Module 5: Improper Termination

Wrongful termination litigation can be very contentious, especially when it plays out in public.  In one recent major wrongful termination class action lawsuit, employees of Wells Fargo Bank alleged that they were wrongfully terminated for refusing to take part in fraudulent sales activities.  In the complaint, the former employees allege that the bank’s CEO had concocted a scam intended “to squeeze employees to the breaking point so they would cheat customers,” and that bank employees who refused to do so were terminated when they could not keep up sales numbers with the employees who were complicit in the fraud.[1] 

So, while Wells Fargo terminated these employees for ostensibly reasonable business reasons – not meeting sales quotas – the complaining workers allege that the termination was predicated upon their refusal to engage in fraud.  If the employees’ claims are proven, they have a reasonable basis upon which to recover for wrongful termination.  The former employees involved in the lawsuit are seeking a whopping $2.6 billion in damages for their terminations and other mistreatment. 

There is no uniform national law governing actions for wrongful termination.  Rather, the law offers employees terminated illegally various remedies based on the rights violated by the unlawful firings. 

Wrongful Termination for Breach of Contract or Promise

          Any breach of contract action requires a binding contract. The agreement requires the essential terms and conditions of performing a certain job.  It also requires description of the consideration that the employer is expected to provide, potentially including wages, benefits, equity in the company, bonuses, intellectual property and anything else of value.

Employment contracts are not always confined to formal agreements.  Sometimes, contracts are established by email correspondences, exchanges of letters, employee handbooks and manuals or even informal correspondence.  So long as a correspondence includes an offer that includes consideration in exchange for work performed, and that this offer is accepted by the recipient, an employment contract is formed.  Contracts for employment for more than one year must be in writing under the Statute of Frauds to be enforceable, but other employment agreements can be oral or implied. Even those that must be in writing, however, do not need to contain all relevant employment terms, as those can be implied based on the circumstances or industry standards.

In some circumstances, employers make commitments to employees regarding job opportunities or advancements that become legally enforceable even absent an employment agreement. Contracted employees may be entitled to compensation from their former employers if, for example, the employer promises the employee a new job or continued employment and the employee acted in reliance of the promise in a manner that set them back financially.  By way of example, imagine that an employee living in New York accepts an employment offer for a company located in Los Angeles. The employee accepts the job and moves across the country only to discover that her position had been filled by someone else. Under these circumstances, the employee may be able to recover based a doctrine of contract law known as promissory estoppel. She reasonably and detrimentally relied on the statements of the employer. While the employer may not have guaranteed employment for any given length of time, it is reasonable under the circumstances for the employee to expect to at least be given an opportunity to start. A court can award remedies in this case reimbursing the employee for the amount spent based on this reliance.

Courts may also determine that an employer creates a contractual obligation to not terminate an employee by engaging in certain conduct or making certain statements.   For example, if a supervisor tells an employee that she should arrive at work at 9:30 each day and then fires her for failing to be at work at 9:00 as other employees are, the employee may have the right to compensation or rehiring based on an implied promise that the supervisor created regarding work expectations.[2] While the employer may not have a general obligation to keep the employee on and can generally fire the employee without cause, firing for this reason can be considered a violation of the reasonable expectations of the employee. She may not be justified in expecting this position to continue perpetually, but she is justified in relying on the employer’s implied promise to sanction her appearing at work at 9:30.

Remedies for Breach of Employment Contract by the Employee

Both employers and employees may sue for breach of employment contract. For example, if an employer pays a bonus in exchange for an employee’s promise to stay with the company for at least six months and the employee leaves before that time, the company may sue for its bonus back or even for consequential damages resulting from the employee’s leaving early. While courts will virtually never force somebody to work, monetary damages are available where the employee breaches. Injunctive relief may also be available. For example, an employee under contract may be prohibited by court order from working for a competitor for the duration of her binding contract. An employee may also be prohibited by court order from using trade secrets or other proprietary information gleaned from an employer to compete with that employer or to work with a competitor. These remedies are sometimes known as “negative specific performance.”

Remedies for Breach of Employment Contract by the Employer

          The most common remedy available for employees who were wrongfully terminated in violation of their employment contracts is simply monetary damages in the amounts that they otherwise would have been entitled to. This is a form of “expectation” damages, which are normally available under contract law. If an employee, for example, is wrongfully terminated while she has three years left on employment contract at $100,000 per year, forcing the employer to continue paying the salary for the next three years or a lump sum payment of the present value of the salary due under the agreement would give the employee the benefit of her bargain.

          Still, the employee does not have the freedom to simply sit out the remaining time of the agreement. The employee has a “duty to mitigate,” which means that she must try to obtain new employment to partially or completely offset the losses suffered by the breach. So, if our employee with three years and $300,000 left on her contract is wrongfully terminated, she must seek other comparable employment. If she finds employment that pays her $200,000 over the three-year period, she may collect the remaining $100,000 as compensation for breach of contract, as this would give her the benefit of her bargain.

          If the employee, despite her best efforts, is unable to secure comparable employment, then she can collect the full amount of the loss caused by the breach. Exactly what constitutes comparable employment is subject to case-by-case determination. In one high-profile example, a California court ruled that actress Shirley MacLaine was not legally obligated to travel to Australia and star in a “Western” movie to “cover” the damages caused by a studio’s breach of a promise to pay her to stay in California and star in a musical.[3] Instead, she could simply stay home and collect the full amount obligated to her under the contract.

