The At-Will Rule

Excerpted from: Cynthia L. Estlund, THE CHANGING WORKPLACE: Wrongful Discharge Protections in an At-Will World, June, 1996, U.T. Law Review Symposium

The at-will rule in its original form was short and simple: "Men must be left ... without interference ... to discharge or retain employees at will for good cause or for no cause, or even for bad cause without thereby being guilty of an unlawful act per se." The at-will rule grew out of broad notions of employer property rights and freedom of contract. Freedom of contract, while it is no longer a constitutional barrier to most regulation of employment, remains the crucial background against which all workplace regulation operates and effectively governs most of what takes place within the employment relationship.

Freedom of contract permitted employers to fire or refuse to hire union supporters, African Americans, women, or other disfavored classes. As particular exercises of employer discretion provoked public disfavor, legislatures carved out exceptions from the general rule of freedom of contract, while disavowing any attempt to disrupt that general rule. The first important exceptions to the employer's power to hire and fire at will were in support of the young labor movement. First in the railroad industry and later in nearly the entire private sector, federal legislation prohibited employers from firing (or refusing to hire) individuals for joining or supporting a labor union. The National Labor Relations Act of 1935 remains perhaps the most sweeping limitation on employment at will, for it prohibits employers from firing or disciplining employees not only for union activity but also for a range of peaceful protests by two or more employees, including complaints, grievances, petitions, strikes, and other activity that the employer genuinely and even reasonably perceives as contrary to its economic interests.

The NLRA also contained a second and far less dramatic anti-retaliation provision that prefigured numerous statutory provisions enacted in the 1970s and later: what is now section 8(a)(4) of the NLRA prohibited employers from retaliating against employees based on their filing charges or giving testimony in National Labor Relations Board proceedings. The logic of the provision was obvious, making it one of the few noncontroversial provisions in a highly controversial statute: the enforcement of the Act depended almost entirely on the willingness of employees to bring complaints or to testify about employer conduct. Yet employers might be tempted to deter and punish such activity by the power and the threat of discharge. The law must protect its own proceedings and facilitate its own enforcement by prohibiting retaliation against employees who participate in these processes.

The next great reconstruction of employment law, and of the power to fire at will, began with Title VII of the Civil Rights Act of 1964, which established the prohibition of employer discrimination on the basis of "race, color, religion, sex, or national origin." What had begun as a battle against the legacy of slavery thus took shape in Title VII as a much broader ban on discrimination based on a variety of immutable group traits. The extension of the anti-discrimination principle to private employment, though strongly opposed at the time and not yet fully vindicated, has come to occupy a virtually unchallenged place in the national conscience.

The NLRA and Title VII can be seen as the templates for two important kinds of exceptions to employment at will: anti-retaliation provisions protecting voluntary, socially-valued activities and anti-discrimination provisions prohibiting adverse employment decisions based on traits that have been but should not be the basis for group disadvantage. The latter are the most familiar and most significant: in the wake of Title VII, Congress passed the Age Discrimination in Employment Act, the Pregnancy Discrimination Act, and the employment provisions of the Americans with Disabilities Act, all based on the antidiscrimination model pioneered by the Civil Rights Act of 1964.

The anti-retaliation principle of the NLRA has also been echoed in a less familiar set of anti-retaliation or "whistle-blower protection" provisions of statutes regulating working conditions or other employer conduct. Such provisions are routinely included in federal statutes regulating terms and conditions of employment, such as health and safety laws, minimum wage and maximum hours laws, and pension laws, as well as in the anti-discrimination laws. In addition, many federal laws that regulate the conduct of private firms outside the employment context, such as pollution control laws, prohibit retaliation against employees who report violations or participate in proceedings against their employer. Several states have enacted broader "whistle-blower protection" statutes providing limited remedies for employees who suffer employer retaliation for reporting specified kinds of wrongdoing to public authorities.

