May 28, 2012

Treat Your Terminations as “For Cause” (Even When They’re “At Will”)

By Dr. Ken Broda-Bahm: 

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Here is a piece of advice that works not only as a trial message, but also as a strategy for avoiding trials in the first place: When someone loses their job, make sure it is for reasons that meet the legal tests, even when those tests aren’t legally required. For in-house attorneys or HR personnel, that can mean functionally treating employees as “for cause” even when they might be “at will.”

When an employer faces the need to let an employee go, and the threat of litigation in response is either real or implied, it is only natural for the company to want to wrap itself in cleanest available defense. On that score, it is helpful to the company that the vast majority of American employees are “at will” employees, meaning that the relationship may be ended by either party for any reason, as long as that reason isn’t illegal. That last caveat, however, provides quite a bit of wiggle room for a former employee/plaintiff to argue, for example, that a termination was discriminatory, violated an express or implied contract, or ran afoul of an implied covenant of good faith and fair dealing. That means that in practice, juries, judges, and arbitrators will generally take a close look at the equities of the result. But the role of fairness isn’t always simple. In this post, I take a look at some of the factors that affect that perception of fairness, including the seven tests of just cause.  

Fairness Matters, But Not Always in the Way You Expect

I frequently assist in employment cases when the disputes reach either jury trial or, more often for me, arbitration. For all decision makers, including judges, the decision can come down to the basic equities as well as the law. But fairness having a seat at the table doesn’t always equate to a greater sympathy for the employment plaintiff. The practical effect can be more complicated than that.

One example of this complexity is found in a study I came across focusing on judges in the United Kingdom. Professor Ioana Marinescu of the University of Chicago (Marinescu, 2011) looked at the question of whether the state of the economy – specifically, unemployment and bankruptcy rates – influences judges’ verdicts regarding terminated employees or not. It turns out that it does, but not in the most predictable direction. You might think that in a down economy, judges would factor in the substantially reduced chances of quickly finding another job, treat termination as a bigger deal, and thus require greater justification from the employer. If that were the case, challenging economic conditions would cause judges to find for employment plaintiffs more often. In fact, the role of a bad economy was to make judges less likely to find for the plaintiff, and the article cites research from other countries showing a similar result. 

Why would that be the case? The professor’s explanation is an economist’s: Judges are acting on a rational desire to maximize the joint welfare of the parties involved in the case. But there is also a possible psychological explanation. When unemployment is high, decision makers looking at the recently unemployed can think, “You were lucky to have a job, and should have tried harder to keep it.” When the stakes are greater, one version of fairness is to place proportionately greater responsibility on the party that bears the consequence. In a bad economy, it is easier for the business to find a new employee than it is for the employee to find a new job. The greater weight of the consequence translates into a greater weight of responsibility. 

Just Cause in a Just World

One way of looking at this is through the lens of the cognitive bias called the “Just World Hypothesis” (Lerner & Miller, 1978). The idea is that people want to believe that the world is just, and therefore have a preference for reasoning in a way that makes known outcomes appear more justified. Put more simply, people want to believe that others tend get what is coming to them. When an outcome is bad, that style of reasoning causes responsibility to be placed on the victim as we look for ways they could have avoided the situation. 

In that context, the results of the study of UK judges may be more understandable. The relatively worse outcome of being unemployed in a bad economy motivates greater focus on the actions by the former employee that could have avoided that result. A belief in a just world is often an aid to the employment defendant because it leads to a sense of greater power and responsibility for the employee. After all, in a just world, no one would face that difficult and unexpected job search without having brought it on themselves to at least some extent. The presence of this style of thinking underscores the need to use a just cause lens even when there isn’t a legal need to do so. 

Seven Tests of Just Cause

There is a widely used list of seven questions relating to termination. They’ve been around since 1966, when they were first articulated by an arbitrator, Carroll Daugherty. While each test isn’t legally required in all situations, the tests as a whole provide a rough measure of the perceived and actual fairness of the termination. Used as a checklist, they serve as a useful guide to the in house or HR representative deciding on a termination, or a road map to the litigator who is defending that termination. 

  1. Was the employee forewarned of the consequences of his or her actions?  Knowledge is power, and when the employee knows that specific behavior will lead to termination, then their choice to engage in the behavior anyway justifies the termination. 
  2. Are the employer’s rules reasonably related to business efficiency and performance the employer might reasonably expect from the employee? Rules are rules, but to be fair, those rules need to be necessary and rational. Violating expectations in a way that impedes performance or mission is a fair reason for discharge. 
  3. Was an effort made before discharge to determine whether the employee was guilty as charged? In a way, the termination needs to be treated in practice as a miniature criminal case in the sense that bad behavior can’t be presumed and should instead be investigated. 
  4. Was the investigation conducted fairly and objectively? An inquiry or a management plan cannot simply be a prelude to termination. Instead, it needs to provide an opportunity for the employee to justify or potentially reform their conduct. 
  5. Did the employer obtain substantial evidence of the employee’s guilt? Again, the lens is a quasi-criminal one of “guilt,” but the behavior justifying termination should be proven to the satisfaction of a decision maker with the organization’s best interests in mind. 
  6. Were the rules applied fairly and without discrimination? Are the same standards being applied equally to all? While the employer wants to say, “This is about you, not others” in practice, expectations that are selectively applied will always look arbitrary or discriminatory.
  7. Was the degree of discipline reasonably related to the seriousness of the employee’s offense and the employee’s past record? Does the punishment fit the crime? Proportionality can’t be measured with precision, so the test is whether it would appear fitting and just to a neutral observer. 

Whether you use it to prepare your litigation message, to avoid trial, or both, this list provides a useful and simple reality check. Termination is almost never going to appear subjectively fair to the terminated employee. For that reason, fairness needs to be fit into a broader frame: fairness to other employees, to customers, to the company’s goals and mission. In that circumstance, a clear case combined with affirmative answers to the seven questions provide either good protection or a good message in trial. 

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Other Employment Law Posts: 

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Melvin J. Lerner & Dale T. Miller (1978). Just world research and the attribution process: Looking back and ahead. Psychological Bulletin, Vol 85(5), Sep 1978, 1030-1051. doi: 10.1037/0033-2909.85.5.1030

Ioana Marinescu (2011). Are Judges Sensitive to Economic Conditions? Evidence From UK Employment Tribunals Industrial & Labor Relations Review, 64

Photo Credit: Late for Work LLC (get the shirt here), used by permission. 

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