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CHAPTER 15
EMPLOYMENT AND LABOR REGULATIONS
PUBLIC POLICY LIMITS TO AT-WILL EMPLOYMENT—Most employees work under
the common law rule of employment-at-will and are not represented by a union. This rule
specifies that employers may fire employees for any reason and employees may quit at any time.
This rule, which is primarily a matter of state law, is limited by any contract terms that may
apply. Managers and supervisors are employees likely to be employed at-will.
Common Law and Statutory Exceptions—Most exceptions to the at-will presumption come
from public policy exceptions based on statutes, but the courts have crafted some or legislatures
have created exceptions. In general, employees may not be fired at will for: refusing to commit
and illegal act; performing a public duty (report for jury duty); or for exercising a public right
(file for workers’ compensation benefits). Some states also allow a whistle-blower exception:
employees who alert authorities about illegal acts committed at the workplace may not be fired
or have a cause of action for wrongful termination. Most whistle-blower statutes tend to be
public sector employee oriented.
CASE: Ballalatak v. All Iowa Ag. Assn. (Sup. Ct., Iowa, 2010)—Ballalatak worked as a
security supervisor. Two employees were injured at work. Ballalatak filled out an accident report.
The general manager told the men the company would take care of their medical expenses. The
men told Ballalatak they were concerned they could not get workers’ comp. Ballalatak told the
manager he was concerned about that and was fired. He sued, contending he was fired for
inquiring about the workers’ compensation rights of the injured men. The trial court dismissed;
Ballalatak appealed.
Decision: Affirmed. To support a claim of wrongful discharge the employee must show 1) the
existence of a clearly defined public policy that protects employee activity; 2) the policy would
be jeopardized by the discharge; 3) the employee engaged in protected activity and was fired for
Questions: 1. Could Ballalatak have sued the employer for breach of employment contract rather
than for the tort of wrongful discharge?
No; there was no specific terms of a contract violated; he was at-will. One can argue lack of good
2. Suppose employees could sue for “interfering” in the legal rights of other employees at work.
What practical problems would that pose?
You may have some employees who make it their business to crusade on behalf of other
employees they believe have been wronged. This would cause problems with the chain of
Add. Case: Bartel v. NBC Universal (7th Cir., 2008)--Bartel worked for NBC for 21 years and
won awards for investigative journalism. She worked on an NBC Dateline program called “To
Catch a Predator.” NBC worked with police in a sting to catch men who thought they were going
to meet an under-age girl for sex. Bartel believed aspects of the arrangement violated NBC’s
guidelines. She was concerned that NBC was paying the police, needlessly sensationalized
arrests, and other ethical violations. She was fired in late 2006 and was told it was part of a
cutback. She sued for breach of contract, contending that the reason given was a pretext for her
complaint about NBC’s breach of its ethical standards. The district court dismissed the suit;
Bartel appealed.
Decision: Affirmed. The employment contract allowed NBC to terminate Bartel at the end of any
production cycle, which is what happened. So there is no breach of contract. Given that, it is an
Add. Case: Trosper v. Bag ’N Save (Sup. Ct., Neb., 2007)--Trosper worked at Bag ‘N Save.
During her employment, she suffered a work-related injury that required medical treatment.
When she reported the injury under the Nebraska Workers’ Compensation Act for a
compensation claim, the company demoted her from deli manager to deli clerk and cut her
salary by $7,600 a year. Trosper sued Bag ‘N Save for retaliation. The trial court dismissed her
suit. She appealed.
Decision: Reversed and remanded. The employer’s conduct in demoting an employee for
exercising workers’ compensation rights contravenes the public policy of the state’s Workers’
Compensation Act. There is a public policy exception to the rule that at-will employees may be
Add. Case: Shero v. Grand Savings Bank (Sup. Ct., Ok., 2007)--Shero was an at-will
employee of Grand Savings Bank. He was involved in litigation with the City of Grove,
Oklahoma. Related to the litigation, which he won, he demanded to see certain city documents
under the Oklahoma Open Records Act, which gives citizens the right of access to public
documents. The City complained to the Bank about Shero’s suit. The Bank told Shero to drop his
request for City records. He refused and was fired. He sued for wrongful termination under the
public policy exception to the presumption of employment-at-will. The district court dismissed
his suit. He appealed.
