In contrast to the murky pool of discrimination law, and the Byzantine maze of wage and hour laws, the bright line rule for at will employment is practically bulletproof.
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EMPLOYMENT AGREEMENTS UPDATE
At Will Agreement
Defeats Termination Claim
By Christopher W. Olmsted
There is no more basic employment practice than obtaining a signed at will agreement from each employee. In contrast to the murky pool of discrimination law, and the Byzantine maze of wage and hour laws, the bright line rule for at will employment is practically bulletproof.
A case decided in late December 2007, Bernard v. State Farm Mutual Automobile Insurance, provides the latest success story. In that case, William Bernard, an insurance agent, sued State Farm for “breach of covenant of good faith and fair dealing.” He alleged that the insurer misrepresented the requirements of its sales program. He alleged “constructive termination;” in other words, work became so intolerable that he had to quit.
Mr. Bernard claimed that State Farm had a policy of not terminating employees except for good cause. However, he had signed an at will agreement. The agency agreement between State Farm and Bernard stated: “You or State Farm have the right to terminate this Agreement by written notice delivered to the other or mailed to the other's last known address.”
However, the agreement included additional language that muddied the waters: “In the event we terminate this Agreement, you are entitled upon request to a review in accordance with the termination review procedures approved by the Board of Directors of the Companies, as amended from time to time.” Bernard argued that this additional language regarding a review process was a chink in State Farm’s at will armor, since it seemed to qualify the absolute right to terminate. He also sought to introduce evidence that State Farm omitted “with or without cause” language from its termination provision and stated in its company magazine in 1977 that termination would not occur without a serious breach.
The court rejected the agent’s arguments and determined that he was in fact an at will employee. The court followed a 2006 California Supreme Court case, Dore v. Arnold Worldwide, Inc. (reported in our Legal Update in September 2006).
The termination provision provided for termination upon specified notice. Under Dore, this provision negated any arguments that the company needed good cause for termination.
The court further determined that the termination-review provision in the State Farm agency agreement did not provide any limitation on the at will termination. The court reasoned:
Prior court precedents, including several involving the State Farm agency agreement, considered similar language about a review process, and found that such language does not limit the power to terminate at will.
The termination review provision merely provided an internal forum, primarily for State Farm's benefit, for reconsidering a decision to end an agency agreement (for e.g., where a good agent has been terminated merely because of a personality conflict with an immediate supervisor). But the provision did not alter the ultimate power of either party to terminate for any reason or no reason.
Practical Tips:
With very few exceptions, private industry employers should require all non-union employees to sign at will agreements.
Termination review provisions, where properly worded, will not cause an employer to relinquish at will rights. Many employers will find such a procedure helpful, as it provides a discretionary mechanism for reconsideration. However, ambiguous provisions may increase the risk of litigation. Even if the employer ultimately prevails, the cost of litigation may be significant. Therefore, seek legal counsel before implementing a termination review policy.
More Legal Update articles.
Download entire May Legal Update in PDF format.
This article is intended as a brief overview of the law and are not intended to substitute as legal advice. Any questions or concerns regarding any statute or case law should be addressed to a licensed attorney. Copyright © 2008 by Barker Olmsted & Barnier, APLC. San Diego, California. All rights reserved.
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