Employment Law for Business: At-Will Employment - Term Paper Example

Outline The chosen topic for my term paper is ‘At will employment’ as one of the prominent employment contracts in existence today. The paper will attempt to discuss the history of this contract type and to contextualize the geographical contexts where it is found. Notably, the paper will focus on France where at will contacts are rare and even inexistent versus the USA, where at will contracts are the norm. In this comparison and exploration, the paper will attempt to discuss the benefits that accrue for at will employment contracts for both employees and employers, as well as the various variations possible or evident in the regions where it is practiced. Introduction The contemporary reality forces people to engage into employment contracts in order to write down their legal rights and obligations to each other and in order to provide to the labour relations a certain security and stability. Labour contracts are concluded between employers and employees. According to Selwyn N. the term “employer” can be defined as “a readily identifiable identity, …, any person, partnership, corporate body or unincorporated association who (which) employs one or more persons under a contract of employment”.1 The Fair Labour Standards Act gives another definition to the term “employer”: “ "Employer" includes any person acting directly or indirectly in the interest of an employer in relation to an employee and includes a public agency, but does not include any labor organization (other than when acting as an employer) or anyone acting in the capacity of officer or agent of such labor organization.”2 Although FLSA does not cover all the categories of employers (it does not refer to small businesses with an annual income less than 500 000 USA dollars, whose activity does not refer to interstate commerce) this is a legal definition of this term. On the other hand, the employee is defined by FLSA as “any individual employed by an employer”3. Magratten R. B. defines employee as “a person who works in the service of another person under which the employer has the right to control the details of work performance.”4 However, every employee is a worker, but not every worker is an employee. The law recognizes two types of labour relations: employee-employer and contractor-contracting party. A good differentiation was made by the Canadian legislation, in the Revenue Canada Interpretation Bulletin IT-525: "A contract of service [employee] generally exists if the person for whom the services are performed has the right to control the amount, the nature and the direction of the work to be done and the manner of doing it. A contract for services [independent contractor] exists when a person is engaged to achieve a prescribed objective and is given all the freedom he requires to attain the desired result".5 The employee and the employer bind each other through an employment contract which is "a legally enforceable agreement, either oral or written ... which defines terms and conditions of employment"6. A contract is compulsory; otherwise, the worker shall not be considered an employee, with all the legal consequences that arise from this judgment. Employment contracts are nowadays divided into two big categories: employment at will and just cause. At will employment contracts enforce the employer to terminate the work relations with the employee at will, with or without a plausible reason. The same refers to the employee – he can terminate the contract anytime he wants to. The difference between at will and just cause contracts shall be explained by the author further in the term paper. The theme for this term paper has been chosen due to the growing popularity of the at will employment contracts. This paper shall discuss and contextualize at will employment contracts in regards to how they favor employees and employers as well as the regions where they are most common or inexistent. At will employment contracts are a prominent employment contract type in the US7 compared to France; what is it and why has it been deemed to favor employers instead of employees shall also be discussed by the author in the term paper. The author will try to exemplify the statements made in this term paper with relevant legal cases. The conclusion will tie together the discussion of the paper to terminate with a validation or nullification of the thesis statement. A. At Will Employment (i) Basic features of at will employment At will employment is a USA law doctrine, which, according to Cihon P.J. and Castagnera J.O. (2008, page 238) “holds that an employee who has not been hired for an express period of time can be fired at any time for any reason – or no reason at all.”8 However, this is the original form of the at will employment doctrine. Over the years, the laws have slightly modified it, constantly updating it. Regardless of how great the number of definitions of at will employment is, a frequently quoted thesis represents the case of Payne v. Western & Atlanta Railroad Co., 81 Tenn. 507, 519-520, 1884 WL 469 “All may dismiss their employees at will, be they many or few, for good cause, for no cause, or even for cause morally wrong, without being thereby guilty of legal wrong” 9 The basic features of at will employment are: 1. The employer can fire the employee any time he wants to (except for reasons that have been declared illegal through federal or state laws). For example, The Age Discrimination in Employment Act forbids employers to fire old workers10 ; the Occupational Safety and Health Act makes it illegal firing “an employee in retaliation for filing a safety complaint”11 2. The employee can quit his job anytime he wants