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Employment Law: Termination of "At Will" Employees

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INTRODUCTION

The following is a memorandum on the status of Colorado law on the subject of termination of employees. While there are general rules that may be relied upon in Colorado Court decisions, employment termination is an active area of litigation. A number of major decisions have been announced in the past several years and one Court of Appeals opinion has been granted tacit approval to decisions from other jurisdictions of significance.

I. THE EMPLOYMENT "AT WILL" DOCTRINE

The long standing general rule is that an employee without a written contract for a specified duration may be terminated by either party without cause and without notice, and the termination is not subject to judicial review.¹ In Colorado an agreement of employment that is for an indefinite term is presumed to be at will.² Colorado case law has modified the "employment at will" doctrine, particularly in cases involving employee handbooks and personnel manuals.

In Colorado, termination at will is recognized as a presumption, which may be rebutted by an employee under certain legal theories:

1. CONTRACT RIGHT:
The Colorado Supreme Court pronounced:

We adopt neither the categorical rule that an employee manual automatically becomes part of the employment contract and that an employee can be terminated only in accordance with its terms, nor do we adopt the contrary rule that such manuals are no more than unilateral expressions of general company policies which have no bearing on the employee's contractual rights.³

The Continental Air Lines v. Keenan case⁴ allows that an employee handbook or personnel manual or other document can be shown to form a contract which modifies the general "at will" presumption. Typically, this could occur where the manual includes specific procedures for termination, and "in promulgating the termination procedures the employer was making an offer to the employee ... and ... the employee's initial or continued employment constituted acceptance of and consideration for these procedures", and "the parties have agreed to be bound thereby."⁵ An employee could have a valid claim for wrongful termination if the specified procedures then are not followed.

For example in Salini v. Farmers Insurance Group⁶ an employee was unilaterally demoted following an investigation of his conduct. The employee alleged that the company violated its own policies, procedures and regulations in the demotion, an that this constituted a breach of contract. The trial Court dismissed the claim, reasoning that an employee who could be terminated at will could be demoted at will. The Colorado Court of Appeals held the breach of contract claim should not be dismissed before trial, stating:

... [W]here an employment contract is for an indefinite duration, such indefiniteness by itself does not preclude handbook provisions on job security from being enforceable, whether they are proffered at the time of the original hiring or later, when the parties have agreed to be bound thereby.

Thus, employer's distribution to employees of handbooks or policy manuals which contain specific procedures for termination of employment, when relied upon by an employee and supported by the consideration of continued service, may result in the employer becoming contractually bound to comply with those procedures.⁷

Further, the consideration element may be supplemented by the circumstances of hiring, such as inducement to leave another position.⁸

2. PROMISSORY ESTOPPEL:

If an employee can show that a promise was made to the employee, that the employer would reasonably expect to induce action or inaction on the part of the employee, and the employee did in fact act in reliance upon the promise, the employer could be estopped from denying the benefit of the promise. Thus, where the employee reasonably considers the existence of the manual as a commitment to follow procedures in the manual and relies upon it to his detriment, the Court may require the procedures to be followed to prevent injustice.

In Kiely v. St. Germain, a written employment contract was never executed and the employee was never hired, but he had terminated his prior employment and otherwise relied to his detriment.⁹ The employee was awarded damages for lost wages and legal expenses, and the case was remanded to the trial court to determine the appropriateness of "lost profits" as damages.

Promissory estoppel was discussed at length in the recent opinion in Churchey v. Adolph Coors Co..¹⁰ In Churchey, the employee was terminated after a complex scenario of medical problems and missed work, for reasons of "dishonesty." Pleaded amid several tort claims was a claim for wrongful termination, based on the employer's failure to follow a disciplinary warning and "second chance" policy and a "Leaves of Absence" policy posted on a company bulletin board. The Trial Court granted summary judgment for the employer based on the "at will" doctrine. The Supreme Court reversed, holding that material factual issues existed as to both contract and promissory estoppel theories of recovery:

The trial court found that there was no genuine issue of material fact with respect to Churchey's wrongful discharge claim and that Churchey's employment was terminable at will. Applying Colorado law as it existed at the time, the court concluded that Coors was entitled to judgment as a matter of law because "[n]o action lies for wrongful discharge or breach of contract under that type of employment. The Court of Appeals concluded that ... "[c]ontrary to plaintiff's allegation, she has not set forth any instances of defendant's failure to comply with the company rules regarding discipline; hence, no material issue was presented as to the alleged breach of contract or wrongful discharge, and summary judgment was properly entered." (citation omitted.)

