When the realities of a sluggish economy catch up with your business, lowering costs by leaning out your workforce is often a necessary alternative. With certain exceptions (for instance, discriminatory terminations or terminations against public policy), an employer can terminate an “at-will” employee at any time, for any reason, or for no reason at all. In fact, the law does not even require the employer to give the employee a reason for the termination.
In Massachusetts, employees are presumed to be employed “at-will.” There are, however, many ways in which you (or your managers) can inadvertently modify the “at-will” nature of the employment relationship. This article discusses the ways in which you can modify the “at-will” relationship, so that you can make informed choices about when, and whether, you choose to modify a particular employee’s status, and avoid unwittingly imposing greater obligations on yourself and your business.
1. A written employment agreement supersedes the “at-will” doctrine.
A written agreement between employer and employee governs the employment relationship. That is, the terms of the agreement – not the “at-will” doctrine – determine what the parties can and cannot do.
A court will interpret the clear language of that agreement in accordance with its plain, ordinary, common sense meaning. If the language of the agreement is unclear, a Court will, in order to interpret that language, look to extrinsic facts – such as (1) the parties’ discussions and conduct at the time they made the agreement, (2) the nature of the employment at issue, and (3) the parties’ conduct in performing the agreement.
For certain employees, typically higher-level or management employees, a written employment agreement might obligate the employer to continue to employ the employee for a certain period of time at a certain salary. In turn, that same agreement might impose certain performance obligations on the employee and/or restrict the employee’s ability to leave the employer and/or work for a competing business.
2. Documents distributed to employees – such as employee manuals – can later be viewed as an employment agreement that modifies the “at-will” relationship.
Employment agreements can be implied from other documents that are distributed to employees -- such as employee handbooks, disciplinary policies, commission or bonus provisions, stock option agreements, benefit programs and insurance plans, or any other document containing language that assures the employee’s job security.
A recent decision from the Massachusetts Appeals Court (the Commonwealth’s intermediate appellate court) provides fair warning to employers. In this case, the employee, “Richard,” worked for “HMC” as a “sales clerk” at a donut counter in a Logan Airport terminal.
In July of 1992, a customer approached the doughnut counter and, according to one account, “tried to engage [Richard] in a conversation about the special of the day and the contents of several doughnuts available.” Apparently, Richard’s response to the customer was less than enthusiastic and his description of the “special” was a bit too succinct. The customer complained to Richard’s supervisor of Richard’s rude behavior. HMC fired Richard three days after receiving the complaint without giving Richard a chance to explain himself.
Perhaps the above should have remained the untold story of a lackluster employee, an impulsive doughnut-lover, and a somewhat rash employer. Instead, however, it became a lawsuit that traveled through two different courts and lasted almost ten years.
The complexity and length of this lawsuit was, in essence, a function of HMC’s employee manual. The employee manual stated that:
- HMC could terminate an employee for violating company policy after providing three warnings to the employee;
- HMC could terminate an employee without warning for certain serious conduct (such as theft of HMC property or drug use on the job); and
- Employees who felt their warning or termination was inaccurate or unwarranted could pursue a three-step appeal procedure – that is, the employee could tell his side of the story.
Interestingly, yet another section of the manual stated that the manual was not intended to create a contract between HMC and its employees. Notwithstanding this disclaimer, the Appeals Court held open the possibility that (1) the manual created a contract between Richard and HMC and (2) HMC breached that contract when it fired Richard without warning and without hearing Richard’s side of the story. According to the Appeals Court, the disclaimer was not prominent enough in the manual and Richard could have reasonably believed that the other sections of the manual created a contract between him and HMC.
The HMC case is only one of many lawsuits in which employees claimed that their former employers breached an implied contact created by a personnel manual. Do not throw out those manuals yet, however. The Court in the HMC case made very clear the standard to which it would hold employers:
What is sought here is basic honesty: if the employer, for whatever reason, does not want the manual to be . . . construed. . . as a binding contract, there are simple ways to attain that goal. . . Include . . . in a very prominent position . . . an appropriate statement that there is no promise of any kind by the employer contained in the manual; that regardless of what the manual says or provides, the employer promises nothing.
So what should you do with your personnel manual? At the very least, the manual must state that (1) the manual provides only general guidance as to the employer’s policies and is not intended to constitute a written offer of employment or create any enforceable rights, (2) the manual does not create an employment contract between employer and employee, and (3) the employer retains the right to unilaterally change the terms of the manual at any time. This language must be conspicuous – for example, it should appear in bold print on the front and backcovers of the manual and/or on the footer of each page of the manual. In addition, any other employment document – particularly your offer letter to a candidate – should reiterate the above two points.
You should not require employees to sign the manual or otherwise assent to its terms, as a court could interpret such conduct as a “negotiation” over the terms of the manual. Rather, require your managers to separately document the fact that they have distributed the manual to their subordinates. Managers should do so in separate documents -- not by seeking the employer’s acknowledgement or signature to the manual itself.
3. Employers can (even unintentionally!) create verbal employment agreements hat supersede the “at-will” relationship.
Employment agreements need not be written. Under certain circumstances, employers can – even unintentionally -- create employment agreements with their words or conduct.
Consequently, if you (or your managers) make representations to an employee about how long the employee will remain with the company or the circumstances under which the employee will be terminated, you may find yourself bound by those representations if and when you need to terminate the employee. In fact, in rare situations, employers have bound themselves to “lifetime” or “permanent” employment contracts.
For example, courts have found that employers create implied employment agreements by (1) using the term “annual salary,” or a sum equivalent to one year’s pay, to describe the compensation the employee will receive, (2) referring to definite time periods when describing or offering the job – such as a statement that “we will try out the first year on the basis of allowing you a $50,000 salary and 10% on all of your sales,” or (3) using “incentive plans” that run for a certain period of time.
The lesson here – be aware of the representations made to your employees (or potential employees.) For instance, if you send out written offer letters to prospective employees, or congratulatory letters to new employees, emphasize in those letters that their employment is “at – will.” Also, avoid describing salary with large increments of time such as “annual salary.” (For example, describe a “$52,000 annual salary” as a “$1,000 weekly salary.”)
The “at-will” employment doctrine gives employers considerable flexibility in running their businesses. It is critical to maintain that flexibility by preserving the “at-will” nature of an employee’s relationship. While this may require a greater level of attention to the documents you are distributing and to the conduct of your managers, the extra time and effort is well worth the benefits.
Janie Lanza Vowles is an associate at Roncone Law Offices, P.C. in Leominster, Massachusetts. In addition to advising businesses and individuals on various employment matters, Ms. Vowles also litigates employment, business and contract disputes, personal injury claims and domestic relations matters before state and federal courts and government agencies. If you have questions about this article, or other issues, you can contact Ms. Vowles by phone at 978/534-2444, or by email at jvowles@verizon.net.
This article is intended for informational purposes only and is not intended to be legal advice. You should consult an attorney for advice concerning your particular circumstances.