Decision: Affirmed. Employment at-will may be terminated without cause at any time without the
employer incurring liability. There was no violation of public policy. The Open Records Act
allows public inspection and copying of records in the possession of public officials, public
Add. Case: Groce v. Foster (S. Ct., Ok., 1994)--An employee was injured at work while helping
a customer. He received workers’ compensation benefits from his employer, but sued the
customer. His employer asked him to drop the suit; he refused and was fired. Employee sued for
wrongful dismissal. Employer argued the suit should be dismissed because of at-will
employment. Oklahoma recognizes exceptions when the discharge is contrary to clear public
policy, as expressed in constitutional, statute, or regulatory law. Employee claimed this dismissal
violated his constitutional right to redress bodily harm against the responsible party by access to
courts.
Decision: A discharge in retaliation for a worker’s refusal to drop his suit against a third party
for on-the-job injury interferes with the legally protected recovery regime for those who suffer
Add. Case: Dray v. New Market Poultry Prod. (Sup. Ct., Va., 1999)--Dray worked at New
Market Poultry as a quality control inspector. Her job was to make sure that no unsanitary
products were distributed. She believed sanitation was lacking and complained to managers and
told government inspectors of her concerns. She was told not to talk to the inspectors again, but
she did, and was fired. She sued for wrongful termination of employment in violation of public
policy for her role as a whistleblower against her employer. Her suit was dismissed, she
appealed.
Decision: Affirmed. Dray seeks a whistleblower retaliatory discharge claim. “Such a claim has
not been recognized as an exception to Virginia’s employment-at-will doctrine, and we refuse to
recognize it today.” Dray notes that various statutes forbid the sale of unsanitary poultry
Add. Info: Public policy exceptions and whistle-blowing: Whistle-blower cases are not common
numerically, but some large cases get attention. In 2010, a former employee of Glaxo-SmithKline
was awarded $96 million for forcing an FDA investigation into sloppy production practices that
resulted in a $750 million fine, from which she was paid. The process took seven years. The
average whistle-blower award is $3 million, most coming under statutory provisions such as the
FDA. Most supreme courts rely on statutory provisions and do not give public policy bases
except in limited cases. Other examples:
The supreme court of West Virginia noted that there is no right of action by an employee fired for
refusing to violate what the employee believes to be ethical standards, but that was merely an
opinion, not a clear case of violation of established professional ethical standards (424 S.E.2d
606).
The 6th circuit noted that a dismissed employee suing under a statutory whistle-blower provision
must be able to clearly show that dismissal was retaliatory for a clear case of whistle-blowing; it
cannot be muddled with poor job performance and whistle-blowing that amounted to negative
comments rather than specific allegations (73 F.3d 100).
The 3rd circuit rejected a whistle-blower claim by a dismissed employee who reported possible
water and air pollution violations by his employer, but who had a poor work record and did not
have the responsibility or expertise to evaluate the alleged environmental hazard (917 F.2d
1338).
The supreme court of Washington held that an employer (armored car company) contravened
public policy when it fired a worker who violated a company rule (leaving an armored car) in
order to help a person in danger of serious injury or death (an attack during an armed robbery).
Human life is given highest priority by public policy (913 P.2d 377).
Contracts in Violation of Public Policy—Certain employment-related contracts may be invalid
and, thereby, restrict the terms of employment at will. Exculpatory agreements are looked at
closely by the court. Waiving tort rights is not favored.
Add. Case: Brown v. Soh (Sup. Ct., Conn., 2006)—Brown worked at the Skip Barber Racing
School, which gives classes to the public. Employees signed an agreement that they would not
sue their employer, customers, or anyone else at the school for any incidents. Soh, a client, ran
into Brown when he was waiving a flag to signal drivers. Brown sued his employer and Soh. The
trial court dismissed the case because of the liability waiver. Brown appealed.