... While an employer need not establish personnel policies or practices, where an employer chooses to establish such policies and practices and makes them known to its employees, the employment relationship is presumably enhanced. The employer secures an orderly, cooperative and loyal work force, and the employee the peace of mind associated with job security and the conviction that he will be treated fairly. No pre-employment negotiations need take place and the parties' minds need not meet on the subject; nor does it matter that the employee knows nothing of the particulars of the employer's policies and practices or that the employer may change them unilaterally. It is enough that the employer chooses, presumably in its own interest, to create an environment in which the employee believes that, whatever the personnel policies and practices, they are established and official at any given time, purport to be fair, and are applied consistently and uniformly to each employee. The employer has then created a situation "instinct with an obligation." ¹¹

Under the promissory estoppel approach set forth in Keenan, termination procedures can be enforced if the employee can demonstrate that "the employer should reasonably have expected the employee to consider the employee manual as a commitment from the employer to follow the termination procedures, that the employee reasonably relied on the termination procedures to his detriment, and that injustice can be avoided only by enforcement of the termination procedures."¹² In recognizing that this theory applies to the employment context, we cited with approval opinions from numerous other jurisdictions. (citation omitted.) [T]wo factors "of paramount importance" to the decision to use promissory estoppel analysis are a long history of satisfactory service by employee and the existence of termination policy set forth in employer.

[I]n light of the two theories described above, further development of the facts will be necessary to determine whether there are genuine disputes regarding the facts material to Coors' assertion that its personnel policies are not binding. Therefore, summary judgment on this claim was not appropriate."¹³

In a foot note, the Court addressed the employer's argument that it had complied with its employee manual procedurally by conducting a review hearing, when other procedures for discipline were also in effect:

Coors argues that Churchey is bound by the results of the company's appeal board procedure because, at most, Coors was required to do only what it promised in the manual. Apparently, Coors believes that holding the review hearing was sufficient to fulfill its promises. The record before us does not permit this conclusion. The policies which are part of the record indicate that Coors established a progressive discipline procedure, which means that employees were told they would be terminated for being absent without leave and a variety of other infractions unless they had received a prior warning. The fact that Coors also established an appeal board procedure for dissatisfied employees did not render the progressive discipline policy meaningless and there appears to be a genuine dispute as to whether Coors was required to follow its progressive discipline policy in Churchey's case. Wrongful discharge claims based on an employer's failure to follow progressive discipline procedures have been recognized in several cases.¹⁴

Colorado Courts from time to time have expressly rejected imposing an actionable duty of "good faith" and "fair dealing" on an employer, or recognizing a tort liability for wrongful discharge.¹⁵

3. PUBLIC POLICY EXCEPTION:

The at-will nature of the employment relationship reflects a matter of public policy.¹⁶ The at-will employment doctrine promotes flexibility and discretion for employees to seek the best position to suit their talents and for employers to seek the best employees to suit their needs.¹⁷ By removing encumbrances to quitting a job or firing an employee, the at-will doctrine promotes a free market in employment analogous to the free market in goods and services generally.¹⁸

At the same time, strict application of the at-will doctrine may invite abuse and lead to injustice.¹⁹ Accordingly, legislation and the common law have restricted application of the at-will doctrine to balance the interests of employers and employees.²⁰ Colorado recognizes a claim for relief for wrongful discharge in violation of public policy. This judicially crafted exception restricts an employer's right to terminate when the termination contravenes accepted and substantial public policies as embodied by legislative declarations, professional codes of ethics, or other sources.²¹

An employee may sustain a claim for wrongful termination, if the employee can establish that he was ordered to take an action that would violate a statute or a compelling public policy and refused to act, and that he was terminated for his refusal to so act.²² To date, the exception has been held not available where a separate statutory remedy (such as for discriminatory labor practices) exists, but this issue has gone to the Colorado Supreme Court for review.²³

Colorado Courts have limited the public policy exception to a clear violation of a specific statutory right or duty.²⁴

4. STATUTORY AND CIVIL RIGHTS VIOLATIONS:

Colorado Statutes governing employment and labor practices, and civil rights claims generally, including various discriminatory or unfair employment practices could be of significance if a termination is alleged to be for constitutionally prohibited reasons or concurrently with wage or labor violations. For example, certain federal and state statutes have created private claims for relief for wrongful discharge based on discrimination with respect to race, color, gender, national origin, ancestry, religious affiliation, disability, and age.²⁵ State statutes also permit such claims in cases of termination resulting from an employee engaging in lawful activity off premises during nonworking hours, responding to a jury summons, and certain activities of "whistleblowing."²⁶

