at-will employees still vulnerable

At-Will Employees Still VulnerableAuthor(s): STEPHEN R. CARLEYSource: ABA Journal, Vol. 73, No. 12 (OCTOBER 1, 1987), pp. 66-68, 70Published by: American Bar AssociationStable URL: http://www.jstor.org/stable/20759550 .

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BY STEPHEN R. CARLEY

Employees beware: The at-will doctrine is alive and well.

Despite all the talk about the erosion of an employer's right to dis miss without cause those employees who aren't working under contract ("at-will" employees), the truth is that courts remain extremely reluctant to invalidate layoffs that an employer justifies on economic grounds.

There are limits, of course, on the right of employers to end at-will ar rangements. These include legisla tive prohibitions against the termi nation of an employee on the basis of race, color, religion, sex or national origin.

State and federal courts also have ruled that implied-in-fact or implied in-law contracts protect long-term employees from arbitrary dismissal. These decisions reflect the courts' heightened awareness of the desire and need of the American worker for increased job security.

But courts retreat to an unstated presumption that dismissals made for economic reasons are valid. They pay

Stephen R. Carley is a member of the firm of Rogers & Wells in Los Angeles.

lip service to the principle of making sure that the reason for the dismissal is a "reduction in force" and not something more invidious. But in fact the phrase "reduction in force" usu ally protects the firing decision from close judicial scrutiny.

IMPLIED CONTRACTS Employment contracts can be

express or implied. Implied contracts can be inferred from employee hand books, oral agreements or a long course of dealings. But whether ex press or implied, a contract is not an absolute bar to dismissal.

In Clutterkam v. Coachman In dustries, Inc., 169 Cal. App. 3d 1223 (1985), the plaintiff had been em ployed by Sports Coach Corporation of America, a manufacturer of rec reational vehicles, as its West Coast sales representative for seven years. Shortly after Coachman acquired Sports Coach, Clutterham and Coachman executed a written agree ment with a termination clause that allowed either party to terminate on 30 days' written notice and provided that a violation of the agreement would immediately terminate it.

A couple of months later, Coach man fired Clutterham on the grounds that the RV market had declined and that Coachman had decided to con

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sol?date its operations in Indiana. Clutterham filed suit, alleging

wrongful termination, breach of oral and written contracts, and breach of implied covenants of good faith and fair dealing.

After assuming that there was a contract requiring good cause for ter mination, that the contract was sub ject to implied covenants of good faith and fair dealing, and that the plain tiff had performed well on the job, the trial court granted Coachman summary judgment. The court held that there was "good cause" for ter

mination because of the depressed industry conditions and relocation of corporate operations.

California's intermediate appel late court affirmed, holding that after Coachman made a business judg ment to reorganize, Clutterham's ser

vices were no longer needed. "Courts must take care not to interfere with a legitimate exercise of managerial discretion," the court said.

The Court of Appeal rejected Clutterham's argument that the em

ployer should be required to consider the plaintiff's economic interest when deciding whether to reorganize. Nothing in California decisional law, the court said, "suggests that in mak

ing the business judgment to reorga nize its marketing operations re

spondent had a duty to consider appellant's economic interest and try to preserve his job if possible."

The Clutterham court did note, however, that it would examine the matter more closely if the reason of fered by the employer for the termi nation was "pretextual."

A similar approach was taken in Sorosky v. Burroughs Corp., 37 F.E.D. 1510 (CD. Cal. 1985) where the U.S. District Court for the Central District of California granted sum mary judgment against a plaintiff who claimed that his lay-off, which resulted from a business decision to streamline operations, violated an

implied contract not to lay him off. The court said the employer was un der no obligation to consider the plaintiff's seniority in deciding whom to lay off and that it would not inter fere in the legitimate, non-pretextual exercise of managerial discretion.

Dismissals made for good cause will generally survive judicial scru tiny. But what is good cause? In Cro sier v. United Parcel Service, Inc., 150 Cal.App.3d 1132 (1983), the Cal ifornia Court of Appeal explained that, "In articulating 'good cause,' the

court must balance the employer's interest in operating his business ef ficiently and profitably with the in terest of the employee in maintaining his employment and the interest of the public in maintaining a proper balance between the two."

The Crosier court expressly re jected the employer's argument that there should be a rule of just-cause dismissal that would preclude a re view of the legitimacy of an employ er's business reasons for discharging an employee.

"An implied-in-fact or implied in-law promise to dismiss an employ ee only for cause," said the court, "would be illusory if the employer were permitted to be the sole judge and final arbiter of the propriety of the policy giving rise to the dis charge. If we were to adopt such a rule, an employer could implement a patently absurd business policy car apaced from judicial inquiry."