Many of these legislative inroads on employment at will were in place when the more highly-publicized judicial assault got underway. Most relevant here are the public policy cases, which have largely escaped the economic counterattack waged on behalf of employment at will. The public policy cases fall largely into three categories: discharges based on the employee's exercise of a clear legal right (such as the filing of a workers' compensation claim); discharges based on the employee's performance of a clear public duty (such as the performance of jury duty); and discharges based on a refusal to violate the law (such as the refusal to engage in perjury or, in one well-known case, to engage in indecent exposure by "mooning"). Some cases have extended the public policy doctrine to protect employees who disclose or "blow the whistle" on illegal conduct within the organization. Most of these public policy cases fit comfortably into the anti-retaliation model pioneered by the federal and state legislatures: they afford a remedy for discharges based on voluntary employee conduct that society values and seeks to encourage.

These anti-retaliation and anti-discrimination doctrines make up what I will call the law of "wrongful discharge": unlike the doctrines of "implied covenant of good faith" or of implied contract, each of them requires proof of a particular wrongful motive on the part of the employer. Together these wrongful discharge doctrines have dramatically altered the at-will environment. What we are left with is a version of at-will employment that differs dramatically from its forbears: employers are free to fire employees for good reason or for no reason, but not for the many bad reasons that are condemned by law.

The Causes and the Consequences of Consensus

The "bad motive" doctrines have garnered a surprisingly broad consensus. They occupy a patch of common ground in an otherwise sharply divided battleground. I do not mean to ignore the controversy over certain applications and extensions of the core anti-discrimination and anti-retaliation concepts. There is active debate over the doctrines of "disparate impact," sexual harassment, and affirmative action under Title VII, over the demise of mandatory retirement under the ADEA, and over the application of the discrimination model to pregnancy and disability. There is plenty of controversy over the size of verdicts and the cost of litigation under the common law doctrines, sometimes including the public policy doctrine. But there remains a core of "bad motive" exceptions that are widely accepted.

Employee advocates accept the "bad motive" exceptions as a good beginning, and as the harbingers of more sweeping inroads on at-will. Indeed, the rapid proliferation of "bad motive" exceptions in the 1960s and 1970s led some optimistic observers to predict the complete demise of at-will employment in favor of a general regime of "just cause." This has not come about, of course. But these commentators nonetheless regard the existing wrongful discharge regime as a partial victory over the worst consequences of employment at will. The at-will rule is perceived to be in retreat, and its impact confined to cases in which the employer's reason is simply arbitrary or insufficient to justify discharge.

Most of those who defend employment at will also largely accept the existing "bad motive" exceptions. With respect to the common law "public policy" exceptions, this is sometimes explicit. Judge Richard Posner, for example, has asserted that "[a] common law tort of unjust termination [is] sensibly applied to cases where a worker is fired for exercising a legal right - for example, giving truthful but damaging testimony against his employer in a suit by the government against the employer for tax evasion ...." Even Professor Epstein would recognize a narrow public policy exception for discharges based on a refusal to commit perjury or perhaps other crimes. With respect to the statutory wrongful discharge exceptions, the evidence of assent is indirect but powerful: with the voluble exception of Professor Epstein, the defenders of at-will mount no serious challenge to the numerous statutory anti-discrimination and anti-retaliation exceptions. In this context I believe it is fair to take silence as assent: insofar as a defense of at-will does not include a defense of discriminatory or retaliatory discharges, I take it to accept the existing prohibitions. What the mainstream defenders of at-will employment thus defend is a modern and more moderate version of the rule under which an employer may fire an employee "for good cause or for no cause, or even for bad cause," except for a variety of particular bad causes condemned by law.

It is worth considering why this is so. First, the "bad motive" exceptions do not intrude deeply into the core of what the defenders of at-will regard as legitimate employer discretion - the power to evaluate employee conduct and performance and to make judgments about what is best for the organization without being second-guessed by outsiders. A general "just cause" requirement, and the broad-gauged "good faith" doctrines, pose a broader challenge to legitimate employer discretion.