to. 3. The exception of the implied contract operates. This means that if the parties have agreed to some conditions that will govern the labor relations, even though they have not done it in written, it is presumed that an implied contract is concluded. For example, in the case of Rooney v. Tyson, 91 N.Y.2d 685, 697 N.E.2d 571, 674 N.Y.S.2d 616 (1998), the Court considered that an implied contract existed based on the affirmation of a famous boxer who agreed to hire a trainer for “as long as the boxer fights professionally”.12 (ii) A comparison between at-will employees and just-cause employees The main difference between at will employees and just cause employees is the procedure and legal possibilities of terminating the labor relations with them. At will employees can be fired anytime by their boss, with or without a reason, “and the courts will generally not intervene to protect the ex-employee from allegedly unfair treatment by the employer.”13 On the other hand, in order to fire a just cause employee, it will be necessary to have a well-justified reason, such as lack of professional skills, poor quality of the work etc. This means that an employer can fire an employee for just cause only. As it is obvious, “the default employment status of most workers is at-will. To change it, the employer must create a contract, either by something it writes or something it says … that implies that the employee’s job is secure.”14 A good example of this statement is the case of East Line and Red River Railroad v. Scott, 10 S.W. 99, 102 (Tex. 1888), where the Court found that the agents of the company were entitled to make promises on behalf of the company and this lead to the existence of an implied contract. In some cases, the court found that the existence of a handbook lead to the existence of an implied contract, thus, the employee was a just-cause one. However, in DePhillips v. Zolt Construction Co., Inc., 136 Wash. 2d 26, 959 P.2d 1104 (1998) the Court found that not always a handbook may equal an implied contract. Unless it contains some imperative elements (for example: the names of the parties, the job responsibilities, etc) a handbook is just a handbook. (iii) The history of at will employment contracts The father of the doctrine of at will employment is considered to be Horace C. Wood, who first wrote about it in Master and Servant § 134, at pages 272-273 (1877). According to Standler, R., “Wood simply invented the concept of at-will employment, but wrongly described it as already accepted by the courts”15 The legal concept of the doctrine is that “any hiring is presumed to be "at will"; that is, the employer is free to discharge individuals "for good cause, or bad cause, or no cause at all," and the employee is equally free to quit, strike, or otherwise cease work.”16 In his treatise on at-will employment, Wood cited four legal cases in which the labor relations between the employer and the employee were indefinite, and in which the Court decided to put the burden of proof on the employee. Following Wood’s theory, the Courts have started to apply this doctrine to their decisions, for example: “McCullough Iron Co. v. Carpenter, 11 A. 176, 178-179 (Md. 1887) ("[Wood's treatise] is an American authority of high repute ...."); East Line and Red River Railroad v. Scott, 10 S.W. 99, 102 (Tex. 1888); Philadelphia Packing & Provision Co., 1894 WL 3641 at *3 (Pa.Com.Pl. 1894); Martin v. New York Life Ins. Co., 42 N.E. 416, 417 (N.Y. 1895) ("... we think the rule is correctly stated by Mr. Wood, and it has been adopted in a number of states."); Greer v. Arlington Mills Mfg. Co., 43 A. 609, 610 (Del.Super. 1899) ("Wood, in his Law of Master and Servant (§ 134), very clearly states the difference between the rule which obtains in this country and the one in England, and I can find it nowhere more intelligently and satisfactorily stated. It is as follows:" [quoting nearly one page from Wood]) also "We have no doubt that the great preponderance of the best-considered cases in this country recognize and affirm the rule laid down by Wood in his work on Master and Servant, and which he terms the 'American rule,' ...." Greer at 612, Harrod v. Wineman, 125 N.W. 812, 813 (Iowa 1910) ("... in this country it is held by an overwhelming weight of authority that a contract of indefinite employment may be abandoned at will by either party without incurring any liability to the other for damages. The cases are too numerous to justify citation, but see ...." [citing four secondary sources, including Wood's Master and Servant]).”17 Following the Industrial Revolution, the number of jobs grew, Employee Unions started to exist, the former bargaining power was transformed into negotiation of the contracts. Nowadays, at will employment refers mostly to workers who do not belong to any Union, not having an employment contract. In the USA, where at will employment technically exists, firing a worker for no reason is becoming more and more difficult. The doctrine of at will employment has been narrowed by federal and state laws, forbidding discrimination, harassment and other limitations of human rights. (iv) At will employment versus long-term and short-term employment contracts At will employment is often chosen by employers to govern the labor relations with the employees, but it does compete with other two types of contracts: the long term and the short-term contracts. Long-term contracts bring many advantages both to the employee, as well to the employer. According to the Time magazine, some of these advantages are: 1. “Management need not fear a production-crippling strike for three, four, even five years. 2. Long-term contracts spare labor and management alike the heavy expense of time and treasure that yearly bargaining sessions require. 