Assessments of the Michigan business climate usually revolve around tax and regulatory burdens. By most accounts, taxes and regulations by themselves are sufficient to place Michigan among the states least friendly to enterprise.
But more than just taxes and regulations explain this state's loss of jobs and businesses over the past two decades. Among the other factors is one that attracts far less attention than it should--the progressive abandonment of the doctrine known as "employment-at-will."
For most of this country's (and this state's) history, employment relationships were governed exclusively by the will of the contracting parties--employers and employees--not by the will of the general public and its judicial and administrative mechanisms.
Under this traditional arrangement, the parties could specify employment conditions and duration by explicit contract, which would then be enforceable in court. An employee could work for whomever he chose for as long as he chose. Without choosing to formally contract, they could decide to work together from moment to moment; the choice was up to them. Each side was free to terminate the relationship at will, without legal encumbrances.
The situation as it has evolved has produced something very different and very damaging to the interests of all parties and to the economy in general. A creeping public takeover of the private employment relationship has taken place. The consequences are readily apparent, as a 1991 Mackinac Center study by analyst Jurgen Skoppek pointed out: Michigan's courts are clogged with employment litigation, employers have turned defensive hiring and firing measures into a fine art, and wrongful discharge litigation now costs Michigan businesses millions of dollars each year.
Today, federal and state statutory law is filled with explicit exceptions to the employment-at-will rule, substantially restricting the employer's right to hire and fire. Generally speaking, however, even where these laws have burdened business they have been limited and more focused than what the courts have accomplished on their own. Much more substantial damage to employment-at-will has been done by the intervention of activist judges who think they know what is best for the parties in an otherwise private employment setting.
In the seminal 1980 case of Toussaint v. Blue Cross & Blue Shield of Michigan, the state's Supreme Court threw traditional contract law out the window by declaring that "no pre-employment negotiations need take place and the parties' minds need not meet on the subject" for the Court to simply invent an employment contract from any events, oral statements, or even from something as subjective as the workplace "environment."
Suddenly, every discharged employee could initiate costly litigation claiming unjust discharge. Any reference point, whether it was a statement made by someone somewhere at some time, or a slip of paper, or a pattern of behavior, became enough to require a jury trial.
In the 1986 Renny v. Port Huron Hospital case, the employer had done everything right from the standpoint of contract. Among the provisions in a handbook employees agreed to abide by was an optional grievance procedure. Plaintiff Renny employed that procedure to appeal her discharge for operating room irregularities. A peer review committee which she herself had selected from a group of qualified volunteers ruled against her.
Renny nonetheless challenged her termination in court. In a bizarre twist of logic, the Michigan Supreme Court ruled in her favor. The Court simply chose to apply its own arbitrary sense of fairness by overriding the employer's established procedures as agreed to by all parties.
Judges and juries have now become managers in Michigan's workplace, second-guessing the decisions of both employers and employees. No private contract between an employer and employee is ever completely safe from after-the-fact and utterly unpredictable judicial alteration. Every workplace decision is subject to an appeal to the "instincts" of courtroom participants.
A 1991 ruling of the Michigan Supreme Court (Rowe v. Montgomery Ward) recognized that judicial activism had gone overboard. It said that oral statements must be "clear and unequivocal" to overcome the legal presumption of employment-at-will. That would be a major victory on the road back to the employment-at-will doctrine, except that the Michigan Court of Appeals has failed consistently to apply the Rowe ruling.
Ultimately, no business can operate efficiently and effectively without good management, one of the most important aspects of which is the selection, administration, and replacement of personnel. The erosion of the employment-at-will doctrine and its replacement with arbitrary judicial intrusion into the employment relationship is making good management increasingly difficult. Not only are employers being forced to live with less effective employees than the market might provide, but they are also being constrained from critically evaluating employees under the unceasing threat of costly litigation.
Public policy makers in Michigan must recognize that workers are not helped by driving employers from the marketplace. Part of the effort to revitalize the state's economy must be to restore the freedom of association embodied in the traditional doctrine of employment-at-will.
The Mackinac Center for Public Policy is a nonprofit research and educational institute that advances the principles of free markets and limited government. Through our research and education programs, we challenge government overreach and advocate for a free-market approach to public policy that frees people to realize their potential and dreams.
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