AGE DISCRIMINATION Older employees may be protect

ed from reductions in force by the Age Discrimination in Employment Act ("ADEA," 29 USC ?621 et

seq.). But

so long as age is not a factor in the lay-off decision, these challenges have

68 ABA JOURNAL / OCTOBER 1, 1987



been unsuccessful. For example, in Ackerman v. Diamond Shamrock Corporation, 670 F.2d 66 (6th Cir. 1982), summary judgment was en tered in favor of an employer against an employee who claimed that he had been laid off in violation of ADEA.

The Sixth Circuit affirmed, say ing that "ADEA 'was not intended as a vehicle for judicial review of busi ness decisions.'

"

The only reason the plaintiff had been selected for early retirement, said the court, was that the defend ant "made a legitimate business de cision to eliminate plaintiff's job and divide his duties between two other employees."

"The only motivation for that decision, from the evidence in the re cord, was the desire to increase cor porate efficiency." And, the court added, an employer "may make a subjective judgment to discharge an

employee for any reason that is not discriminatory."

Other circuits have reached sim ilar conclusions on the scope of ADEA protection. In Parcinski v. Outlet Company, 673 F.2d 34 (2d Cir. 1982), the Second Circuit reasoned that the ADEA "does not forbid essential cor

porate belt-tightening having no dis criminatory motivation," and "does not authorize the courts to judge the wisdom of a corporation's business decisions."

The Court also expressly de clined to require the defendant to ex

plore other methods of effecting economies?policies of attrition, across-the-board salary reductions,

adjustments in bonuses or the offer ing of outplacement facilities.

It's no understatement to say that courts are loathe to second-guess business decisions. Requiring em

ployers to show cause for termina tions "could prohibit lay-offs necessitated by adverse business con ditions" and "are not the kinds of judgments the courts are permitted or required to make" under ADEA, said the court in Bishop v. Jelleff As sociates, 398 F.Supp. 579 (D. Md. 1974). "To conclude otherwise," the court added, "would make the fed eral courts a super board of directors reviewing bona fide management de cisions, a procedure Congress clearly did not intend by passage of this Act."

In Sahadi v. Reynolds Chemi cal, 636 F.2d 1116 (6th Cir. 1980), the

defendant proved that it dismissed the plaintiff because it needed to change its product line and decrease its work force. The Sixth Circuit af firmed a directed verdict in favor of Reynolds Chemical and specifically declined to require it to find the plaintiff another job or fire other em

ployees to make room for him.

CIVIL RIGHTS ACT CASES Other terminated employees

have chosen to pursue their rights under Title VII of the Civil Rights Act of 1964.

Racial Discrimination. Plain tiffs who challenge their termina tions or demotions on the basis of race discrimination must establish a pri ma facie case that they were within the protected class, suffered an un favorable employment action, were

qualified to assume another position at the time of discharge or demotion, and that their employer did not treat race neutrally.

The final element requires the plaintiff to show that his employer consciously refused to consider re

taining or relocating him because of his race, or considered his race as a negative factor. Gilyard v. S. Caro lina Dept. of Youth Services, 38 Fair Empi. Prac. Cas. 531 (D. S.C. 1985).

Sex Discrimination. In Gra ham v. Texasgulf Inc., Civil No. B 85-479 (TFGD) (D. Conn., June 18, 1987), Graham sued Texasgulf, alleg ing that sex discrimination led to her termination after a series of reduc tions in the work force at Texasgulf.

The court made clear that sex discrimination is no easier to prove than racial discrimination. To estab lish a prima facie case, "A plaintiff

must prove (a) she belonged to a class of persons protected by Title VII; (b) that she suffered an unfavorable em ployment action at the hands of her employer; (c) that she was qualified to assume another position at the time of her discharge; and (d) that the em ployer did not treat gender neutrally, but discriminated based upon it."

The Graham court found that the plaintiff did not meet either the third or fourth prong of its test?even though a male co-worker was re

tained?because the co-worker was

not less qualified than plaintiff, and the decision among the candidates was based on subjective criteria.

In another sex discrimination case, Maskin v. Chromally Ameri can Corp., Civil Action No. 84-1952 (E.D. Penn. April 14,1986), the court applied a similar four-part test to the plaintiff's prima facie case. The plaintiff in Maskin failed to prove the fourth prong: that she was dis charged while similarly situated males were treated more favorably.

In both Graham and Maskin, the courts further found that even if a prima facie case had been made, there was no showing that the reduction in force was a mere pretext for the em ployee's termination. The test set out in McDonnell, therefore, makes it very difficult to show sex discrimi nation where there was a reduction in force.

The lesson here is that courts aren't likely to help employees who suspect they've been fired for a rea son other than "reduction in force." Although employment contracts (ex press or implied), age-discrimination and civil-rights laws limit an employ er's right to fire, courts still hesitate to interfere with dismissals made for ostensibly economic reasons.

70 ABA JOURNAL / OCTOBER 1, 1987



at-will employees still vulnerable

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