Ruling Expected : When Can Employee Be Fired?

Ruth Thomas’ executive position with Alpha Beta disappeared in a corporate reshuffle.

Virginia Rulon-Miller lost her job with IBM because she was dating an employee of a rival firm.

Michael E. Gray was fired for writing a rebuttal to a performance review on company time.

Daniel Foley was replaced for “performance reasons” after he inquired about rumors that his boss was suspected of embezzlement.

All of them sued, and their cases have become pieces of a growing legal jigsaw puzzle.

Thomas lost at trial in Santa Ana, with the jury finding for Alpha Beta after the judge refused twice to accept a $500,000 verdict for her. An appeal has been filed.

Rulon-Miller won $300,000 from a jury that decided she had been wrongfully terminated, and an appellate court in San Francisco upheld the award.

Forced Into Bankruptcy

Gray is still awaiting his trial and said recently he had been forced into bankruptcy, unable to find a job as a computer programmer after being fired by Cipher Data Products in San Diego.

In Foley’s case against Interactive Data Corp., a trial judge in Los Angeles ruled against him because he did not have a written contract. An appellate court upheld that ruling and the case is now before the California Supreme Court.

Today in California, an employee’s legal right to his job is in a state of confusion.

Before the 1980s, the rules were simple: If you were not protected by a union and had no written employment contract, you could be fired from your job any time and for any reason--or for no reason at all--as long as no anti-discrimination laws were violated. But in the last seven years, California appellate courts have attacked that tradition with a vengeance.

‘Unbelievable Turnaround’

“Seven years ago, I’d stand up in front of any audience and say that ‘unless race, color, sex or age is involved, you can fire for a good cause, a bad cause or no cause,’ ” said Paul Grossman, a lawyer for the California Employment Law Council, a group of large California employers concerned about the trend. “There’s been an unbelievable turnaround.”

Some courts have ruled that employees with long and good work records have a special shield against being fired arbitrarily. Employer-employee relationships, those courts say, lead to implied contracts over time that prohibit termination without a good reason, regardless of whether the employee has a written employment contract.

The result of those rulings is a stream of imponderables. How long must a good work record be before the courts will find an implied promise by the employer to terminate only for good cause? How long before a worker has the right to have a jury decide whether an employer acted in bad faith and therefore should pay punitive damages? What constitutes bad faith?

“I don’t know that anyone clearly understands what the courts are saying,” defense lawyer Dwight Armstrong said. “Quite frankly, in many cases I’m not sure, and if we lawyers don’t understand bad faith, how is the jury supposed to understand it? How is the judge supposed to guide them? It’s all a roll of the dice either way.”

Now, there are efforts under way in Sacramento to end the confusion through legislation, even as lawyers eagerly await the first word on the subject from the newly reconstituted California Supreme Court. That court, headed by Chief Justice Malcolm Lucas, is expected to hand down a decision in Daniel Foley’s case any day that could dramatically affect employees’ rights throughout the state.

Business groups hope that, with the departure of former Chief Justice Rose Elizabeth Bird and two other justices after last November’s elections, the Supreme Court now will uphold the 2nd District Court of Appeal decision in Foley’s case. Such a ruling would bar lawsuits by employees who cannot produce contracts in writing.

Said Louis A. Custrini, vice president of the Merchants and Manufacturers Assn., “Now with Rose Bird out, it may be a more favorable environment, or at least a more equitable environment, we feel.”

Thomas, the first woman vice president for Alpha Beta, had the unusual experience of winning a jury trial twice in the same day.

Two times, an Orange County jury found she had been mistreated by her corporate bosses and voted her $500,000 in damages. Both times, the judge rejected the verdicts, ruling the jurors were confused about the law. After further deliberations, jurors found for Alpha Beta.

Thomas’ troubles began when Alpha Beta changed ownership in 1980. The new owners decided to merge some management functions with those of other retail operations. Her job was targeted for extinction in the shuffle.

