B. The "Public Policy" Exception

Under the innocent-sounding rubric of "public policy" lurks a judicially-created monster capable of totally destroying freedom of contract in the employment setting. The following proposition sounds innocuous enough: An employer should be free to hire and fire individuals for any reason, but should not be permitted to so act when it violates basic public policy. This proposition seems quite sensible and just. After all, whyshould employers be able to commit anti-public acts at the expense of employees and get away with it? But careful consideration of this simple-looking proposition immediately compels one to ask, what is "public policy"?

The extension or limitation of the definition of what constitutes "public policy" is absolutely critical. A person could be discharged for many things: 1) for failure to violate a criminal statute, 2) for exercising a statutory obligation, 3) for exercising a statutory or constitutional right, or 4) for doing something the general public considers laudatory or not worthy of discharge. As one moves along this progression of potential improper reasons for discharge, the ability to detect the underlying rule beneath the exception becomes increasingly difficult.

The easiest category to accept as a "public policy" exception to employment-at-will involves employer demands that employees violate the law. The leading case denying an employer's right to discharge an employee for refusing to violate a criminal statute is Petermann v. Teamsters Local 396, a 1959 California decision. In that case, the employee, subpoenaed to testify at a legislative hearing, was instructed to commit perjury at the hearing. When the employee testified truthfully, he was discharged. The California court held that a discharge aimed at coercing an act specifically enjoined by statute gave rise to a cause of action, even though the perjury laws themselves provided no remedy to the employee:

It would be obnoxious to the interests of the state and contrary to public policy and sound morality to allow an employer to discharge any employee . . . on the ground that the employee declined to commit perjury, an act specifically enjoined by statute... (I)n order to more fully effectuate the state's declared policy against perjury, the civil law, too, must deny the employer his generally unlimited right to discharge an employee whose employment is for an unspecified duration, when the reason for the dismissal is the employee's refusal to commit perjury. [14]

Petermann, like the statutory prohibitions against discrimination, presents a compelling case for the creation of an exception to the employment-at-will rule. Other illustrative cases supporting the principle that the discharge of an employee for refusing to commit a crime is improper include Trombetta v. Detroit Toledo and Ironton Railroad Co., [15] where an employee alleged discharge for refusing to illegally manipulate pollution sampling results; Tameny v. Atlantic Richfield Co., [16] where the discharge allegedly was for refusing to participate in a price-fixing scheme; Ostrofe v. H.S. Crocker Co., [17] involving a refusal to participate in a conspiracy to violate the Clayton Act; and Sheets v. Teddy's Frosted Foods, Inc., [18] where the employee alleged dismissal for informing his employer that certain packaged goods were mislabeled (silence constituting a violation of Connecticut's Uniform Food, Drug and Cosmetic Act).

This first category of "public policy" is the simplest, most limited, and explicitly recognizable exception. It has clearly defined bounds. Simply put, an employee cannot be compelled, at the cost of his/her job, to violate statutory law. To a great extent, application of this exception is designed not so much to protect the employee, as to protect the public at large. Application of the exception helps to discourage attempts to violate the law.

Much the same can be said for the second category of "public policy" exception, where the discharge is not for refusal to violate a law, but for following a legal obligation. The exception still remains fairly limited, since the reference point remains statutory. The classic example is posed by Nees v. Hocks, an Oregon case where the employee was discharged for indicating her availability for jury duty over her employer's objections. The Oregon Supreme Court reasoned that "(i)f an employer were permitted with impunity to discharge an employee for fulfilling her obligation of jury duty, the jury system would be adversely affected. The will of the community would be thwarted." [19] Here too, the good of the public as a whole is protected as much, if not more, than the employee herself.

The public obligation concept is susceptible to being stretched beyond clearly defined statutory bounds. Palmateer v. International Harvester Co. [20] prohibited a retaliatory discharge for supplying police with information of illegal conduct by a fellow employee. Sherman v. St. Barnabas Hospital [21] prohibited a retaliatory discharge for resisting an illegal preferential hiring scheme under pressure of a strike threat by a participating union. Yet even in these cases, the exception remain fairly narrow. The individual is doing good social deeds closely connected with existing statutes which prohibit wrongful behavior.

However, with the third "public policy" exception – the exercise of a statutory or constitutional right – the narrow confines of proscriptive and/or prescriptive statutory law are abandoned and the exception begins to swallow the rule. Prohibiting discharge for the exercise of a statutory or constitutional right can theoretically encompass the whole universe of social activity. Almost any activity can be linked to the exercise of such a right. It becomes almost impossible to draw a line between what is and is not "public policy".

