Chapter 2
EMPLOYMENT CONTRACTS AND WRONGFUL DISCHARGE
INTRODUCTION
The second chapter focuses on employment contracts, employment at will, and wrongful discharge. The
chapter begins with a discussion of employment at will; a term first introduced in chapter one. The student
should have an understanding of employment at will, and the chapter proceeds to identify all of the many
CHAPTER OUTLINE
1. 2-1 EMPLOYMENT–AT-WILL AND ITS EXCEPTIONS
Employment–at-will is both the employee and the employer are free to unilaterally terminate the
relationship at any time and for any legally permissible reason, or for no reason at all.
A. Historical Roots
1. The doctrine of employment-at–will in its purest (and harshest) form held that an
employee without a contract could be fired at any time, for any, or no, reason.
2. While legislation has limited the employment-at-will doctrine in some areas⎯such
3. Advocates of employment-at-will point out that the employee is free to sever
employment at any time, and that employees can use bargaining power to attempt to
demand an employment contract covering a specific term.
2-2 WRONGFUL DISCHARGE BASED ON PUBLIC POLICY
1. The most common limitation on employment-at-will is the public policy exception.
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Public policy exception, although the employee is employed at-will, termination is illegal if a
clear and significant mandate of law (statutory or common) is damaged if the firing is permitted
to stand unchallenged.
CASE 2.1 MENDOZA V. WESTERN MEDICAL CENTER SANTA ANA
222 Cal. App. 4th 1334, 166 Cal.Rptr.3d 720 (2014)
Facts: Mendoza was discharged by his employers after Mendoza accused a supervisor of sexual
ANSWERS TO CASE QUESTIONS
1. The Superior Court held that the state legislature intended that the Crime Victims’ Employment
2. The plaintiff will have to prove that the employer in fact fired him for exercising his rights under the
Crime Victims’ Employment Protection Act.
3. Neither act preempted the other. The Workers’ Compensation Act’s “exclusivity” provision prevented
the plaintiff from pursuing his negligent-supervision claim; the essence of that claim was that he got
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1. EXPRESS AND IMPLIED CONTRACTS OF EMPLOYMENT
A. While some employees are covered by a collective bargaining agreement or an individual
B. Contracts may be implied from the firm’s personnel manual or the statement of disciplinary
procedures that will be followed.
CASE 2.2 SERRI V. SANTA CLARA UNIVERSITY
226 Cal. App. 4th 830, 172 Cal.Rptr.3d 732 (2014)
Facts: A university’s former director of affirmative action, Conchita Franco Serri, brought her action
against the university and the university’s officers and attorneys for breach of her employment contract,
among other claims, after being terminated from her position. The university claimed it terminated her
employment because she failed to meet the requirements of her job.
CASE 2.3 KILLINGSWORTH V. HOUSING AUTHORITY OF CITY OF DALLAS
447 S.W.3d 480 Tex. App. Dallas (2014)
Facts: A prospective employee, Jerry Killingsworth, contended that the Housing Authority of the City of
Dallas (DHA) backed out of a deal to hire him as the DHA’s President and Chief Executive Officer.
Killingsworth claimed that despite having a written employment contract offering him the position, the
DHA yielded to political pressure to retain then-DHA President Ann Lott and refused to allow him to
assume the duties of the position. He sued the DHA for breach of an employment contract and violations
of his civil rights.
CASE 2.4 STEGALL V. ORR MOTORS OF LITTLE ROCK, INC.
121 So.3d 684 La. App. 2d Cir. (2013)
Facts: A car dealership owner unilaterally modified an employee’s pay plan in writing, but it was unsigned
by the parties. The new pay plan removed the manager’s base salary provision and set out that his
compensation would be based solely on commissions from exceeding net profit goals, as well as the
THE WORKING LAW
Model Employment Termination Act
The Model Employment Termination Act is not a real success story. The purpose of the act is to offer the
states a uniform law protecting employees from being terminated except for good cause. The committee
2-4 PROTECTION FOR CORPORATE WHISTLEBLOWERS
1. In the wake of the Enron and Worldcom scandals, the Sarbanes Oxley Act (SOX) was passed.
Among other things, SOX amended the Security Exchange Act and several other statutes to
include criminal and civil protection of employees who report improper conduct concerning
securities fraud and corruption by corporate officials. Following the 2008-10 Great Recession,
the Obama Administration and the Democratically dominated Congress at that time enacted
the Dodd-Frank Act, which reinstated some regulatory restrictions on the U.S. financial
industry that had been antiquated in the 1990s, and added additional whistleblower provisions
that apply to employees in the realm of banking and investments.
1. Many other employment laws such as Occupational Safety and Health Act (OSHA)
and Title VII contain anti-retaliation provisions.