An employee otherwise terminable at will may state a basis for recovery if discharged for exercising a protected right or duty, such as the right to file for workmen's compensation or the exercise of rights of free speech.²⁷

II. THE EMPLOYEE MANUAL "DISCLAIMER"

It is clear that where an employee handbook has been circulated, the Colorado Courts will consider the terms of the handbook and inferences that may be drawn from it; specifically, inferences that employment will be permanent, or continuing, or that certain procedures will be followed prior to termination. It is, therefore, essential that an employee handbook include a sufficient "disclaimer"; that is, a statement that the employee is an at-will employee and that procedures set forth in the manual are not contractually binding and are merely policy statements by the employer. Case law from some states indicates that the disclaimer should be "clear and prominent" to be effective.²⁸

Ideally, a disclaimer should be in bold print on a document signed by the employee, and should also include language to the effect that the terms of the employee handbook and other statements by the employer are merely policy statements and do not constitute a contract with the employee.

III. THE FUTURE OF EMPLOYMENT AT WILL AS A PUBLIC POLICY

It is significant that in Colorado the employee still has the initial burden of proof to show his employment is not at will. A clear disclaimer makes that a difficult burden to carry. In contrast, the New Jersey Court in Woolley v. Hoffman-LaRoche and the Michigan court in Toussaint v. Blue Cross and Blue Shield²⁹, make extensive public policy arguments in favor of "job security" as a goal of public policy.³⁰ Employment at will may have a limited existence in those jurisdictions. The Churchey case cited above, states that Toussaint was "cited favorably" in Continental Air Lines, Inc. v. Keenan, the previous major pronouncement. This is significant because in the Continental Air Lines, Inc. text, the case is actually cited with neutrality as one side of the spectrum. Furthermore, Continental cites the case in support of the actual contract theory and the promissory estoppel theory discussed above, while the Court in Toussaint admits that it relies on neither a contract nor promissory estoppel to grant relief.

In Toussaint, the Michigan Supreme Court stated: "We hold that employer statements of policy ... can give rise to contractual rights in employees without evidence that the parties mutually agreed ... It is enough that the employer chooses, presumably in its own interest to create an environment in which the employee believes that, whatever the personnel practices, they are established and official at any time." In reality, the case holds that public policy prefers job security over employment at will:

We see no reason why an employment contract which does not have a definite term ... cannot legally provide job security. When a prospective employee inquires about job security and the employer agrees that the employee shall be employed as long as he does the job, a fair construction is that the employer has agreed to give up his right to discharge at will without assigning cause and may discharge only for cause (good or just cause). The result is that the employee, if discharged without good or just cause, may maintain an action for wrongful discharge.³¹

Suppose the contracts here were written, not oral, and had provided in so many words that the employment was to continue for the life of the employee who could not be discharged except for cause (including as a cause, if you will, his attaining the company's mandatory retirement age). To construe such an agreement as terminable at the will of the employer would be tantamount to saying, as did the Court of Appeals in [this case below], that a contract of indefinite duration "cannot be made other than terminable at will by a provision that states that an employee will not be discharged except for cause" and that only in exceptional circumstances where there are "distinguishing features or provisions or a consideration in addition to the services to be rendered," would an employee be permitted to bargain for a legally enforceable agreement providing job security.

Where the employment is for a definite term a year, 5 years, 10 years, it is implied, if not expressed, that the employee can be discharged only for good cause and collective bargaining agreements often provide that discharge shall only be for good or just cause. There is, thus, no public policy against providing job security or prohibiting an employer from agreeing not to discharge except for good or just cause. That being the case, we can see no reason why such a provision in a contract having no definite term of employment with a single employee should necessarily be unenforceable and regarded, in effect, as against public policy and beyond the power of the employer to contract.³²

Similarly, Woolley v. Hoffman-LaRoche is a policy making opinion, focusing on the larger social issue rather than the specifics of contract law:³³

This Court has long recognized the capacity of the common law to develop and adapt to current needs...The interests of employees, employers, and the public lead to the conclusion that the common law of New Jersey should limit the right of an employer to fire an employee at will.

In recognizing a cause of action to provide a remedy for employees who are wrongfully discharged, we must balance the interests of the employee, the employer, and the public. Employees have an interest in knowing they will not be discharged for exercising their legal rights. Employers have an interest in knowing that they can run their businesses as they see fit as long as their conduct is consistent with public policy. The public has an interest in employment stability and in discouraging frivolous lawsuits by dissatisfied employees.

