In early 1983, competition forced Atari to lay off 1,700 workers from its Silicon Valley manufacturing plant and move much of the oper ation to cheaper facilities in the Far East. About 600 of those fired received no advance notice.
Later that year, the remaining workers at the Milpitas plant voted 5 to 1 not to join a union, and the 600 who lost their jobs without warning hauled Atari into court on charges that the company misled them by concealing the intended layoffs until the moment pink slips were issued. The case is pending.
The sequence of events illustrates what labor experts say is happening nationwide. Unions are losing members because workers perceive them as corrupt, ineffective or out of step with their needs. But, the experts warn, companies assuming that weakened unions will give them a freer rein with employees had better think again: As unions lose ground, workers are taking to the courts to defend their rights and, in the process, are successfully whacking away at a centuries-old legal doctrine called employment-at-will.
That doctrine, a principle of English common law that has been developed and upheld by U.S. courts over the years, holds that in the absence of a contract specifying other terms, an employer can hire and fire for any reason not barred by federal law. Congress has passed several bills that prohibit firing workers for union organizing or on the basis of religion, creed, sex and race. Other than those limitations, terms of job tenure have been largely supposed to rest with those who sign the paycheck.
But in the last five years, as workers press their cases in court--and, increasingly, win--companies are finding that the doctrine is eroding. In defense, many executives are adopting policies to protect their corporations during legal battles. They also are pressuring state lawmakers to spell out in the legislative code what types of firings not covered by federal law will be considered unfair and illegal.
“If an employee is likely to win in court, then companies are bound to decide it’s better to define the rules and limit their liability,” says Dan Mitchell, director of the School of Industrial Relations at UCLA.
California leads the nation in the push for laws to protect employees against unfair firings, largely because the state’s courts have helped pioneer the notion of unfair dismissal: The California Bar Assn. estimates that employees have won 48 of 74 jury verdicts in the state in the five years through 1983.
The state Legislature is considering two wrongful-discharge bills. One would make it illegal to fire employees who, for example, refuse to break the law for an employer or blow the whistle on illegal activities. It also would bar dismissals without prior warning or for reasons unrelated to job ability. The bill has the support of the American Civil Liberties Union and, ironically, the AFL-CIO--which decided that improving its image was more important than opposing a bill that undermines the need for its existence.
The second bill, backed by industry, would explicitly ban only the dismissal of whistle-blowers and would bar most wrongful-discharge damage suits by workers against employers.
While these proposed laws wend their way through Sacramento, an increasing number of employers are adopting in-house policies to help them defend themselves in court against any accusation that they fired a person unfairly.
Steve Pepe, a partner at the Los Angeles law firm of O’Melveny & Myers, says that among the most popular procedures are arbitration, “sanitization” of employment manuals to erase any implication of promised employment and, at a few companies, short-term contracts that the employer has the right not to renew.
Of all these techniques, Pepe says, many companies resist arbitration most because they have an “unfounded worry” that such a system would encourage employee complaints. “I tell them 15 arbitration cases are better than one lost lawsuit,” Pepe says. “Arbitration is usually a lot cheaper and faster and usually fairer.”
Several corporations in Southern California have had such procedures in place for years, and many report that they are getting ever more inquiries from other companies in California and across the country that want to establish similar systems.
Since Northrop’s founding in Los Angeles in 1946, for example, the aerospace giant has had an employee arbitration procedure that many labor experts consider a model for industry. Under the system, workers and management must abide by a series of well-established procedures involving written complaints and hearings. If two sides cannot reach an agreement after exhausting in-house channels, an impartial outside arbitrator is brought in at company expense to make a decision that is binding on employee and employer alike.
John J. Richardson, vice present for industrial relations at Northrop, says that five years ago he got about five calls a year from companies interested in setting up a similar system. This year, he says, the company already has had 45 inquiries. He says the biggest obstacle among executives he talks to “is their concern about giving up the right to make the final decision.”
“Some companies just can’t accept that,” he says. “It does take some discipline and getting used to, but we tell them that when we’re wrong, it’s pretty obvious and when we’re right, we tend to get upheld (by the outside arbitrator).”
Northrop has found that having a “fair and impartial process” has helped it avoid the unionized work force that most aerospace companies have. Now it serves to protect the company from the lawsuits to which many others may be vulnerable. But the company says the system’s most important contribution is to boost productivity and reduce turnover. Northrop estimates that fewer than 7% of its 43,000-plus employees left voluntarily last year, less than half the average turnover rate for the U.S. industrial sector. “Our employees know they won’t be fired for filing a complaint. They know it’s a fair system,” says Richardson.
Other companies seeking protection prefer to follow Sears, Roebuck’s example. Like Northrop, Sears for years has had a system to protect itself from wrongful-discharge lawsuits. Sears’ method, however, is to make sure that all employee manuals emphasize the company’s right to fire at will and do not contain any statements that could imply a contractual relationship, such as a promise that good work and loyalty will be rewarded with employment.
In several cases, the policy has saved Sears from a judgment like the landmark decision California courts made in Pugh vs. See’s Candies in 1981.
Wayne Pugh had been with See’s for 32 years, working his way from dishwasher to vice president. Then without warning, even though the company’s profits were up, he was fired without explanation. Because of Pugh’s many years with the company and his advancement--and because of the lack of criticism of his work--the court held that See’s had an implied contract with Pugh and unjustly broke it by firing him.