In a difficult economy, employee terminations are inevitable. Unfortunately, even when employers must terminate employees out of economic necessity, these employers are not immune from lawsuits brought by these terminated employees. All an employee requires to file a lawsuit is a willing attorney and a filing fee. Fortunately, there are a few steps employers can take to discourage post-termination lawsuits. We suggest the following:
1. All Employees Should Sign “At-Will” Employment Agreements
At-will employment agreements generally provide that the employee can be terminated “at any time, for any legal reason or for no reason”. “Good cause” is not a pre-requisite. An at-will employee can be terminated based on the employer’s discretionary business judgment alone. The termination can be made without advance notice. As long as the reason for the termination is not one prohibited by law (race, sex, religion, etc.) the discretion exercised by management will generally not be overturned by the court. While it is true that there is already a presumption in California law that all employees are employed at-will, reliance on this thin safety line is risky, particularly since there are a number of exceptions to this presumption. These exceptions include oral assurances, past practices or employer policies which are viewed as contrary to at-will employment. These include promises to give warnings and write-ups and to establish good cause before a termination may occur. Rather than ending up in court to argue whether these exceptions have been established, a better policy is to require that each employee sign a simple but effective at-will employment agreement disavowing such policies. Doing so will provide substantial protection to the employer and discourage employment attorneys from taking on the ex-employee as a client. These attorneys will move on to greener pastures provided by employers who do not act to protect themselves. All employment contracts should be carefully drafted by an attorney knowledgeable in employment law. There are further steps employers should take, as noted below.
2. Eliminate Policies Requiring Employee Warnings, Write-Ups and Other Forms of “Progressive Discipline”
One exception to the at-will employment arises when employers provide that their employees will not be terminated without first issuing a series of required warnings, write-ups, or other steps in a program of “progressive discipline”. If an employer terminates an employee without first providing the promised warnings and write-ups, the employer is more likely to be successfully sued for “wrongful termination.” To minimize this exposure, employers would do well to explicitly disavow, in writing, any requirement to provide progressive discipline including warnings or write-ups before a termination may occur. If done effectively, the employer would still be free to use warnings and write ups if they wished to do so, but the employer would not be required to do so and would instead be free to use their discretion rather than have their actions dictated by a predetermined but sometimes in practice, ignored, program. The fact that there is no right to warnings or write ups or other forms of progressive discipline should be noted in both the Employment Contract and the Employment Handbook.
3. Make Sure Your Employee Handbook Cannot be Construed as a “Contract”
Employers often face legal difficulties when a disgruntled ex-employee claims that the employee handbook contains promises that establish the terms of an employment contract. These may include promises of warnings, write-ups and standards of conduct, the violation of which may result in termination. If the employee can convince a judge or jury that the handbook is tantamount to a contract, then every statement in the handbook may well become a contractual obligation. For example, unless the requisite number of warnings and write-ups are provided or unless the offending conduct matches a list of prohibited actions contained in the handbook, then the termination may be said to be “wrongful” or a violation of the contract. In order to avoid this problem, the handbook should very clearly state that the handbook does not contain contractual terms or commitments and that all the terms of the contract of employment are instead contained in the separate, written employment contract the employee has signed. Employers should be sure to have an employment attorney review the handbook periodically to determine if it serves the interests of the employer consistent with current law.
4. Have Employees Sign “Acknowledgments of Receipt” of the Handbook
Unless you can prove that the employee actually received the employee handbook, careful attention to drafting the handbook will provide little protection. It is therefore necessary for employees to sign acknowledgments of receipt of the employee handbook. Such acknowledgements will often wisely include not only an acknowledgment that the employee received, read and understood the handbook, but also a reiteration that the employee understands that the terms of employment are specified in the employment contract the employee signs. The acknowledgement should also reiterate that the handbook is not a contract and contains no contractual terms and that the employee understands that he or she is an “at-will” employee and can be terminated at any time for any legal reason or for no reason.
5. Require Simple Arbitration of Employment Disputes
Arbitration is a procedure by which most common employee disputes, such as wrongful termination, are kept out of court and are instead decided by an arbitrator. The arbitrator will hear the evidence and render a decision the same as would a judge and jury. The arbitration result is generally enforceable, the same as a trial in court. Some of the advantages of using an arbitrator include: The danger of juror sympathy or animosity toward employers is eliminated. The parties are often able to select their arbitrator by mutual agreement. The arbitration can often be completed much quicker and with less formality and cost than a court proceeding. Attorneys representing employees are often reluctant to take on employment cases where arbitration is required. In order to require arbitration of employee disputes, the employment contract should contain an “arbitration clause” carefully drafted by an attorney to meet legal requirements appropriate for the employment context. Some of the best arbitration clauses require the employer and employee to agree on the identity of the arbitrator and rules for arbitration, but if they are unable to so agree, then they default to a preexisting arbitration program such as those provided by AAA or JAMS. Because of recent legislative changes and court decisions in California, it may be best that the arbitration clause include a provision stating that the arbitration will be conducted under the authority of the Federal Arbitration Act. Consult with your legal counsel for appropriate language.
Employers who need assistance in drafting and revising their employee contracts, handbooks and other employment policies may contact William Porter at (916) 381-7868 or bporter@porterlawinc.com
