The “At Will” Default Rule and Its Limits:
Contractual Rights of Terminated Employees
Job Security and At-Will Employment
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Default rule: employment “at will”
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Employer free to fire
Employee free to quit
"The law, in its majestic equality, forbids the
rich as well as the poor to sleep under bridges,
to beg in the streets, and to steal bread.”
Is the default rule based on:
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Parties’ intent?
Social policy?
Economic efficiency?
Hanson v. Central Show Printing Co.
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Hanson, a longtime employee of Δ, offered a job
from competitor.
Δ: “I will guarantee you 40 hours work per week thru
out the entire year each year until you retire of your
own choosing.”
π turned down competing offer.
2 years later, π fired without cause.
Hanson (cont.)
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“Additional consideration” needed to depart
from the default rule?
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“additional” to what?
Inquiry into “adequacy of consideration”?
Revival of “mutuality” of obligation?
Either riff on consideration doctrine reveals s
great deference to at-will presumption
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Twisting of normal contract doctrine
To what end?
Hanson Notes:
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“At will” theoretically a default rule parties may vary
But how easy to opt out?
 “Permanent” or lifetime” employment is often
construed by courts as at will
 Too indefinite?
 Policy against such long-term commitments?
 Are court seeking party intent or something else?
The origins of the at-will rule
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Horace G. Wood, Master & Servant § 134 (1877)
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Not so well-founded in the cases cited?
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Why did it so quickly become law in the U.S?
Greene v. Oliver Realty Inc.
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1959: Greene agrees to work for Grant Building
below scale in exchange for “lifetime” work
1975: Grant Building taken over by Oliver
1975: Oliver promises to honor Grant’s
obligations
1983: Greene laid off
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24 years after original promise
8 years after the new president’s assurance
Greene, needless to say, still alive!
Greene (cont.)
Rationales for “at will” presumption
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Freedom of contract
Mutuality of obligation
Expectation of “at will” employment
Juries too sympathetic to promises of lifetime employment
Employers lack remedy against employees breaching
lifetime contracts.
Greene (cont.)
“Totality of the circumstances” test
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For whether the default rule has been varied
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Additional consideration one factor in totality test
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“Casual aside”?
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“Purely aspirational”?
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No intent to contract?
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Isn’t this always an inquiry in Contracts cases?
What is the court looking for in this totality search?
Greene Notes:
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Is “at will” what most parties expect?
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The law because it’s what’s expected?
Or it’s expected because it’s the law?
Contrary presumption under
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Montana Wrongful Discharge Act
Model Employment Termination Act.
Only Montana has switched the default
Is at will a response to agency problems?
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Employer agents over-promising?
Successor liability restricts firm marketability?
More Greene Notes:
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More on jury biases
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Is it true?
If true, is it appropriate consideration?
Revisiting mutuality
Unilateral contract theory
How significant the “presumption”?
Extracorporeal : “permanent” too broad to be
enforced?
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What would work?
Are Hanson and Greene so different?
Problem 2-1
Oral/Implied Contract Rights to Job Security
Roadmap:
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Reliance on offers of employment: = “front
end” of employment relationship
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Assurances of continued employment =
“back end” of employment relationship
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Written manuals, handbooks, policies:
anywhere during an ongoing relationship
Reliance on Offers of Employment
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Grouse v. Group Health Plan:
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Employee has right to “good faith opportunity to
perform his duties to the satisfaction” of the
employer after starting work
Relief may be limited to reliance damages
Expectation is salary from new employer
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How long?
Is reliance the lost job from the prior employer?
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How long?
Goff-Hamel v. Obstetricians & Gynecologists
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Goff-Hamel had left her employer of 11 years
based on Δ’s offer of employment
2 months after she accepted the offer, and
one day before she was to start, Δ told her
not to report to work
No contract claim
Promissory estoppel lies
Dissent finds result inconsistent with at will
doctrine
Goff-Hamel Notes
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“Good faith opportunity to perform”
 One day not enough
 One month?
Is it reasonable to rely?
 Party actual expectations v. legal entitlements
What constitutes reliance?
 Quitting prior job
 Relocating
 Anything else?
Proof that the action taken was really in reliance on the
promise
Schoff v. Combined Insurance Co. of America
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Schoff gave up a 16 year position to accept an
offer as a Δ’s sales representative
Δ terminated Schoff for
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Schoff must show “clear and definite promise”
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failure to disclose his criminal record
failure to get bonded
That bonding wasn’t necessary or
That felonies/nondisclosure wouldn’t bar bond
How likely is that?