Wrongful Termination under the Laws

          Even “at-will” employees may not be terminated for reasons that have been determined to violate public policy, as established by employment and civil rights acts on the state and federal levels.

Discrimination 

The Fair Labor Standards Act, the Civil Rights Act, the Americans with Disabilities Act and other state and federal laws collectively prohibit employment discrimination based on age, race, religion, gender, national origin, ethnicity, disability, veteran status and other criteria.  Although at-will employees can be terminated for just about any lawful reason or, in many cases, for no reason at all, they cannot do so because the employee is a member of a protected class. 

The Civil Rights Act does not expressly prohibit employment discrimination based on sexual orientation of gender identity. As of early 2018, though, about 20 states prohibit discrimination based on sexual orientation.[4] In addition, recent federal case law has shown more and more and more federal courts are showing willingness to consider discrimination based on sexual orientation or gender identity to be comparable to gender discrimination, and thus prohibited by the Civil Right Act.

The Equal Employment Opportunity Commission has taken the position that discrimination based on sexual orientation could constitute discrimination based on sex within the meaning of the Civil Rights Act. In a landmark case in April of 2017, the Seventh Circuit Court of Appeals agreed, becoming the first federal court of appeals to conclude that discrimination based on sexual orientation is a form of sex discrimination.[5] A 2018 case from the Second Circuit concurred. The EEOC also considers discrimination based on “gender identity, including transgender status,” sex discrimination within the meaning of the Civil Rights Act.[6]

Terminations that Violate Public Policy

Most jurisdictions prohibit employers from firing at-will employees for reasons that are contrary to public policy.  For example, New Jersey prohibits employers from terminating or otherwise retaliating against workers who report illegal conduct in the workplace.  While there is no national consensus with respect to the circumstances under which at-will employees may not be terminated as a matter of public policy, most employers are prohibited from terminating employees for refusing to perform an illegal act, attempting to perform a duty required by law or reporting an employer’s illegal conduct.[7]

Whistleblowing & Retaliation Protections

Employers do not always behave ethically, and employees should be encouraged to report business activities that could threaten public safety, tax dollars or the public welfare.  As a result, both the common law and several statutes recognize that workers should not face adverse action or termination when they act to protect the public by reporting unlawful or otherwise damaging activities in their workplaces. 

Most of the statutes guaranteeing employment rights include anti-retaliation clauses that prohibit employers from terminating workers for exercising rights under the law.  For example, an employer cannot terminate an employee because she sues for overtime under the Fair Labor Standards Act or for making a claim under the Civil Rights Act of 1964.  If a worker can prove that his employer fired him for exercising some legal right, he may be entitled to lost wages and benefits or even reinstatement.  Each whistleblower protection law includes a predefined process of how a worker can move forward with a claim, and these processes vary substantially.  Workers who believe that they have been terminated for exercising their legal rights or reporting their employers for unlawful or hazardous activities should contact the state or federal agency that administers the statute at issue in their claim.[8] 

Organizing a Union

Labor unions can place great pressures on business owners to offer more generous compensation and benefits to their workers.  Business owners are often resistant to labor organization because of the potential increased personnel costs that they may face.  The National Labor Relations Act prohibits employers from firing or otherwise retaliating against employees who support union organization or otherwise engage in union activity.  The NLRA affords broad protections to employees seeking to organize their labor forces, but it does not completely restrict companies from making business decisions based on the threat of additional expenses due to workforce unionization.  For example, companies may choose to go out of business and close entire facilities to avoid unionization of their workforce.  They may not, however, close only a portion of business operations to chill unionization efforts for their remaining employees.[9]

The Role of the EEOC

The Equal Employment Opportunity Commission has been established by federal law to enforce anti-discrimination in employment. The agency provides resources to employers, employees, and the public that can help businesses establish and maintain equal opportunities in the workplace. Employees with concerns about improper termination or other adverse action based on an improperly discriminatory process should reach out to their state or federal equal opportunity employment agency to determine what rights and processes apply to workers in their area.[10] The EEOC also maintains an adjudicative system whereby people can file complaints with the agency. If the agency finds merit in the complaint it can institute litigation against the employer and can assist the employee in obtaining a resolution in many other ways.

When a complaint is filed with the EEOC, it assigns a Counselor who advises the employee of his rights under federal equal employment laws and helps him resolve the issue through voluntary negotiation if possible.  If negotiation fails and the employee files a formal complaint, the agency investigates.  The Agency may hold hearings and manage and review evidence.  The Agency has an internal dispute resolution system that is designed to take on the form and function of a court, but cases move faster through administrative courts than civil courts due to the relatively low volume of cases and streamlined procedures.

If the agency finds a violation, it may work with the employer and employee to find an agreeable settlement.  The agency can also sue the employer and pursue damages on behalf of the affected employee.  All parties to an EEOC administrative claim have the right to appeal adverse decisions.[11]

Conclusion

          For contracted employees, wrongful termination comes down to contract law and employment agreements are subject to the rules of contract law, including the requirements of consideration and writing under the Statute of Frauds. Doctrines of implied contract and estoppel can sometimes provide remedies for termination even without binding employment agreements. Even at-will employees, however, are protected from being fired on many bases that would be against public policy. Employees cannot be fired in ways that would discriminate against them for being members of protected classes, for engaging in whistleblowing and other valuable activities or for organizing or participating in labor union activities.