Protecting At-Will Employment

1) Rule - Where no employment agreement exists, or where an employment agreement fails to specify its duration, the relationship is indefinite and can be terminated, without notice, by either party.

2) Rationale - The presumption, which has been recognized in Maryland since 1887, is difficult to overcome, and is based on the notion that just as continued employment is based on a mutual desire, so is allowing either party to terminate such relationship. See McCullough Iron Co. v. Carpenter, 67 Md. 554, 11 A. 176 (1887).

3) Fact Patterns Which Failed to Rebut the Presumption - The following cases illustrate the strength of the presumption:

a) The rule applies even where an agreement exists specifying the rate of pay per week, month or year, on grounds that such clauses refer to the amount of compensation, not the employment duration. See Board of Trustees v. Fineran, 75 Md. App. 289, 541 A.2d 170 (1988).

b) An employee's belief, standing alone, is insufficient to break the presumption. This includes claims for "reasonable belief of continued employment," and contract language that states that "it is also our desire to have [the employee] remain in the business indefinitely." See Beye v. Bureau of National Affairs, 59 Md. App. 642, 477 A.2d 1197 (1984), and Winand v. Case, 154 F. Supp. 529 (D. Md. 1957).

c) Salary and bonuses that were projected for two years, equity shares in the employer vesting after the first and second years and a statement by employer that it's plan was for employee to be a major part of the employer's growth over the next several years. Lubore v. RPM Assocs., Inc., 109 Md. App. 312, 674 A.2d 547 (1996).

d) Promise of position of Vice President, annual salary of $110,000, thirty days annual leave and a guarantee of employment in transferring employee's permanent residence visa. The allegations were deemed too inadequate and nonspecific to establish a fixed term. McDermott v. The National Shipping Company of Saudi Arabia, 18 Fed. App. 120 (2001).

4) Estoppel and Detrimental Reliance Claims - These claims generally fail, including causes of action for promissory estoppel, detrimental reliance or the implied covenant of good faith and fair dealing.
a) As to the latter implied covenant, the Court of Appeals has declined to apply such covenant in at-will employment situations, declaring that to do so amounts to a judicial imposition of a collective bargaining agreement and that because at-will relationships may be terminated by either party without good cause, the imposition of such a covenant on the part of the employer to use good faith would fundamentally alter the presumption of at-will employment. See Suburban Hospital v. Dwiggins, 324 Md. 294, 596 A.2d 1069 (1991).

b) However, especially with regard to concepts or policies set forth in employee manuals or handbooks, an employer would be wise to keep in mind the doctrine of promissory estoppel, which is defined, per the Restatement of Contracts, as "[a] promise which the promisor should reasonably expect to induce action or forbearance . . . on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise."

5) Statutory and Common Law Exceptions to At-Will Termination
a) An employer may not discharge an employee for reasons that are prohibited by statutes, such as discrimination based upon a protected class or characteristic (e.g., religion, national origin, age, gender, disability, race, sexual orientation (Md.), family status (Md.), marital status (Md.), etc.), retaliation or whistleblowing.

b) Additionally, Maryland prohibits discharge of an employee for reasons that would violate that state's public policy.

c) For these reasons, it is imperative that an employer document one or more appropriate rationales for terminating an employee, including the development of as much probative evidence as possible (as the circumstances allow), prior to terminating an employee. Otherwise, an employer may be scrambling to evidence an entirely appropriately made termination, well after the fact, to defend against a wrongful discharge, discrimination, breach of contract or other employment-related claim on one or more of the aforementioned grounds.

1) The at-will presumption does not mean that employees have no rights with regard to wages, benefits and whatever other agreed-to conditions of employment.

2) Generally, an at-will employer, necessarily having the right to terminate an employee, also has the right to unilaterally alter the terms of employment.

a) However, the case law distinguishes between employees whose terms of employment have been unilaterally established from employees who have negotiated a bilateral employment agreement.
1. In the former scenario, changes may be made by an employer provided reasonable notice is given. Continued work by such employee manifests implicit consent to the changes.

