Employment at Will: An Emerging Issue for Small Businesses

Abstract

EMPLOYMENT AT WILL: AN EMERGING ISSUE FOR SMALL BUSINESSES A U.S. work force more educated about employment rights has resulted in small business becoming increasingly vulnerable to legal suits which could have adverse effects on the profitability and life of the business. The traditional employment-at-will doctrine states that because the employer and the employee freely enter into the employment relationship, both retain the right to sever the relationship at any time. In other words, the employee can leave the organization at will and the employer can terminate the employee at will. Under the employment-at-will doctrine, common law bars employees from suing employers to recover damages for what the employee considers to be a wrongful discharge action. While courts have not abandoned the employment-at-will doctrine, judges have allowed modifications and exceptions in order to rectify perceived inequities and to correct imbalances.1 1 Laurence Z. Lorber, Basic Advice on Avoiding Employment-at-Will Troubles,' Personnel Administrator (January 1984), p. 59. Small businesses would appear to be particularly vulnerable to potential wrongful discharge law suits filed by employees. Only 6 percent of firms employing fewer than 25 are unionized; the corresponding figures for larger firms are: 14.5 percent of firms employing 25-99, and 21.9 percent for those employing 100-499. Since small firms are unlikely to be unionized, terminated employees are less likely to submit their cases for independent review such as arbitration. And since small businesses employ nearly half of the nation's work force,2 one-half of the estimated two million employees discharged each year without the right to appeal to an external review board could form a large pool of potential litigants alleging wrongful discharge. Undoubtably, most of these employees are terminated for good reasons; nevertheless, thousands of suits are brought in state and federal court each year. In California alone, 51 wrongful discharge cases went to court between October 1979 and January 1984. Of this number, 70 percent were won by the plaintiffs, with an average jury award of $178,184 (the nineteen highest averaged $553,318).3 2 The State of Small Business (Washington, D.C.: U.S. Government Printing Office, 1984), p. xv. 3 Jack Stieber, Recent Developments in Employment-at-Will,' Labor Law Jounral (August 1985), pp. 557-559. Many wrongful discharge suits are filed by prefessional, managerial, and technical employees, perhaps because the perceived amount or duration of economic or personal loss resulting from termination is high. These employees may also possess the financial resources needed to pursue a legal challenge. This article reports on exceptions to the employment-at-will doctrine and reports the results of a survey of the employment policies and practices of 41 small (fewer than 500 employees) and 59 larger firms (more than 500 employees). Recommendations are made concerning how small business owner/managers can prevent being sued for wrongful discharge. EXCEPTIONS TO THE EMPLOYMENT-AT-WILL DOCTRINE Exceptions to the employment-at-will doctrine can be classified into three categories: (a) public policy, (b) implied contract, and (c) good faith and fair dealing. However, the fifty U.S. states differ in the number and type of employment-at-will exceptions which have been recognized. (See exhibit 1.) Public Policy Exception The most common limitation to the employment-at-will doctrine is the public policy exception. This exception means that an employer may not terminate an employee for any reason that contravenes any fundamental principle of public policy. Examples include fring an employee for such reasons as: refusing to commit perjury in a court trial or before a legislative committee; serving on a jury; reporting illegal conduct by an employer; filing a worker's compensation claim; refusing to take a polygraph test; refusing to lobby for a law favorable to the employer; or refusing to violate a professional code of ethics. …

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