Decision: Reversed and remanded. Exculpatory agreements are generally rejected in the
employment context. Employers should not ask employees to promise not to hold them liable for
Noncompete Agreements—Contracts signed by employees that if they leave they will not go into
competition with their current employer for a certain period of time, including not going to work
for a competitor. These are strongly opposed in some states, such as California, and, where legal,
must be limited as to time and place. In some states, the courts will allow reasonable provisions
but strike others, thereby amending the terms.
CASE: Zambelli Fireworks Mfg. v. Wood (3rd Cir., 2010)—Zambelli is a leader in fireworks.
Wood was hired in 2001 and learned to put together and execute large fireworks displays. Over
time, he learned trade secrets, client lists, prices, and other valuable information. The company
paid for his training. In 2005, Wood signed a noncompete agreement that specified he would not
work for a competitor for two years after leaving Zambelli and would not exploit information
learned there. In 2008, he was hired by Pyrotecnico, a major competitor. The company agreed to
pay his salary for two years if he could not work, and would cover legal expenses. Zambelli sued
to enforce the covenant. The district court held it enforceable and enjoined technical work by
Wood. He appealed.
Decision: Affirmed. In Penn., noncompetes are enforceable when incident to an employment
relationship and are needed to protect the employer. Restrictions must be reasonable as to time
Questions: 1. Wood has valuable skills. Why should he not be able to sell those skills to the
highest bidder?
He can, but subject to the constraint imposed. Pyrotecnico thought so highly of him they were
willing to pay two year’s salary with him not doing serious work. If firms could not protect such
2. How could Wood avoid this kind of situation?
It is unlikely he could have avoided it. Perhaps he could have bargained for one-year restriction,
but the company invested a lot in him and Woods knew the company business very
Anti-Raiding Covenants—Some employees sign agreements that if they leave the current
employer they will not try to hire away fellow employees for another company. Such covenants
Add. Case: Murfreesboro Medical Clinic, P.A. v. Udom (Sup. Ct., Tenn., 2005)--Dr. Udom was
one of 50 physicians employed by MMC, a medical center. His contract stated that if he left
MMC he would not go into medical practice with 25 miles of MMC for 18 months. He could get
out of that limitation by paying MMC a year’s salary. Udom’s contract was allowed to expire
after two years and he was not reemployed. He told MMC he was going into practice near
MMC. It sued to enjoin Udom from violating the agreement. The trial court agreed with MMC
and enjoined Udom from going into practice. The appeals court held that the non-compete
agreement was valid, but that Udom could not be enjoined from going into practice. Udom
appealed.
Decision: Reversed. The non-compete agreement not enforceable. If there is a legitimate
business interest to be protected and the time and territorial limitations are reasonable, then
non-compete agreements are enforceable. This agreement violates public policy. It prevents a
SUBSTANCE ABUSE—People abuse/overuse both legal (alcohol, nicotine, Valium) and illegal
(marijuana, cocaine) substances. Alcohol is the mostly commonly abused substance in the U.S.,
affecting about 14% of all adults at some time. About 8% of all workers are currently alcoholics,
and another 3 to 8% abuse illegal drugs or make improper use of prescription drugs. This means
that at some point in their lifetime, one in every eight workers in the U.S. has a substance abuse
problem.
A Costly Issue for Business—Substance abuse increases the cost of doing business dramatically
because it lowers productivity and raises medical insurance payments. It is estimated that
substance abuse costs U.S. employers about $250 billion per year. Employees who have
substance abuse problems are more likely to injure themselves or others. This may lead to
liability problems. (Railroad companies found that many railroad crashes are caused by
substance-abusing employees. Additionally, a third of accidents involving truck drivers involve
drugs or alcohol.) Accidents cost employers unnecessary legal expenses. Many companies have
substance-abuse testing problems in an attempt to combat this problem. Many companies also
provide employees with assistance programs to help them deal with their drug and alcohol
problems. (Note that the percentage of people testing positive for drugs has been dropping over
time; marijuana down to about 2% but positive tests for prescription pain killers is up to about
3%.)