Schoff Notes
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Distinction between promises and
representations
Possible statutory protection for
arrest/conviction records
Robert Hillman’s study suggest promissory
estoppel more viable in the classroom than
the courtroom
Assurances of Continued Employment
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Long-term employees have incentives to sue
Shebar v. Sanya: oral contract
Pugh v. See’s Candies: implied contract
Shebar v. Sanyo Business Systems Corp.
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Shebar, national sales manager for Sanyo,
obtained an offer from Sony
Sanyo’s president’s assured π of
employment for life with a large raise soon
Shebar then turned Sony down
3 months later, Shebar fired without cause
Shebar (cont.)
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True lifetime employment is extraordinary,
requiring clear and convincing proof
“Plaintiff acted in reliance on the alleged
promise by forgoing the job opportunity he
had secured at Sony.”
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This was the extra consideration needed for a
claim
Shebar Notes
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Contract or estoppel?
Life time employment v. for cause protection
Statute of frauds for oral promises
Shebar a slam-dunk on remand?
Racial and ethnic themes
Can culture + workplace practices create
contractual rights?
Pugh v. See’s Candies, Inc.
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Pugh worked for See’s Candies for 32 years
From dishwasher to Vice President
1973: π terminated without explanation
Pugh
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(cont.)
At-will presumption overcome by evidence of
express or implied agreement
All circumstances bearing on implied agreement
should be examined
“Independent consideration” serves only “evidentiary
function”
π prima facie case of breach of contract shift
burden to the employer to show sufficient reason
Ultimately π lost on sufficient reason
Pugh Notes
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Are some seemingly employee-friendly decisions
ultimately of little value to workers?
Should expectations of job security translate into
obligations of the employer?
 Must the employer foster them?
 Must they be reasonable?
 Can they be reasonable in light of at will rule?
 Guz v. Bechtel
 Consistent with Pugh, or a retreat?
“Life cycle justice” per Dean Schwab
Problem 2-2
Promissory Estoppel?
Oral Contract?
Implied-in-Fact Contract?
Problem 2-3
Risk Management
Written Employment Manuals and Policies
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Employment Manuals
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Promise of job security
Disclaimers
Modification
Woolley v. Hoffman-La Roche, Inc.
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1969: π hired as engineering section head
1969: π received personnel manual:
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“It is the policy of Hoffmann-La Roche to retain to the
extent consistent with company requirements, the services
of all employees who perform their duties efficiently and
effectively”
6 types of terminations specified: layoff, discharge due to
performance, discharge disciplinary, retirement and
resignation.
9 years later π was fired after writing a report on a
piping problem
Woolley (cont.)
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Manual should be “construed in accordance with
reasonable expectations of employees”
Manual = offer of unilateral contract
Continued employment = acceptance
Employers can avoid words of commitment
And/or insert disclaimers in personnel materials.
Woolley Notes
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Contract interpretation or broader policies?
But is at will merely interpretive?
“Legalizing” of personnel policy a reaction to
unions?
Are relational norms morphing into contractual
commitments?
Should they?
Conner v. City of Forest Acres
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1984-1993: Conner police dispatcher for City
1993: π terminated
Π reprimanded and given 90-day probation
Grievance committee voted to reinstate π
City Council rejected that decision
Conner (cont.)
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Jury question whether handbook created contractual rights
despite disclaiming language
City can’t have its cake and eat it too
Words of promise must be avoided even if
disclaimers/acknowledgments used
If π had rights, Δ must have a “reasonable good faith belief”
in sufficient cause
 N.B. Employer need not be correct
Difference between grievance committee and City Council
might bar summary judgment
Conner Notes
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Effective disclaimers should be clear and
conspicuous language
Even well-drafted disclaimer might not trump
words of promise
Can an employer violate its procedures for
termination even when sufficient reason
exists?
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What’s the appropriate remedy?
Problem 2-4
Limiting language of commitment
Adding a disclaimer
Demasse v. ITT Corporation
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1989: Employer modified handbook to add:
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An “at will provision”
A clause permitting unilateral modification
1993: Δ announced layoff would be based on
performance, not seniority
What inspired the 1989 change?
What inspired the 1993 change?
Demasse (cont.)
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Certified question: whether the employer can
unilaterally change seniority policy, assuming
it was contractually binding to begin with?
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Majority finds in favor of the workers
Workers’ consent necessary
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Offer/acceptance/consideration
Dissent: strongly influenced by desire to
preserve managerial flexibility
Demasse Notes
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“Separate” consideration requirement
Is majority resurrecting a dead concept to
protect workers?
How to advise corporate clients in the face of
legal uncertainty?
Is contract really the appropriate framework
for assessing enforceability of handbooks?
Problem 2-5
Applying Demasse to Asmus