerate the long decline in traditional pension coverage in the United States.”  (MacDonald, 2007).

The Doctrine of Employment at Will continues to evolve but the historical concepts of the traditional document have already considerably diminished.  Different legal interpretations on the rights at dismissal  continue to be made, however the only reasonable solid line of defence is to have a robust just cause argument.

Works Cited

Austin, W. J. (2009, 10 7). Employment-at-will rule: A doctrine under siege. Retrieved 1 31, 2010, from Local tech wire: http://localtechwire.com/business/local_tech_wire/news/blogpost/6152463/

Bonfiglio, G. A. (2010). What Is an At-Will Employee? Retrieved 1 31, 2010, from All Business: http://www.allbusiness.com/legal/contracts-agreements-employment/1072-1.html

Free Dictionary. (2010). Employment at Will . Retrieved 1 31, 2010, from Free Dictionary: http://legal-dictionary.thefreedictionary.com/Employment+at+Will

Hildebrand, D. S. (2007, 6 5). Understanding Free Will. Retrieved 1 31, 2010, from Suite 101: http://human-resources-management.suite101.com/article.cfm/quotatwillquot_employment

MacDonald, J. A. (2007). Experts Track Continuing Evolution of U.S. Pension System . Employee Benefits Research Institute .

Muhl, C. J. (2001). The employment-at-will doctrine:. Monthly Labour Review .

Muhl, C. J. (2001). The employment-at-will doctrine: three major exceptions. Monthly Labour Review .

Standler, R. B. (2000). History of At-Will Employment Law in the USA. Boston : Dr. Ronald B. Standler.

Anon. (2002). Employee Termination know the rules. Retrieved 2 17, 2010, from Knowledge Centre: http://www.chamber2u.com/KCHR3090c14Termination00.asp

Ericson, R. (2005, 8 23). How to Legally Terminate an Employee . Retrieved 2 17, 2010, from Googobits.com: http://www.googobits.com/articles/2259-how-to-legally-terminate-an-employee.html