2. In the latter scenario, especially with regard to high level executives, unilateral changes by an employer may create liability on grounds of negligent misrepresentation, and the terms of employment that were originally established may continue. See Lubore, id.

1) A superintendent of a shipping fleet entered into a written contract which included: (i) appointing the employee as superintendent; (ii) permission to travel with his family aboard ships at his convenience between the U.S. and Rio de Janeiro; (iii) compensation of $100 per month and all hotel and other expenses; and (iv) "if you give me satisfaction," a promise to increase the salary at the end of the first year. The employee was terminated three months later. The Court of Appeals, reasoning that because it was not reasonable for the employer to allow the employee to terminate the contract at will (due to the potential harm to his fleet), it was also not reasonable for employer to contemplate that it could terminate the contract at will. Therefore, the employment agreement was deemed to have a duration of one year. Norton v. Cowell, 65 Md. 359, 4 A. 408 (1886).

2) A contractor/carpenter entered into an employment contract which: (i) specified that employee would supervise and work on the construction of a private home; (ii) set forth a forty-hour workweek schedule; and (ii) compensated employee at $150 per week. Employee was terminated prior to completion of the house and the Court of Appeals held that, due to "the language employed in the contract, the subject matter and the surrounding circumstances," the employment relationship was not terminable at will.

3) These cases stand for the proposition that where the duration of employment is ambiguous, the at-will presumption may not stand where the facts and circumstances tend to indicate that the employer held a reasonable expectation that the employment would last through the referenced period or occurrence. Because it was reasonable for employer to hold such expectation, it was reasonable for employee to hold such expectation, too.

1) That the agent of the employer was authorized to enter into a lifetime employment contract;
2) That employee has provided employer with substantial consideration over and above the regular work he was hired to perform; and
3) That the contract itself clearly stipulates the terms of the lifetime employment, including the work to be performed and the salary.
4) This rather archaic notion is even more difficult to establish where the employer is a corporation and the employee is part of management, given that it denigrates the legal right of stockholders to change management.

1) A trend has developed whereby employer promises to employees which are set forth in employee handbooks may give rise to enforceable contract rights. The first Maryland case on this point is Dahl v. Brunswick Corp., 277 Md. 471 (1976). In Dahl, an employee claimed that the employer was required to honor the vacation and severance pay policies set forth in employer's personnel manual. The Court of Appeals held that a contract is formed when an employer unilaterally issues "policy directives regarding aspects of the employment relationship, [and employees] with knowledge of the existence . . . start or continue to work for the employer." Though the general principles of contract law apply, an employment contract can be created by an employee's acceptance of a unilateral offer set forth in a policy guideline. By virtue of this, as well as the doctrine that ambiguities in a contract will be construed against the drafter, the Court awarded the employee the damages sought.

2) The Court in Dahl also noted that an employer who consistently engages in a practice of making monetary payments in lieu of affording employees advance notice of termination, may be bound to continue such practice with regard to employees who continue to work for the employer in reliance on such practice, inasmuch as they are deemed to have accepted a unilateral contract.

3) Thereafter, the seminal opinion of Staggs was released in 1985. Therein, the Court of Special Appeals held that, in an indefinite employment agreement, the proper expression and communication to the employee, whether within the employment agreement or otherwise in employer's personnel policies, of limitations of such employer's rights to terminate or setting forth required procedures before termination, may become contractually binding. However, such policies must meet the contractual requirements for an offer and general policy statements will not be sufficient. Staggs v. Blue Cross of Maryland, Inc., 61 Md. App. 381, 486 A.2d 798, cert. denied, 303 Md. 295, 493 A.2d 349 (1985).