Issue Spotter: What Attitude toward Drinking and the Office?
Office parties with booze, on or off premises, have been cut way back as accidents have occurred
and the employer suffered liability as the host. Similarly, many employers put strict limits on
alcohol consumption at lunch or when on company business. If someone consumes too much
alcohol, they may be sent home, but it should be in a taxi. If they drive drunk, accidents could
come back on the employer.
Legal Issues in Drug Testing—Unions must approve of drug testing programs in collective
bargaining agreements. Non-unionized places of employment may make drug testing a condition
of employment, subject to certain restrictions.
Drug-Free Workplace Act—This requires all companies with more than $25,000 worth of federal
government business to provide a “drug-free” workplace. This means employers must a) inform
employees that using or having drugs in the workplace is prohibited; b) tell employees what
actions will be taken if they violate this policy; c) establish a drug-free awareness program and
really try to make it work; and d) tell employees that, as a condition of employment, the
employer must be told of any drug-related convictions occurring in the workplace. The employer
must, in turn, notify the federal government of such convictions.
Note: This law helps employers have a legal rational for firing workers who are abusing drugs.
Under the American with Disabilities Act, drug addiction is a protected disability. However, an
employment rule can be that no drug use is allowed so that workers who return to the use of
drugs may be terminated; to do so helps employers comply with this act.
Certain federal employees must participate in drug-test programs. Federal law requires
employers to test employees who are involved in public transportation; testing is mandatory after
any accident. State legislatures have enacted various statutes on drug testing in the workplace.
Some require probable cause or impose quality control standards. Employers must be aware of
local, as well as federal, drug policies. Although employers are presumed to have a wide scope in
the adoption of drug policies, some employer actions may be prohibited by the Constitution. The
Skinner case set some guidelines. [Most court cases have been resolved similar to Skinner and
the Hennessey cases noted here.]
Add. Case: Skinner v. Railway Labor Executives Assn. (S. Ct., 1989)--The Federal Railroad
Admin. issued safety regulations requiring railroads to conduct blood and urine tests on
employees involved in train accidents. The FRA issued these regulations after gathering
evidence that substance abuse by train employees had directly caused or contributed to a
number of fatal train accidents. The FRA also encouraged railroads to administer breath and
urine tests to employees involved in other safety violations. These regulations were challenged
as an unconstitutional search and seizure under the Fourth Amendment.
Decision: The Court upheld the regulations requiring the various tests. RRs have the right to
adopt drug and alcohol testing procedures where employees are involved in safety violations.
The Court noted the extremely dangerous condition RR employees create when there is
Add. Case: Hennessey v. Coastal Eagle Point Oil (S. Ct., NJ, 1992)--Hennessey was an at-will
employee at an oil refinery. He supervised the blending of gasoline with additives and the flow of
gasoline products in the refinery. After discovering drug use on-site, the company conducted a
random urine test. Hennessey tested positive for marijuana and was fired. He sued, claiming
illegal search. Trial court ruled for him, finding the random drug test contravened New Jersey
public policy in the state’s constitutional safeguards against unreasonable searches.
Decision: Reversed. Firing an at-will employee in a safety-sensitive position, as a result of his
failing a random urine test, did not violate public policy and gave no basis for wrongful
Add. Case: Carroll v. City of Westminster (4th Cir., 2000)--Carroll was a police officer. When
hired, he signed a waiver allowing urine tests at any time, with or without cause. His supervisor
received a tip that Carroll was using heroin. He asked the police department physician to test a
urine sample Carroll provided as part of a regular physical. Carroll did not know the urine
sample was being used for drug testing purposes. When heroin was found, he was fired. Carroll
sued, claiming Fourth Amendment violation. The district court dismissed the case; Carroll
appealed.
