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C H A P T E R 1 2
THE EMPLOYMENT AGREEMENT
Managers must know employment law to minimize the legal risks for their companies. This
chapter examines traditional at-will employment, and various exceptions to the rule, e.g.
wrongful termination, and public policy. The chapter also explores various common law
I. AT-WILL EMPLOYMENT. The modern trend is toward some level of protection against
discharge in certain circumstances. Exceptions include:
A. Employees Not Subject to the At-Will Rule.
1. Public Employees. “Just cause” for discharge.
against public policy and, at common law, breached an implied contract and
implied covenant of good faith.
1. The Public Policy Exception. The employer is prohibited from
discharging the employee for reasons that violate public policy. Greatest
protection is given for an employee’s refusal to commit an unlawful act at
employer’s request.
• Sources of Public Policy. There are different rules for state causes of
• Whistleblower Protection. Whistle blowers reports illegal or unethical
activity of their companies or supervisors to legal authorities. Including
Sarbanes-Oxley (SOX).
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3. Implied Covenant of Good Faith and Fair Dealing. Employers cannot
terminate at-will employees solely to deprive them of earned bonuses or
pay.
II. STATUTORY AND CONSTITUTIONAL PROTECTION FOR WHISTLEBLOWERS.
A. State Statutory Protection. A number of states provide whistleblower protection,
including New York and California. Generally, the statutes provides that an
B. Federal Statutory Protection. Sarbanes-Oxley (SOX) Act of 2002 added
whistleblower applicable to nongovernment employees. Dodd-Frank Wall Street
CASE 12.1 Nance v. Time Warner Cable, Inc., 433 F.App.502 (9th Cir. 2011).
Nance told his supervisors about inconsistencies in the way
Comcast and Time Warner calculated their subscriber counts. He
was terminated and filed a wrongful termination suit based on
violations of SOX.
C. Claims of Constitutional Protection by Public Employees. In Garcetti v.
Ceballos, Ceballos, a deputy DA wrote a memo that was critical of the way his
III. FRAUDULENT INDUCEMENT. During difficult economic times, a business may engage
in puffery and exaggeration to keep and attract highly qualified personnel (infra). Further
IV. NON-COMPETE AGREEMENTS (COVENANT NOT TO COMPETE) is a contractual
provision or clause which is part of another agreement (e.g., employment contract) that is
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CASE 12.2 Alex Sheshunoff Management Services, L.P. V. Johnson, 209 S.W.3D 644
(TEX. 2006). ASM provides consulting services to banks and other
financial institutions. ASM hired Johnson as an at-will employee in 1993.
In September 1997, ASM promoted Johnson to director of its “Affiliation
Program,” a program designed to maintain relationships with clients and
prospective clients. A few months later, ASM presented Johnson with an
employment agreement that provided that “[e]ither party may elect to
terminate this Agreement at any time for any reason,” subject to employer
and employee notice provisions. The Agreement also provided that for one
V. RECOMMENDATIONS FOR FORMER EMPLOYEES. References from former employers
are problematic; they should be fair and not impugn the reputation of former employees.
When an employer gives an untrue assessment of a former employee, the former
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A. Doctrine of Self-Publication. A defamatory communication by an employer to
B. Conditional Privilege. Employers have a conditional privilege to communicate
C. Waiver. If an employee signed a waiver and release, the employer may be
protected against liability for defamation claims by that former employee.
VI. EMPLOYER TESTING AND SURVEILLANCE. Employers are increasingly adopting drug-
screening programs to avoid decreased productivity, quality control problems,
absenteeism on the job, accidents, and employee theft that can result from drug and
alcohol abuse.
A. Drug Testing. Employees may challenge the testing on certain grounds.
1. Scope of Testing Program. Generally drug tests are permissible depending
on four factors: (a) the scope of the testing program (random testing is
2. Public Versus Private Employees are afforded greater protection than
private employees against unreasonable searches.
B. Genetic Testing and Health Screening. At least 31 states have outlawed genetic
discrimination in the workplace. Employees may have a right of action to sue for
genetic discrimination under the Fourth Amendment, Title VII, and the ADA.
C. Polygraph Testing of Employees. The Employee Polygraph Protection Act of
adverse action if the test is not taken.
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D. Employee Surveillance in an Electronic Age. Over 80 percent of surveyed
CASE 12.3 City of Ontario v. Quon, 130 S.Ct. 2619 (2010). An employee
does not have a reasonable expectation of privacy in the text
messages sent and received on his employer-provided pager.