4) The aforementioned Staggs doctrine has been narrowly construed, with at-will employees who claim an alleged promise of job security to show that: (i) the employer adopted a definite procedure for employee termination which can be objectively applied; (ii) the procedure was properly expressed and communicated; (iii) the employer intended that the procedure would apply to the circumstances of the employee's termination; (iv) the employee entered employment or continued employment in reliance on this policy; and (v) the employer discharged the employee without following its policy.

5) Despite this heavy burden, employers should be cautioned to add the following to their employee handbooks or manuals:

a) Reservation of the right to terminate immediately in the event of cause (where cause has been defined);

b) Disclaimers of contractual intent;

c) Reservation of employer's discretion to take whatever actions are necessary or appropriate in employer's judgment to operate; and

d) Use of permissive, as opposed to mandatory, terms and language in laying out such policies and procedures.

I. Definitions of Cause are Presumptively Not Exhaustive

1) Unless there is evidence to the contrary, a list of disciplinary offenses which constitute cause will not be deemed to estop an at-will employer from discharging an employee for other non-enumerated disciplinary offenses or conditions. Suburban Hosp. v. Dwiggins, id at I.(4)(a).

2) Despite this holding, any list of disciplinary offenses constituting cause should have a catch-all that expressly makes clear that there may be other grounds for termination.

J. Mandatory Disciplinary and Termination Procedures Must Be Followed.

1) "So long as an employer follows its stated policy procedures and acts in good faith in determining what is good cause as to the formulation of its disciplinary measures and then, using the proper procedures, in good faith, applies its standards to the facts presented, there is no actionable wrong" and

2) "Only in the presence of a failure to comply with stated or implied practice or procedures, insufficient evidence, or bad faith in the resolution of the matter may a judicial fact finder be substituted for the employer." Elliott v. Board of Trustees of Montgomery County Community College, 104 Md. App. 93, 655 A.2d 46 (1995).

3) This underscores the need to document an employer's adherence to its existing policies and procedures, including demonstration of steadfast good faith as opposed to lip service or going through the motions.

B. Disclaimers. Contract disclaimers in employee handbooks and employment applications should be introduced. Such disclaimers generally state that employment is terminable at any time, without cause or notice, by either party, and that only certain employer officials have the authority to alter these terms.

1) Employees should be required to sign acknowledgments as a condition of employment.

2) The purpose of these provisions is to expressly indicate that the employment relationship is terminable at will, to extinguish an expectation of continued employment or of discharge only for cause, to override any verbal representations made to employees and to preserve the employer's discretion to discharge employees when it determines appropriate.

3) Example Language:

a) This handbook does not constitute an express or implied contract. The employee may separate from his/her employment at any time, and employer reserves the right to do the same.

b) All managerial and administrative functions, responsibilities and prerogatives entrusted to and conferred upon employers inherently and by law are retained and vested exclusively with employer, including but not limited to the right to exercise our judgment to establish and administer policies, practices and procedures and change them, to direct and discipline our work force and increase its efficiency, and to take whatever action is necessary in our judgment to operate the business.

C. Employment Agreements - Should be reviewed to ensure that they expressly state that:

1) Employment is at-will notwithstanding any other provisions;

2) The agreement does not imply a duration contrary to at-will employment;

3) They make clear what benefits are to be granted upon termination (remembering that promises of remuneration are a touchstone for inclusion as a "wage" under the Maryland Wage Payment Act); and

4) To the extent that they specify an advance notice provision, that such advance notice provision is inapplicable in the event of termination for cause.

D. Employee Manuals and Handbooks - Good personnel practice suggests that employees be advised of the rules and regulations related to their employment. Often, employers find it beneficial to make employees aware of the company's employment policies. When problems arise, and employees violate such policies, employers are in a much stronger position when they can direct the employee to a handbook containing such policies, which handbook employee previously acknowledged he read and understood.