3. With a fixed wage pattern, companies can plan ahead years in advance, knowing what their labor bill will be; they are able to guarantee delivery without interruptions. Were it not for long-term contracts in the auto industry, for example, countless auto suppliers would live from hand to mouth, not knowing from one day to the next if they could continue operating. 4. The longer contracts thus make for stability.”18 On the other hand, the downside of the long-term contracts should not be omitted: sometimes long-term contracts imply costs bigger than the advantages they bring to the employer. Employers now start preferring to negotiate a new contract every 1-2 years, turning from long-term contracts to the short term. “Labor economists have documented the trend away from long-term firm–worker attachment and toward short-term employment relationships.”19 Short-term contracts imply a period shorter than a year, as a rule, but never longer than two years. Short-term contracts are also called “seasonal” contracts, because they sometimes involve hiring a worker for a seasonal job. Short-term workers are often called by their employees casual workers, in order to avoid them thinking they are entitled to some rights. However, casual or not casual, a short-term employee does have some statutory rights, which cannot be neglected. On the other hand, for the employer short-term contracts represent advantages. According to Martocchio J.J. (2006, page 55) “Short-term employment contracts and increased use of outsourcing are one approach to addressing the need for rapid and frequent changes in required competency.”20 Of course, there are downsides and upsides to all these three types of contracts: at-will employment offers a kind of freedom both to the employee, as well as to the employer that you will not find in other types of employment, however, this freedom ends where insecurity begins, also, available to both parties. Long-term contracts imply a certain risk on behalf of the employer, a certain possibility of losing money in the future, but the advantages are not to be neglected. Short-term contracts fit a certain kind of jobs – picking fruits in summer, for example and also fit the nowadays instable economical reality. They also provide advantages and disadvantages. As it has been already mentioned, more and more big companies tend to conclude short-term contracts lately. However, at will employment is used as a certain gap filler21: where no type of contract has been concluded, than the labor relations are governed by at will employment. (v) Benefits of at will employment for both parties At will employment means, first of all, that there are no legally binding relations between the employer and employee. This leads to the same benefit for both parties: they are both free to terminate the labor relations, anytime they want to, with or without a reason (with certain exceptions). This means freedom: you are free to go to your work place and, if you do not like something, you are free to quit it, no questions asked. Also, if you are an employer and one day you decide that you simply do not like an employee (except the situation that involves racism or any other type of discrimination) you can fire him, and the Court will be on your side. You can fire somebody in case: 1. “ The employer downsizes or reorganizes the business 2. The employee irritates the employer 3. The employee violates company policy 4. There is a natural disaster and the employee has to spend his or her time recovering from the disaster 5. The employee has successfully completed a probationary period (unless the employer promised the employee a job upon successful completion)”22 B. The Regional Contexts (i) France employment contracts In spite of the popularity of at-will employment in the USA, the employment situation in France is completely opposite. The French legislation does not recognize at will employment contracts, allowing only two types of labor contracts: indefinite term contracts and fixed term contracts. Indefinite term contracts are the most popular ones in France. They require that the employer and the employee should sign a contract, which will include the following provisions: trial period, job obligation, salary and other categories of remuneration, social taxes, working hours, days and holidays, notice period (the contract can be terminated only with a notice period coming from the party which wants to terminate the contract; this is a rule in Europe) and other provisions at the parties’ choice. “Fixed term employment is highly regulated in France and it can only be used temporarily and for certain reasons that are defined by legislation.”23 Therefore, an employer must have good legitimate reasons for turning to fixed term contracts. The French legislation strictly indicates the time limits for fixed term contracts. However, except for the time limits, the rest of the provisions of the employment contracts in France are similar, both in indefinite term contracts, as well as in fixed term contracts. France’s strict regulations in the employment domain offer the parties a security that cannot be found in the USA As I have already mentioned, in USA at will employment is popular because it offers a kind of freedom both to the employee, as well as to the employer that cannot be found in other types of employment. However, as previously mentioned, this freedom ends where insecurity begins, also, available to both parties. Long-term contracts do imply a certain risk on behalf of the employer, a certain possibility of losing money in the future, but the advantages are not to be neglected. Short-term contracts fit a