The spirit of this language foreshadows a different approach to these questions. No longer is there the unquestioned deference to the interests of the employer and the almost invariable dismissal of the contentions of the employee. Instead...this Court was no longer willing to decide these questions without examining the underlying interests involved, both the employer's and the employees', as well as the public interest, and the extent to which our deference to one or the other served or disserved the needs of society as presently understood.

In the last century, the common law developed in a laissez-faire climate that encouraged industrial growth and approved the right of an employer to control his own business, including the right to fire without cause an employee at will. ... The twentieth century has witnessed significant changes in socioeconomic values that have led to reassessment of the common law rule. Businesses have evolved from small and medium size firms to gigantic corporations in which ownership is separate from management. Formerly, there was a clear delineation between employers who frequently were owners of their own businesses, and employees. The employer in the old sense has been replaced by a superior in the corporate hierarchy who is himself an employee. We are a nation of employees. Growth in the number of employees has been accompanied by increasing recognition of the need for stability in labor relations.

The thrust of the thought is unmistakable. There is an interest to be served in addition to "freedom" of contract, an interest shared by practically all. And while "stability in labor relations" is the only specifically identified public policy objective, the reference to the "laissez-faire climate" and "the right to fire without cause an employee at will" as part of the "last century" suggests that any application of the employee-at-will rule must be tested by its legitimacy today and not by its acceptance yesterday.

Given this approach, the issue is not whether the rules applicable to individual lifetime or indefinite long-term employment contracts should be changed, but rather whether a correct understanding of the "underlying interests involved" in the relationship between the employer and its work force calls for compliance by the employer with certain rudimentary agreements voluntarily extended to the employees. (citations omitted.)

In the future, it may be that the real issue is not the language in an employment manual, but the judicial determination of the worthiness of the "at will" doctrine as a public policy.

The Churchey opinion certainly represents movement by Colorado in the direction of the "job security" decisions, although it does not embrace job security as a public policy, nor renounce at will employment as a public policy. But clearly, the decision should be of concern to employers.

It is important to remember the context in which most of these appellate decisions are written. In almost every case, the employer has been granted summary judgment in the trial court, and the employee is appealing only for the chance to present his case to a jury. The appellate courts in Churchey, Toussaint and Woolley are merely allowing the employee to present his full case in the trial court. The employee's recovery will still depend on the trial.

IV. CONCLUSION

At this time, the Colorado employee would still have to carry the burden at trial of proving that the elements of a contract or promissory estoppel exist and modify the at will nature of the employment contract. A clear disclaimer in an employee handbook will make that a difficult burden for the employee to meet. As new employee termination cases rise through the Court system, we may see Colorado case law continue to shift toward a presumption of job security, where the employer has the burden of proving the employment is terminable at will.