Second, the "bad motive" exceptions at their core rest on strong and widely shared moral commitments that reach well beyond the workplace. The basic anti-discrimination principle has constitutional roots and has been extended through legislation into nearly every sphere of public and economic life; its meaning is contested and its realization very partial, but its status is secure. The scope of the anti-retaliation principle is less sweeping, but it too resonates with a basic constitutional principle - that of the First Amendment - and extends beyond the employment sphere. Many of those who defend broad employer discretion nonetheless recognize limits on that discretion in some egregious cases. Moreover, as a tactical matter, the defense of at-will would be a steep uphill battle if it required a direct confrontation with the broad moral consensus behind the anti-discrimination and anti-retaliation principles. It is far easier to defend a narrower at-will rule that merely requires us to tolerate discharges based on reasons that are not good enough.

There is a third and related reason, I believe, for the relatively firm consensus in favor of the "bad motive" branch of wrongful discharge law. Many of these wrongful discharge doctrines protect not only the interests of employees but also the interests of third parties or of the public - interests that would suffer if employers were given the full power over their employees that the pure at-will regime would afford. That is true in different ways for both the anti-discrimination and the anti-retaliation doctrines.

Professor Richard Epstein's attack on Title VII has spurred the growth of a rich scholarly literature on the social costs - economic, political, and moral - of employment discrimination, particularly that based on race. Given the importance of jobs to economic and psychic well-being, social status, and integration into civic life, employment discrimination based on immutable traits or group membership contributes to economic stratification, division, and conflict. Racial discrimination also tends to promote under-investment in human capital, to the detriment of the economy as a whole. Moreover, just as some individuals may have a "taste for discrimination," many have a "taste for equality" that would be defeated by widespread employment discrimination and its consequences. Title VII places the weight of federal law on the side of equality.

The anti-retaliation doctrines also support public interests beyond the employment relationship. The public costs of prohibited retaliation are easy to grasp, for example, when an employer retaliates against an employee who refuses to engage in unlawful conduct. If the underlying law - the law against perjury or fraud or pollution, for example - makes sense and promotes public purposes, then so does the prohibition of employer coercion of the unlawful conduct. Similarly, many anti-retaliation provisions protect employees who disclose illegal conduct. To the extent that law enforcement depends on, or is aided by, voluntary employee informants and complainants, retaliation against those employees undermines law enforcement. A thorough justification of these anti-retaliation provisions would require a defense of the underlying regulations. The present analysis offers a more limited defense: assuming that the underlying regulations serve the public good, the protection of employee informants from employer retaliation serves the same public good.

The most important remaining anti-retaliation provision protects conduct that the employee has a right to engage in but that perhaps less obviously serves public objectives: the NLRA's prohibition on discrimination against union activity. Still, employee free choice regarding unionization lies at the foundation of the entire existing legal regime for the governance of labor-management relations; employee free choice, at a minimum, is deemed necessary to promote industrial peace. Much labor law is under political scrutiny, but the core premise of employee freedom to choose unionization is not up for grabs. Unless we revisit that entire regime - and I do not intend to do so here - we must acknowledge that employer retaliation against employees who exercise that choice undermines the objectives of national labor policy.

There is thus a fairly wide consensus among the leading commentators on at-will employment that the law has legitimately and more or less adequately taken care of the most egregious unjustified discharges - those that are based on particular discriminatory or retaliatory motives that society has explicitly disapproved. Both critics and supporters of the modern at-will regime tend to regard the at-will rule, and the debate over the at-will rule, as concerning a different set of cases in which the employer's reason for discharge is not particularly bad, or at least not illegal, but is arguably arbitrary or inadequate.

Once the debate is framed in these terms, it becomes readily amenable to economic analysis: the costs and benefits of what remains of the at-will rule and of its just cause alternative appear to be basically economic in nature. Most crucially, those costs and benefits accrue to the parties to the employment contract. Much of the debate has thus revolved around the contractarian model and its standard economic qualifications - information costs and disparities, collective action problems within the workforce, and other transaction costs.

The early challenges to at-will employment produced a near consensus that the rule was unfair and outmoded. These critics argued that the prevalence of at-will employment reflects the enormous inequality in bargaining power between employers and employees, that it gives too little protection to workers' stakes in their jobs, and that it countenances a significant number of precipitous, ill-informed, or opportunistic discharges. They argued for the recognition of a kind of property right based on the investment that individuals make in their jobs and on the catastrophic consequences of discharge. These critics also appealed to basic notions of fairness and to procedural norms developed in the public sector under the Due Process Clause.