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2. Civil Liability Under SOX
1. SOX only protects employees of publically traded companies.
CASE 2.5 LAWSON V. FMR LLC
134 S.Ct. 1158 U.S. (2014)
Facts: In two separate cases, employees of nonpublic companies in the mutual fund industry sought the
protection of the Sarbanes-Oxley Act’s (SOX) whistleblower provision, alleging that their employers
unlawfully retaliated against them after they complained of employers’ improper business activities. The
United States District Court for the District of Massachusetts partially granted and partially denied the
ANSWERS TO CASE QUESTIONS
1. The trial judge first decided that private companies, which are sub-contractors of SOX-covered
publicly traded companies, ought to be covered by SOX too. Then, having some second thoughts
2. “Employee” for purposes of a cause of action means someone employed by a publicly traded
company. While the plaintiffs certainly were “employees” in the common-law sense of that term,
they were not “employees” for purposes of the SOX whistleblower provisions.
3. This and the two questions that follow create opportunities for class discussion and debate. The
statutory provision at issue clearly states that no “officer, employee, contractor, subcontractor, or
4. Here the discussion might center around whether Congress had reason to single out publicly traded
companies, leaving private firms alone. The court noted that Congress could have been clearer, if it
really intended to extend rights to persons, such as the plaintiffs. The judges noted that in other
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held firms should not be subjected to the same levels of liability as publicly traded entities. Or
perhaps the relative size of the companies was a consideration.
5. The answer to this question may depend upon whom we mean by the “investing public.” If we mean
ETHICAL DILEMMA
The First Amendment and Unprotected Employee Speech
A director of a community youth program conducted an audit of the program’s expenses, and in doing so,
discovered that a state legislator on the program’s payroll has not been reporting for work, and terminated
the lawmaker’s employment. Soon after, federal authorities indicted the state representative on charges of
mail fraud and theft concerning a program receiving federal funds. The director testified, under subpoena,
regarding the events that led to his terminating the state legislator.
Meanwhile, the youth program experienced significant budget shortfalls. The president of the program’s
sponsoring university terminated the director along with 28 other employees in a claimed effort to address
QUESTIONS:
Should the First Amendment protect a public employee who provides truthful sworn testimony, compelled
by subpoena, of an organization’s corruption? Or was the director’s testimony unprotected employee
speech? What are some policy considerations pushing in each direction?
ANSWERS TO END OF CHAPTER PROBLEMS
QUESTIONS
1. Students may suggest that the courts wished to protect emerging American industries from employee
2. Employers often defend the doctrine on the ground that they have built their businesses, they create
jobs and they ought to be free to decide whom they will employ. Jurists sometimes point to the fact
that employees are free to come and go as they please; it’s only fair that employers have he same
Cihon/Castagnera, Employment and Labor Law, 9e Instructor’s Manual Chapter 2
3. (1) Contract: This exception includes express, written contracts; oral contracts under some
circumstances; and implied contracts, notably handbooks, again under appropriate circumstances; (2)
4. The advantage of the common law may be that it is more adaptable and amenable to fine-tuning
CASE PROBLEMS
6. No, he does not. The Court held that the intent of the parties was very important in the decision and
that if the handbook contains clear language that employment is at will, then the reasonable
7. According to the decision in Horne v. Cumberland County Hosp. System, Inc., 746 S.E.2d 13 (N.C.
App. 2013), the court concluded that the plaintiff failed to state a claim for breach of contract.
8. The former employee equated the provisions of the Procedure Manual to “rules and regulations”
9. The court found that the documents did not create an implied contract, as they contained a
conspicuous disclaimer of contractual rights, stating: “This process instruction does not constitute
10. It is a violation of public policy, according to Wisconsin law, to terminate an employee for refusing to
violate any law, regardless of the origination of the law (state or federal). The payroll clerk has an
11. The former employee’s main argument was that because upholding criminal laws is important and
socially desirable conduct, the court should find a public-policy exception to the at-will employment
12. The “whistleblowing” in this case did not meet the requirements for a violation of public policy.
Because the relevant statute leaves the parameters of “mismanagement” undefined, it is an amorphous
13. The court’s analysis began with a finding that the local’s secretary was a “confidential” employee
capable of thwarting implementation of the union’s policies and programs. Since the plaintiff had
HYPOTHETICAL SCENARIOS
14. Constructive discharge occurs when the employer has made the employment environment so
intolerable that the employee feels no other choice but to quit. In order for the constructive discharge
to become wrongful termination, the motivation for making the workplace intolerable must be illegal,
15. Since Dr. Boris is an at will employee, he does not have a claim for wrongful discharge. Although
according to the law, the hospital had abandoned the property, the hospital apparently did not intend
for anyone to possess the equipment after them. There are a myriad of logical reasons why the hospital
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would not want employees to take things, even things that they planned to dispose of, without
16. Unfortunately, Stanley does not have a case. Although Stanley was concerned with safety, there is no
indication that Stanley has any expertise or specialized knowledge related to why the other shed
17. Mindy and Fred do not have a wrongful discharge claim, if they are employees at will. An employer
18. Unless the student has had a business law class, the student will not possess the background to analyze
a breach of contract claim. For example, if the company knew that the deal with Wells Fargo was
upcoming and elected not to renew the contract, despite good performance, simply as a means to avoid