Decision: Affirmed. There was no unreasonable search or seizure. The government has a
legitimate and compelling interest in ensuring that the judgment of armed police officers is not
impaired by the use of drugs and that those involved in drug interdiction efforts are not
Issue Spotter: How Does an Employer Handle an Employee Who Flunks a Drug Test?
To be on the safe side, besides using a certified lab to handle all testing, the employer could
allow the employee to take a second test, if the employee requests that, to eliminate the chance of
a false report. But, as happened in an Iowa supreme court case in 2006 (719 NW2d 801), an
employer faced possible problem for being unable to verify that the employee had been given a
copy of the company’s drug testing policy, as required by law. The company said it gave the
employee the policy, she said she had not received it. That could have been avoided by having all
employees sign to acknowledge receipt of the company drug policy—specifically—not related to
a company handbook, if there is one.
Employee Substance Abuse Policy—Employers should carefully craft substance abuse policies
to meet its special needs. In general, policies should specify what substances are prohibited at the
workplace, which employees are subject to the policy, what type of testing will occur and under
what conditions, and what the penalty will be for violating the policy. This policy should be
clearly communicated to workers in handbooks and other material. Supervisors should be trained
to look for signs of substance abuse. Employers should consider adopting assistance programs. It
is pretty clear that drug tests may be given to job applicants. Exams given to workers must
usually be related to job sensitivity, whether done routinely or randomly or after accidents.
Add. Case: Sims v. NCI Holding (Sup. Ct., Iowa, 2009)--Sims worked for NCI in a safety
sensitive position involving steel. When hired, he was given a copy of the company’s employee
manual that contained NCI’s drug policy. It noted that random drug tests would be given and
that failure could mean immediate termination. Months later, he was given a drug test run by a
professional firm in accord with Iowa law. Sims tested positive for meth. When told of the result,
Sims claimed it must have been due to a visit to a dentist the day before. That opinion was given
no credence. Sims was told he could pay for a second test, but he declined. He was fired and
sued NCI for violating Iowa law concerning drug tests. The company failed to notify him of the
matter in writing by certified mail. NCI then sent Sims’ attorney a certified letter about the
matter and confirmed that he could pay for a second drug test. Sims did and failed the test. Sims
contended that the delay in sending the notice by mail violated Iowa law regarding drug tests, so
he was due back pay, punitive damages, and attorney fees. The trial court awarded Sims attorney
fees. Both parties appealed.
Decision: Affirmed. The oral notice given by NCI to Sims following his drug test failed to comply
with the Iowa law requiring notice. However, Sims is not entitled to back pay, punitive damages
Add. Case: Duncan v. Afton (Sup. Ct., Wyo., 1999)--Solvay hired Afton to collect urine
specimens as part of a substance abuse testing program of company employees. Duncan
provided a specimen. It was left unguarded for a time, was not labeled until later, and the
temperature at which the specimen was kept was not noted. Afton reported to Solvay that
Duncan had a urine alcohol content of 0.32 (a very high level). Duncan was fired. He sued Afton
for failure to use reasonable care in its procedures. The district court dismissed the suit; Duncan
appealed.
Decision: Reversed. “A company collecting urine specimens as part of an employer’s substance
abuse testing program owes a duty of care to the employee who submits a specimen.... Afton
WORKER HEALTH AND SAFETY—Since the mid-1800s, worker health and safety has been
an issue. Concern first arose over the working conditions in coal mines. Early legislation focused
on ensuring workers had greater safety on the job. States took the lead in enacting worker safety
laws. These laws were, unfortunately, often poorly enforced.
Occupational Safety and Health Act—Passed in 1970, the OSHAct created OSHA. It requires
employers to comply with OSHA standards and to provide a workplace that is free of recognized
hazards. Establishing an OSHA standard is a multi-step process. Standards are recommended by
the National Institute of Occupational Safety and Health. An OSHA committee reviews
recommended standards; they are published in the Federal Register. Comments are submitted by
interested parties. The Secretary of Labor considers the comments then issues the standard. This
process usually takes three to five years to complete.