Supporters of at-will responded, and laid down the terms of the current debate, with a vigorous defense of the market and the choices it generates. In a competitive labor market, they argue, arbitrary discharges are costly to the employer and therefore rare. They argue that the at-will rule functions largely as a shield against erroneous and costly second-guessing of employers' judgments about employee performance and conduct, particularly when employee "shirking" or misconduct is difficult to detect. They reject the claim of unequal bargaining power, arguing that employees are fully capable of demanding protection against the risk of unjustified discharge by choosing employers who offer such protection. However, given the costs of such protection to the employer, employees would have to pay a premium for just cause protection; and given the low risk of unjustified discharge, for most employees such protection is simply not worth the price. It is therefore probable that the continuing currency of at-will employment simply reflects the preferences of the parties, and that imposition of a just cause alternative would make both employers and employees worse off.

The critics of at-will counterattack on two fronts: they challenge the effectiveness of the external labor market in vindicating employee preferences in light of inadequate information about an employer's practices regarding discipline and discharge, biases in individuals' decisionmaking and assessment of risk, and the high cost of exit, particularly to the career employee. These critics emphasize instead the importance of the internal labor market, workers' investment in human - and sometimes firm-specific - capital, and the life-cycle wage model, as well as the related problems of public goods, employer opportunism, and the virtues of employee voice. These arguments undermine the claim that actual contractual practices, and the prevalence of at-will employment contracts, reflect the genuine preferences of employees.

This debate has immeasurably advanced the understanding of employment contracts and their legal regulation. But it is based on the premise that we have taken care of the recognized social problems of discrimination and retaliation through existing wrongful discharge laws, and that all that is at stake in the debate over at-will employment is the middle ground of not-clearly-justified discharges affecting only the individual worker and her employer. I want to dispute that premise. I will argue that the at-will regime exists not just alongside the established wrongful discharge laws, but underneath those laws. It governs not only the residual cases to which existing wrongful discharge laws do not apply; it also undermines and distorts the operation of those laws. To the extent that this is true, the economic defense of at-will is incomplete and vulnerable.

The Continuing Influence of Employment at Will on Wrongful Discharge Law

Proof of a wrongful discharge requires the plaintiff to prove one particular unlawful motive on the part of the employer, of whom the law otherwise requires no reason at all. The at-will regime is thus actively and aggressively present in every wrongful discharge dispute. What is therefore at stake in the debate over the modern version of at-will employment is the efficacy of each of the policies underlying the existing and largely uncontested "bad motive" exceptions to the at-will regime.

This is true for both of the two large categories of wrongful discharge doctrines: those that prohibit discrimination based on some trait or group membership, such as race, sex, religion, ethnicity, age, or disability, and those that prohibit retaliation for some socially valued activity, such as the exercise of a legal right or duty or the disclosure of wrongful conduct. The efficacy of both types of wrongful discharge doctrines is undermined by problems traceable to the surrounding at-will environment. One set of problems is common to both the anti-discrimination and anti-retaliation areas; other problems are peculiar to each.

Proving Bad Motive

The fundamental problem with the existing "bad motive" exceptions to employment at will is the inherent difficulty of proving that bad motive. The burden invariably lies with the employee (or an agency on the employee's behalf) to prove a particular prohibited motive on the part of an employer who is almost certainly better advised than the employee and who creates and controls virtually all of the relevant documents and employs most of the potential witnesses.

This burden is all the greater for imperfect employees who have made mistakes, fallen short of the employer's standards on occasion, or sometimes been absent or late or irritating. Although the law protects imperfect as well as perfect employees from discrimination and retaliation, the burden of proving the bad motive may be overwhelming for the former. The problems of proof are further magnified to the extent that employers and their supervisors are reasonably well-educated about the employment laws, reasonably cautious in avoiding statements evidencing bad motives, and reasonably diligent in documenting employee shortcomings. The cautious, liability-conscious employer has means, motive, and opportunity to create a plausible record in support of what may in fact be an illegally motivated discharge.