certain kind of jobs and the nowadays instable economical reality. They also provide advantages and disadvantages. In my opinion, France’s employment situation is more satisfying to the employee than in USA. (ii) The USA and at will employment Nowadays, the labor situation in the USA is changing constantly. At will employment is losing ground in favor of the employment contracts: short– or long– term. The doctrine of at will employment no longer exists in its raw form: discrimination limitations have been imposed, members of trade unions and other categories of employees are excluded from this kind of employment. “There are now numerous statutory exceptions to the employment at-will rule, including the following: National Labor Relations Act, Fair Labor Standards Act, Title VII Civil Rights Act of 1964, Age Discrimination Act, Americans with Disabilities Act, Employee Retirement Income Security Act of 1974, and the Consumer Credit Protection Act. Michigan also has several state exemptions based on the Elliott Larsen Civil Rights Act, Michigan Handicappers’ Civil Rights Act, and the Michigan Whistleblowers’ Protection Act”24 Both the employers and the employees found the security provided by contractual relations more important than the so called right to terminate the contract any time they want. Employers sometimes play with the employees, making them sign a contract by which they agree that they are at will employees, but they are also informed by the employer that the latter has the right to reduces wages to minimum if the employee decides to leave his job and not give a one-week notice to the employer. That is not quite at-will employment, and applying a penalty to the employee for exercising his at-will rights is illegal, but present in the everyday practice. However, the Courts DO offer some legal protection to at will employees, in separated cases. For example, in 1992, in the case of Borse v. Piece Goods Shop, 963 F.2d 611 the Court ruled that at-will employees are protected from getting fired if they refuse to take part in drug-testing, considering the fact that their privacy is violated. (iii) The impact of at will employment contracts on the USA workforce The political environment is constantly changing, forcing personnel systems to change as well. The job classification becomes simpler than ever, as well as the payment system does. Some consider that the society should move toward an at will employment, regarding it as a progress, others believe that we should move from at will employment. At will employment implies lower labor costs, no social security for the employee, no stability of the labor relations. This situation also affects the seniors and veterans, making them and their experience fade in comparison with the low cost workers, willing to work without a contract. This is a powerful stress for this categories of persons, and it also has a negative impact on their financial state. Firing an employee is simpler than ever, with no special procedures. In Florida and Georgia, for example, at will employment has become part of the civil service reform. Moreover, in Florida at will employment is the defining element of the reform. “Service First includes reforms in recruitment, classification and compensation, and performance appraisal”25 Nowadays, in the USA “most private sector workers are at-will; they have no right to due process or appeal of employment decisions, and employers have no obligation to justify demotions, transfers, or dismissals.”26 I believe that at will employees feel unsecure, tensed. The fact that maybe one day they might get ill and need a medical leave scares them, because the employee may chose to fire them, instead of waiting for them to get their health back on the track. Or, if a person wants to go on his well deserved annual leave, he might not get it as well. The chance of getting fired in this case can occur, too. Financially, this might mean the end of the constant salary, at least for a while, until the person is hired in another company. Thus, at will employment has a negative impact on the employee, from all points of view. Conclusion Having researched various types of employment contracts, and at will employment in particular, I would say that in spite of the minor advantages provided by the latter, contracts must be concluded between employers and employees. The situation when nor the employer, nor the employee are aware of the type of employment type they are involved in often occurs. I, personally, am very fond of the way things are handled in France and Europe – in general. You will not find at will employment there; contracts are a rule, imperative to all the parties. Another disadvantaged category is the racial minorities. In spite of the existing legal regulations that fight discrimination in any form, minorities would feel better in just cause employment then in at will employment. Just cause employment can severely diminish racial discrimination. I believe this is the best way to overcome the ambiguity and confusion that arise from at will employment. Moreover, the number of lawsuits regarding illegal dismissals will be strongly diminished. For me, just-cause employment seems fair, both to the employer and to the employee. Just cause contracts offer a variety of sub-types of contracts, implying different terms and levels of remuneration, able to respond to all kinds of needs of the parties. USA should move toward just cause employment, as it will find a lot of good characteristics of it, thus, good consequences. I believe that this could have a good impact on economy too, making it more stable and prosperous. Bibliography 1. At-will employment. 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