The most common case example involves the filing of a workers' compensation claim. In Frampton v. Central Indiana Gas Co., the Indiana Supreme Court relied on a general Indiana provision declaring that no agreement or "other device" shall operate to relieve an employer of its obligation under the workers' compensation system. The court referred to the humane purposes of workers' compensation and stated:

The Act creates a duty in the employer to compensate employees for work-related injuries ... and a right in the employee to receive such compensation. But in order for the goals of the Act to be realized and for public policy to be effectuated, the employee must be able to exercise his right in an unfettered fashion without being subject to reprisal. If employers are permitted to penalize employees for filing workmen's compensation claims, a most important public policy will be undermined. The fear of being discharged would have a deleterious effect on the exercise of a statutory right. [22]

Several responses to this court rationale come immediately to mind. First, the employee may have a right to workers' compensation, but is not legally obligated to apply. There is no compelling of a wrongful act. Second, the employee remains fully entitled to recover for workers' compensation. That right is not being interfered with. Third, if the legislature had wanted to prohibit terminations based on the application for workers' compensation, it could have done so within the workers' compensation statute. The legislature chose not to. Is it proper for the court to intervene where the legislature chose not to prohibit an act? All of these questions support the basic concern that prohibiting discharge for exercising a "right" is already too open-ended.

It is important to separate individual facts from the broader legal impact of adopting such an open-ended doctrine. Most of us would agree that a good employer should not firs a worker for seeking workers' compensation, or exercising other basic "rights". But if we are unwilling to ratify our preferences through the democratic process by establishing firm statutory language, why should we grant unfettered discretion to individual judges and jurors?

What activity can a clever lawyer not attach to some statutory or constitutional right? The Constitution provides protection for free speech, so does that mean an employee cannot be discharged for anything he or she says, no matter how derogatory of the employer or destructive of the work environment? Statutes regulating the sale of alcohol give adults the "right" to purchase alcoholic beverages. Does that mean an employee has a right to drink alcohol on the job? Similar examples could go on forever, as we list "right" after "right" after "right". Where does a court draw the line? It is at this point that the exception has become the rule, since the judiciary is free to recognize any exercise ofany "right" as protected. The whim ofa judiciary on a social responsibility mission becomes an intangible threat with every employee termination. The majority of courts have not taken this third step just yet. Many draw the line where administrative remedies are available. Others limit recourse to this type of "public policy" claim to situations where the employee is acting as an employee, as opposed to some other capacity, such as shareholder, environmental activist, or political volunteer. Many have simply rejected any recourse to the exercise-of-a-right exception. But will this current reticence on the part of many of the nation's courts continue?

The danger to individual freedom from an activist judiciary is carried to its extreme with the fourth category, where employees are permitted to challenge their discharge for acts the general public (or more specifically, the courts) find too laudatory or not worthy of discharge. The classic example every contemporary law student is introduced to is Monge v. Beebe Rubber Co., a New Hampshire case where the discharged employee alleged that she had been promoted to a higher paying position after her foreman told her that she could have the job if she was "nice" to him and that she was subsequently fired for refusing to date him. The New Hampshire Supreme Court found a cause of action in her claim, holding that "a termination by the employer of a contract of employment-at-will which is motivated by bad faith or malice or based on retaliation is not in the best interest of the economic system or the public good and constitutes a breach of the employment contract." At no point in its decision did the court articulate any constitutional or legislative basis for its holding or what should be in the public's best interest. [23]

This decision was followed by Fortune v. National Cash Register Co., [24] a Massachusetts case where a salesman with twenty-five years of service was discharged on the day after the employer received a $5 million order which could have resulted in a $92,000 bonus to the salesman. The employer had no legal obligation to pay anything to the salesman, and the court acknowledged that the salesman had received all commissions due under his contract. Nevertheless, the court found that the salesman had been terminated in order to avoid payment of the bonus, something the court just didn't like. So the court decided to forget about contract and just let its feelings govern the day. It deemed it appropriate to find a bad faith breach of the employment-at-will contract.

Both of these cases vividly present one of the toughest dilemmas posed by the common law, since the facts in both are so sympathetic to the plaintiff. Most of us would agree that what the employers did in these two cases was wrong. Most of us instinctively would like to do something to help the wronged individuals. Yet to invent legal theories to help them out, just because the facts in their particular cases are emotionally compelling, can have enormous long-term consequences which go tar beyond the sympathetic immediate facts at hand.

These decision are disturbing, not because of the immediate facts, but because of the uncontrollable theories they establish to cope with the immediate facts. These cases constitute the threshold to a complete judicial takeover of the employment relationship. There is no limitation of any kind on judicial Intervention, no reference to statute, no articulation of boundaries which might guide employer behavior. Instead, the court simply says, if we don't like a reason for termination, we'll hold you as the employer liable. Every employment contract becomes subject to ever-changing judge or jury standards of "fairness" and "good faith". A "covenant of good faith and fair dealing" is imagined in order to justify the desirable result. "Public policy" becomes nothing but a charade to cover up the exercise of unrestrained judicial will. The practical effect is to destroy employment-at-will and replace it with a "just cause" standard, since the absence of "just cause" can in almost every case be interpreted as bad faith.

By the time one has reached the fourth "public policy" exception, one also has to doubt whether the public interest is still the controlling factor. Whereas protection of the public is clearly identifiable in the first exception, where employers are prohibited from discharging employees for refusing to violate a statutory prohibition, it would appear that the primary goal of the fourth exception is merely to protect the economic interest of particular individual employees. Broad public good is replaced with the isolated imposition of fairness in particular cases. It consists of judges and jurors imposing personal morality after the fact, without reliable established legal foundation.