But in fact the employer need not document any legitimate motive; that is what the at-will rule means in the context of a wrongful discharge action. This point was driven home in the context of Title VII by the Supreme Court's recent decision in St. Mary's Honor Center v. Hicks. The plaintiff in Hicks had made out a prima facie case of race discrimination: he was black, he was fired, and he was replaced by a white employee. This showing shifted to the employer the burden of coming forward with a nondiscriminatory explanation for the decision. The employer did so, but Hicks refuted this explanation to the satisfaction of the lower court, leaving his prima facie case unanswered. The Supreme Court held that this was not enough to establish Title VII liability; the plaintiff must still prove the presence of a discriminatory motive. Whether that interpretation of Title VII is right or wrong (and it is not obviously wrong), it vividly illustrates the gravitational pull of the at-will presumption even within the most entrenched province of wrongful discharge law. When liability depends on proof of a particular bad reason for discharge, "no reason" or even a demonstrably false or fabricated reason is good enough for the employer to escape liability.

The at-will rule continues to rear its head even after proof of an unlawful motive. For once an employee has shown that her discharge was motivated in part by an unlawful consideration such as race, sex, or protected activity, the employer still has an opportunity to prove that it would have made the same decision anyway for permissible reasons. These are the "mixed motive" cases. As a justification for giving the unlawfully motivated employer this opportunity to escape liability, the Supreme Court has cited "employer prerogatives," which are epitomized by employment at will. Employment at will also makes this employer defense an especially potent weapon against plaintiffs, for employment at will means that "permissible reasons" need not be fair or just or reasonable, but simply not unlawful. Employment at will means that the entire universe of foolish, petty, unfounded, or arbitrary reasons for discharge - as long as they are not unlawfully discriminatory or retaliatory - are available to the employer to excuse a discharge that has already been proven to be motivated in part by unlawful reasons.

The problems of proof are magnified by the procedural hurdles that employees face in making their claims. Some wrongful discharge doctrines are enforced through administrative procedures, while others are enforced through a private right of action; Title VII combines the two. But either sort of remedial scheme poses hurdles that inevitably screen out many meritorious claims and that undermine the underlying anti-discrimination or anti-retaliation policies.

In the case of administrative schemes, an agency may reject many meritorious but hard-to-prove cases, particularly when enforcement resources are tight. For the vast majority of these statutory schemes that afford no private cause of action, the agency's decision not to prosecute is the end of the matter. Perhaps in part for that reason, most of these provisions are virtually unknown to employees and even lawyers. Some combination of employee ignorance about these provisions, short limitations periods, inadequate agency resources, lack of political will, and vagaries of proof have rendered many statutory anti-retaliation provisions virtually dormant. An important example is Section 11(c) of the Occupational Safety and Health Act, which prohibits retaliation against employees who report workplace health and safety violations. Most workers are unaware of this section's protections, so there are few complaints, only a tiny fraction of which result in any relief. Even administrative processes that are comparatively well known, such as those of the EEOC, have pitfalls that either delay or deny a remedy in many meritorious cases.

In the case of private rights of action under statutes and common law doctrines (such as the public policy torts), the difficulty of establishing motive, together with the relatively limited economic damages that most plaintiffs can hope to recover, make it difficult for middle- and lower-income plaintiffs to find a lawyer. The typical discharged (and probably unemployed) employee cannot afford to pay a lawyer, and the likely recovery in most cases does not promise a big contingency fee. The normally modest recoveries, difficulties of proof, delay, and expense of litigation make many of these protections the near-exclusive province of professionals and white-collar employees. Indeed, while employers continue to deplore the rising cost of wrongful discharge litigation, plaintiffs' actual success rates and recoveries in these cases appear to be quite modest.

I want to stress the extent to which all of these problems are traceable to the at-will background against which these wrongful discharge doctrines play out. The at-will rule presumptively concedes to the employer the power to fire at any time for any reason; unless and until the employee can overcome all the hurdles of delay, cost of litigation, and difficulties of proof in establishing a wrongful discharge, she remains out of a job and without relief.

Excerpted from: Cynthia L. Estlund, THE CHANGING WORKPLACE: Wrongful Discharge Protections in an At-Will World, June, 1996, U.T. Law Review Symposium

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