Everybody wins with at-will employment

In the U.S.A. of old, your boss could fire you if he didn’t like the color of your socks, the smell of your lunch, or the pitch of your sneeze. And you could get up and walk whenever it suited you. While the latter remains true, the traditional rule that an employer can discharge staff at will has undergone some erosion over the last five decades. Many worry that employees need legal protection from an employer’s freedom to terminate them. As it turns out, though, everybody is better off when both employers and employees can end an employment relationship for any reason and at any time.

The United States has long followed the default rule that any employment contract that does not state otherwise can end at the will of either party. That rule has come under attack as courts have expanded laws that allow employees to sue their employers for firing them without a good reason. Because these laws hurt employers, employees, and the economy, PLF recently filed two amicus briefs (here and here) in the Supreme Court of Washington to warn against the expansion of exceptions to the rule of at-will employment.

Both cases involve an exception to the at-will rule called “wrongful termination in violation of public policy.” This exception applies if, for example, your boss fires you in retaliation for your filing of a workers’ compensation claim. Washington courts have developed this narrow exception to the at-will employment doctrine to account for these types of employer actions that clearly violate public policies rooted in state statutes. However, this exception often threatens to grow beyond its tight confines.

In Rickman v. Premera Blue Cross, Inc., Ericka Rickman worked as director of an insurance agency. Her son was an insurance agent under her supervision. Rickman played favorites in various ways, including raising her son’s wage by twice that of his peers. Premera investigated the problem and fired her. A few weeks before her discharge, Rickman had heard that Premera was considering a new business plan. Without knowing the plan’s details, she asserted her belief that the plan would violate federal law. Premera never adopted the plan. After her termination, Rickman sued, claiming that Premera had fired her for expressing the opinion that the unadopted plan would have violated the law.

In the other case, Rose v. Anderson Hay and Grain Company, Charles Rose drove trucks for three years before his dismissal. He sued for wrongful termination in violation of public policy, alleging that the company fired him for his refusal to exceed federal work hour limits and falsify his time sheets. However, if he had just filed a grievance with the appropriate federal agency, he could’ve received all the remedies he now seeks in court: backpay, reinstatement, etc. Because he missed the deadline to apply for the federal remedy, he sued under state tort law.

In both cases, PLF is urging the Washington Supreme Court not to expand the tort of wrongful termination in violation of public policy to these circumstances. The at-will rule benefits employers and employees, and broad exceptions to it do more harm than good.

Wrongful termination laws ignore the many social and economic incentives that already constrain employers from unfairly firing their employees. Employers pay a heavy price when they fire someone. Training employees eats up a lot of time, effort, and money. No employer wants to toss that investment away without good reason. And employers don’t want to repeat the hiring process, lose work while awaiting a replacement, and retrain someone. Other costs of termination include contractual severance packages and increased tax rates for unemployment insurance. Finally, businesses need a loyal, cooperative, and happy workforce. When employers fire staff unfairly, it damages the employer’s reputation and relationship with other staff, thus undermining the healthy work environment vital to business success.

The tort of wrongful termination in violation of public policy lacks the clarity that businesses need. The concept of “public policy” has no concrete meaning, and even where a clear public policy exists, employers cannot predict when their actions might violate it. Uncertainty about when firing decisions result in a lawsuit hurts employers and employees alike. When employers know they can discharge a new hire without fear of a lawsuit, they are more likely to take a chance on dicey job candidates. But employers leery of a future lawsuit become stingy about hiring. The fear of liability thus hurts people who already have a hard time finding good jobs–the uneducated, the unskilled, and those who carry a stigma such as a prior dismissal or criminal record. Skittish hiring practices also slow job growth. As the economy rebounds from recessions, the ghost of liability lingering behind every hiring decision makes employers hesitate to respond to market upswings with a new round of hiring. Wrongful discharge laws thus worsen unemployment and economic downturns.

Wrongful discharge torts also poison the workplace by shielding rotten employees. For one thing, businesses fearing liability may hesitate to fire. Worse, outsiders can make employment decisions best left to those who know the business. Firing decisions involve considerations rooted in context and unique aspects of each work environment. Courts or juries that don’t grasp the reasons for dismissing an employee may require reinstatement against the will of the very people forced to work with him. This is a sure recipe for workplace tension and decreased productivity.

The at-will employment rule respects autonomy and relies on self-interest and social norms to police the employment relationship with much greater precision and lower cost than litigation. When courts undermine this rule by giving discharged employees a right to sue, employees as a class suffer, along with businesses and the economy as a whole.