VII. RESPONSIBILITY FOR WORKER SAFETY. Both federal and state laws require
employers to provide a reasonably safe workplace.
A. Occupational Safety and Health Act requires that employers establish safe and
healthy working environments without recognized hazards, and regulates such
1. Dealing with the Threat of Terrorism. Since September 11, 2001, OSHA
has encouraged employers to have emergency action plans.
2. OSHA Inspections.
5. Federal Criminal Penalties. OSHA makes it a misdemeanor to cause the
death of a worker through willful violation of safety laws. Such violations
B. State Analogues to OSHA. Many states have OSHA-type laws. California has
the strictest laws.
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1. State Criminal Penalties. State prosecutions beyond OSHA bring charges
for battery, reckless homicide, and more.
C. Tort Liability for Violence in the Workplace. Employers also face potential
D. Workers’ Compensation. State workers’ compensation statutes provide for
coverage of income and medical expenses for employees who suffer work-related
VIII. MINIMUM WAGE, OVERTIME, AND CHILD LABOR. Under the Fair Labor Standards
Act (FSLA) of 1938 the federal government has set a baseline for wages and work hours.
Some states impose stricter standards and higher minimum wage laws.
A. Who Is Covered? FLSA does not apply to independent contractors, or other
occupations like waiters or farm workers.
D. Compensation. FLSA requires that employees be compensated for all hours
worked. In the case of professional or off-site employees, the number of hours
worked is often contested. Travel time to and from work is not generally
considered as work time. Kavanagh v. Grand Union Co., 192 F.3d 269 (2d. Cir.
1999).
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1. Minimum Salary. Employees who earn less than $455 per week or
G. Child Labor. The FLSA was designed to prevent child labor and abuse and sets
age and work condition limits. Many workers are trafficked to the U.S. from Latin
IX. EMPLOYEE BENEFITS.
A. ERISA. The Employee Retirement Income Security Act is designed to protect
private retirement plans.
1. Coverage. ERISA establishes a range of standards and parameters
2. Types of Pension Plans. Officers and trustees of pension plans are
3. Fiduciary Duties. Officers and trustees of defined benefit pension plans
and defined contribution pension plans are fiduciaries required to act
solely in the interests of the plan’s participants and beneficiaries.
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6. Judicial Review of Benefit Determinations. The Firestone v. Bruch case
7. Penalties.
B. Consolidated Omnibus Budget Reconciliation Act (COBRA).
C. Health Insurance Portability and Accountability Act (HIPPA). Companies with
50 or more employees.
D. Patient Protection and Affordable Care Act of 2010. Signed into law in 2010,
decision is before the U.S. Supreme Court. Prohibits insurers from denying
X. WORKER ADJUSTMENT AND RETRAINING NOTIFICATION ACT. Requires companies
with over 100 employees to give sixty days notice before closing a plant.
XI. IMMIGRATION LAW. In October 2003 federal officials arrested nearly 300 immigrant
workers at 61 different Wal-Mart locations. Workers were arrested and deported, Wal-
Mart was threatened with fines. Since 1986 it is illegal to hire undocumented workers.
C. Legislative Reform. Given the high number of undocumented workers from
Mexico and Latin America, George Bush advocated “immigration reform”
including amnesty and a temporary worker program for aliens. But Congress
never passed the legislation.
CASE 12.4 Chamber of Commerce of the United States v. Whiting, 131 S.Ct.
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XII. LABOR-MANAGEMENT RELATIONS. Since the 1930s, federal law has been
implemented to smooth labor-management relations.
A. Applicability of the National Labor Relations Act. Grants rights to employees,
not independent contractors, or supervisors.
D. Unfair Labor Practices by Employers. Employers cannot interfere with union
organizing, spy on employees, or induce employees to reject the union.
Employers cannot retaliate against employees who support union activities.
D. Lawful and Unlawful Strikes and Economic Action. Laborers may conduct
strikes for better pay, compensation and working conditions. The NRLA forbids
recognitional picketing and secondary boycotts.
1. No Interference or Retaliation by employer.
E. Lawful and Unlawful Strikes, Lockouts, and Other Economic Action. There are
two kinds of strikes: economic and unfair labor practice strikes. Economic strikes
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occur when a union is able to extract favorable terms and conditions of
RESPONSIBLE MANAGER: TEACHING SUGGESTIONS
1. Where would you rather work: in a “right to work” state (non-union) or a heavily unionized
state? Why is at-will employment positive for the economy?
2. Various nations have different rules about labor-relations and “at-will” employment.