Add. Case: Reich v. Trinity Industries (11th Cir., 1994)--To protect hearing, OSHA regulation
“requires that employers establish and maintain a hearing conservation program when . . .
employee noise exposures equal or exceed an eight hour time-weighted average sound level of
85 decibels.” To comply, “Trinity required its production employees to wear hearing protection
devices all the time regardless of noise levels at any particular time or place.” This reduced
noise to 75 decibels. An inspection held this to be a willful violation of the regulation, which
prefers physical changes in production process rather than hearing protection devices. Trinity
appealed. The ALJ ruled that the violation was not willful but non-serious. The Commission
upheld the ALJ’s determination, finding that Trinity acted in good faith and that the workers
were “largely protected.” The Secretary of Labor appealed.
Decision: Reversed. Trinity’s violation was willful despite a lack of bad faith and belief that its
hearing protection program met the objectives of the regulation. Willful means “an intentional
Inspections—When OSHA conducts workplace inspections, it must do so with an administrative
warrant. The Supreme Court established this standard in Marshall v. Barlow’s. When OSHA
conducts an inspection, it looks at company health and safety records, interviews employees, and
physically walks around the facility. Company representatives may accompany the OSHA
inspector. Companies may challenge citations they receive. The Occupational Safety and Health
Review Commission reviews these challenges. Appeals may be taken to the federal courts of
appeal.
CASE: Caterpillar Logistics Services v. Solis (7th Cir. 2012)—Cat handles parts orders, so
employees do a lot of lifting. A month after MK began work, she suffered elbow pain. Company
doctor put her on 3-month leave. When she returned to work, the same problem arose, so she was
given a position with less stress on the elbow. A panel of five specialists reviewed the mater and
determined the problem was not caused by work but was pre-existing. OSHA fined Cat for
failing to report a workplace injury. The ALJ upheld the penalty as did the OSHRC review. Cat
appealed.
Decision: Decision vacated. The decision makers at OSHA failed to consider competent evidence
Questions: 1. Since the fine was only $900, why would the company spend vastly more than that
on legal fees to contest the fine?
The company likely spent hundreds of thousands on the defense even to this point; and this
would not be the end since it goes back to Labor. Several reasons why spend the money—a
2. Poor use was made of statistical evidence. Should it be used when available?
The S.Ct. has made it clear since Daubert that it expects the court to treat scientific evidence in a
scientific manner—not just one opinion versus another. Policy and regulatory decisions made on
Add. Info: Subpoenas: It is very easy for OSHA (and other agencies) to gather information by
use of administrative subpoenas, such as to obtain company records. A company may challenge
the government’s need for the information before complying with the subpoena, but the higher
standard of suspicion that must be met in cases of subpoenas for searches does not have to be
met in case of subpoenas for information.
Add. Info: Employee Rights: Employees may not be punished for participating in an OSHA
inspection or for exercising any right guaranteed under the Act. In Whirlpool Corp. v. Marshall,
the Supreme Court held that a company could not reprimand employees who refused to work
under highly dangerous conditions. Employees must comply with OSHA standards. Employees
who ignore OSHA standards may not be able to sue employers for harms they receive. But it is
the company’s duty to enforce these standards at the workplace.
Penalties—When OSHA issues a citation against an employer, the employer may face monetary
penalties of up to $7,000 per day per violation. Total fines can be large. Bridgestone/Firestone
was fined $7.5 million for willful safety violations that resulted in the death of a worker. (Note:
“Repeated violations” are more serious than initial violations; repeated means that the violator
has been nailed for a similar violation at least once before.)
Add. Info: Connecticut and Maine have rules that bar companies with too many willful safety
violations from bidding on government contracts. Other states and the Department of Labor are
considering similar regulations to increase the potential cost of multiple OSHA violations.