1) Review Employment Documents - To help avoid contract claims based on written personnel policies is to ensure that all policies, whether they are in employee manuals or other materials, are reviewed and a determination is made that:
a) They clearly and accurately reflect the intentions of the employer.

b) The employer actually follows such policies (in the past, currently and in the future).

c) The policies reserve adequate flexibility and employer discretion. For example, as opposed to saying "three consecutive days of unexcused absence will result in termination," say that such occurrence may result in termination.

d) The policies include a provision that they do not constitute a contract, that the employment relationship is at-will and that employer reserves the right to modify and delete the policies at its discretion.

e) The policies are regularly reviewed and updated to comport with the law and the employer's intentions and practices.

f) Employer insists that employees read the handbook, including an opportunity to ask questions regarding same, an identification of employer's point of contact for employment-related questions. Employees should sign an acknowledgment that they have read and understood the handbook and any important update made thereto. Retain all acknowledgments in each employee's personnel file.

2) Danger Zones - Inclusion of any one of the following in an employment manual gives an employee ammunition to support a contract claim:

a) Just Cause Termination - A statement that an employee will only be terminated for just cause may be sufficient to defeat the employer's defense that employment was at-will.

b) Probationary Period - A statement that an employee may be terminated with or without cause during a probationary period may be used to support the corollary proposition that, after the probationary period, he may only be terminated for cause. In lieu of such a clause, an employer could state either that: (i) employees will be reviewed regularly during and at end of their first X days and annually thereafter; or (ii) in the event that the provision was principally to avoid certain benefits, that employees are not eligible for any benefits during their first X days of employment.

c) Disciplinary Provisions - To the extent any disciplinary provisions are worded with sufficient specificity, they could be construed as supporting a separate contract right. To combat such as construction, an employer should state: (i) that such procedures are set forth as examples only and are simply general statements of policy; (ii) that the employer retains the right to exercise its sole discretion to take whatever disciplinary measures or actions, including termination, it deems appropriate; and (iii) that any list of actionable conduct is not exhaustive.

d) Grievance Procedures - As above, to the extent that any formal grievance procedure is set forth, it could be construed as a separate contract right. While the employment manual should use the discretionary clauses set forth above, the best advice in such a situation is to follow the procedures scrupulously.

e) Performance Reviews and Evaluations - Employers often include detailed performance review policies and then fail to implement or maintain such policies. Such failure to adhere to its own policies could undermine any later legitimate defense against a wrongful discharge or discrimination claim regarding a terminated employee by raising doubts about the purported rationales for the termination. If such policies are meaningful enough to warrant inclusion in the employee manual, they are meaningful enough to be followed carefully.

3) Proper Provisions for Inclusion

a) Contractual Disclaimer

b) Equal Employment Opportunity Policy

c) Sexual Harassment Policy

d) Rules and Regulations of Employer

e) Hours of Work, Recording of Time

f) Employer's Leave Policy, including sick leave, holidays, vacations, bereavement, jury duty, maternity leave, military leave, educational leave, employee benefits such as 401(k) plans, pension plans, profit sharing plans, health insurance and life insurance

g) Disciplinary Policy/Grievance Policy

h) Discharge/Termination/Resignation and the benefits that will or will not be provided in such events

1) Apply the "Stop, Look and Listen" approach to fend off a possible retaliation claim.

2) Review Employee's Characteristics - Including sex, age, race, religion, national origin, handicap, sexual orientation, recent pregnancy, disability, job-related injury or compensation claim/award and jury duty.

3) Review Employment Documentation - Including employment agreement, employment manual, policy directives and personnel file (including evaluations, written warnings, employment history).

4) Document, Document, Document - Document all legitimate rationales for the termination and review the employment file to determine the extent of any employee reviews, contemporaneous notes to the file and basis for termination. If the file is incomplete or insufficient, attempt to stop of postpone the termination.

5) Alternatives - Include transfer, demotion, leave of absence to deal with problems, other discipline, final warning (including identification of problem and need for improvement and setting of target dates), resignation.

6) Follow all policies and procedures, written or unwritten, that exist of have been followed in the past.

7) Termination Procedure - Must include two management parties. Keep private and confidential. Document meeting properly.