¹Continental Air Lines, Inc. v. Keenan, 731 P.2d 708, 711 (Colo. 1987). Garcia v. Aetna Finance Co., 752 F.2d 488 (10th Cir. 1984). Fremont RE-1 School District v. Jacobs, 737 P.2d 816, 820 (Colo. 1987). Hoff v. Amalgamated Transit Union, Div. 622, 758 P.2d 674 (Colo. App. 1987). See also Wisehart v. Meganack 66 P.3d 124 (Colo. Ct. App. 2002). Back
²Wisehart v. Meganack 66 P.3d 124 (Colo. Ct. App. 2002) citing Martin Marietta Corp. v. Lorenz 823 P.2d 100 (Colo. 1992). Back
³Continental Air Lines, Inc. v. Keenan, 731 P.2d 708, 711 (Colo. 1987). Back
⁴Continental Air Lines v. Keenan, 731 P.2d 708 (Colo. 1987). Back
⁵Continental Air Lines at 711. Salimi v. Farmer's Insurance Group, 684 P.2d 264 (Colo. App. 1984). Back
⁶Salimi v. Farmer's Insurance Group, 684 P.2d 264 (Colo. App. 1984). Back
⁷Salimi v. Farmer's Insurance Group at 265. Pine River State Bank v. Mettille, 333 N.W.2d 622 (Minn. 1983). Back
⁸Pittman v. Larson Distributing Co., 724 P.2d 1379 (Colo. App. 1986). Back
⁹Kiley v. St. Germain, 670 P.2d 764 (Colo. 1983). The classic case in this area was Hoffman v. Red Owl Stores, Inc., 133 N.W.2d 267 (Wis. 1965). Back
¹⁰Churchey v. Adolph Coors Co., 759 P.2d 1336 (Colo. 1988). Back
¹¹Allied Group Insurance, Employee Handbook, pages 18-19. Back
¹²Keenan at 712. Back
¹³Churchey v. Adolph Coors Co., at 1348-1349. Back
¹⁴Churchey v. Adolph Coors Co., footnote 6, page 1349. Back
¹⁵Corporon v. Safeway Stores, Inc., 708 P.2d 1385 (Colo. App. 1985 at 1390). Wing v. JMB Property Management Corp.,714 P.2d 916 (Colo. App. 1986). Other jurisdictions have recognized the tort, e.g., Thompson v. St. Regis Paper Co., 685 P.2d 1081 (Wash. 1984) at 1089. Back
¹⁶Wisehart v. Maganack 66 P.3d 124 (Colo. Ct. App. 2002) citing Crawford Rehabilitation Services v. Weissman, 938 P.2d 540 (Colo. 1997). Back
¹⁷Wisehart v. Maganack at 126. Back
¹⁸Wisehart v. Maganack at 126, citing Mackenzie v. Miller Brewing Co., 623 N.W.2d 739 (2001). Back
¹⁹Wisehart v. Maganack at 126. Back
²⁰Wisehart v. Maganack at 126. See also Martin Marietta Corp. v. Lorenz, 823 P.2d 100 (Colo. 1992). Back
²¹Wisehart v. Maganack at 126. See also Rocky Mountain Hospital & Medical Service v. Mariani, 916 P.2d 519 (Colo. 1996) (approving wrongful discharge claim based on accountant's refusal to violate code of professional conduct); see also Martin Marietta Corp. v. Lorenz, 823 P.2d 100 (Colo. 1992) (proscribing termination for refusing to engage in illegal conduct); Johnson v. Jefferson County Board of Health, 662 P.2d 463 (Colo. 1983) (government employer may not terminate at-will employee for exercise right of free speech); Jones v. Stevinson's Golden Ford, 36 P.3d 129 (Colo. App. 2001) (approving wrongful discharge claim based on employee's refusal to violate Consumer Protection Act and Motor Vehicle Repair Act); Lathrop v. Entenmann's, Inc. 770 P.2d 1367 (Colo. App. 1989) (employer's retaliatory termination against employee for exercising right to apply for and receive workers' compensation benefits provided grounds for wrongful discharge claim). Back
²²Montoya v. Local Union III of I.B.E.W., 755 P.2d 1221 (Colo. App. 1988). Farmer v. Central Bankcorporatation, Inc., 761 P.2d 220 (Colo. App. 1988). Back
²³Gamble v. Levitz Furniture, 759 P. 2d 761 (Colo. App. 1988, certiorari granted). Also, in Montoya v. Local III and Farmer v. Central Bankcorporation, Inc., claims for outrageous conduct and intentional infliction of emotional distress were barred by the exclusivity provision of the Workman's Compensation Act. However, Wing v. JMB Property Management Corp., 714 P.2d 916 (Colo. App. 1986) held the administrative remedy for discrimination or unfair practices (C.R.S. 24-34-301) to be an alternative remedy to a civil action for a sexual harassment termination claim at 714 P.2d 919. In Salida School District R-32J v. Morrison, 732 P.2d 1161 (Colo. 1987) the employer was not legitimately estopped from presenting evidence of reasons for termination in civil suit by the decision rendered previously in an unemployment hearing. The employee alleged retaliatory discharge for First Amendment violation, and the hearing officer had agreed. Back
²⁴Brezinski v. F.W. Woolworth Co., 626 F. Supp. 240 (Colo. 1982). Back
²⁵Wisehart v. Meganack, 66 P.3d 124, 126 (Colo. Ct. App. 2002). Back
²⁶See Crawford Rehabilitation Services v. Weissman, 938 P.2d 540 (Colo. 1997). Back
²⁷Brooks v. Trans World Airlines, Inc., 574 F. Supp. 805 (D. Colo. 1983). Morrison v. Salida School District R-32-J, 701 P.2d 101 (Colo. App. 1984) reversed on other grounds, 732 P.2d 1161 (Colo. 1987). Back
²⁸Woolley v. Hoffman-LaRoche, 491 A.2d 1257 (N.J. 1985). Back
²⁹Toussaint v. Blue Cross & Blue Shield, 292 N.W.2d 880 (Mich. 1980). Back
³⁰Allied Group Insurance, Employee Handbook, pages 18-19. Back
³¹Toussaint v. Blue Cross & Blue Shield at 892. Back
³²Toussaint v. Blue Cross & Blue Shield at 890-891. Back
³³Woolley v. Hoffman-La Roche at 1261-1262. Back

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