Offered a Demotion

Thomas was told her job was being eliminated, and she was offered a demotion and half of her previous pay. She refused and sued. Her lawsuit, which claimed that her employer did not deal with her in good faith and also alleged age and sex discrimination, is now on appeal.

Virginia Rulon-Miller, who had been with IBM for 12 years, turned to the courts after a supervisor told her to stop dating an employee of a competing firm.

At first, her supervisor said he considered the relationship a “conflict of interest.” He told her to end the relationship or lose her job and gave her a week to think about it. The next day, however, the supervisor told her he was “making the decision for you” and announced that she would be demoted.

Spent Time ‘Stewing’

When she protested, she was fired.

“They knew I was dating him when I was promoted,” Rulon-Miller, now a manager with another office products firm in the Bay Area, said recently. “When I got the job, there was some brief discussion about my dating and there was no problem with that.”

After she left IBM, she said, she went nine months without work and spent most of her time “stewing” over how she had been treated. “I didn’t know whether I was just being emotional, or whether IBM had done something illegal,” she said.

Finally, she sued, claiming that IBM acted in bad faith and violated her contractual rights. She won, and a San Francisco appellate court affirmed a jury verdict of $300,000 in her favor. The decision mentioned Rulon-Miller’s outstanding 12-year work record and a written IBM policy suggesting that only performance on the job would be considered in evaluations.

The case of Michael E. Gray of San Diego was still another variation on the wrongful-termination theme. In Gray’s mind, it involved the issue of respect for an employee’s rights.

‘Fired for Responding’

“I got a negative evaluation, and I was fired for responding to it,” Gray said.

A computer programmer, Gray worked for Cipher Data Products Inc. for 14 months. He never received any oral or written complaints until a written performance report stated his work was unsatisfactory. Failure to improve, according to the report, “may lead to disciplinary action including termination.”

A personnel official told Gray to write a formal response and set up a meeting to discuss it. Shortly before the meeting was to take place, Gray’s supervisor noticed he was writing the response on company time, Gray alleged in the lawsuit he later filed against Cipher Data Products, and he was fired for insubordination.

“They defamed me (in the evaluation) and then fired me for writing a rebuttal,” said Gray, 42, who won the right in California’s 4th District Court of Appeal to have a jury hear his case.

Still awaiting trial, Gray said recently he had been forced into bankruptcy. He said he had been unable to find a job as a programmer and was working as a tax consultant.

Back to ‘Square One’

“As a practical matter, my future in the data-processing field has been, if not destroyed, at least returned to square one,” Gray said.

One worker who has so far found little help in the courts is Daniel Foley. He worked for Interactive Data Corp. in Los Angeles for seven years, receiving regular promotions, pay increases and bonuses.

In a routine management shift, he got a new boss. Foley heard that the man was under investigation for embezzlement from his previous employer and expressed concern to another supervisor. He was told not to spread rumors.

Three months later, and just two days after he received a $6,700 merit bonus, the new boss told Foley he would be replaced for “performance reasons.” Six months later, the manager pleaded guilty to embezzlement.

Case Dismissed

When Foley sued, the trial judge dismissed his case, and that decision was upheld by the 2nd District Court of Appeal. The appellate court invoked a longstanding legal doctrine that makes many oral contracts unenforceable and said Foley could not proceed with his lawsuit because he did not have a written employment contract. He was not given the chance to show that Interactive Data Corp. made any promises, expressed or implied, to fire him only for good cause. The court found no element of bad faith and emphasized the rights of the employer in its written opinion.

The court referred to employees who “are hired on a test basis, trained, nursed and often coddled to become competent and expert in their work by an employer.” The opinion also referred to the unbalanced nature of a doctrine that would allow the employee, but not the employer, to sue for violation of an implied contract.

Most observers agree that, if adopted statewide, the decision in Foley’s case would all but end wrongful-termination litigation. The case is now before the California Supreme Court, where oral arguments were heard in April. A decision could be handed down at any time.

Plaintiffs’ lawyers say employers can avoid being sued for wrongful termination simply by dealing honestly and fairly with employees. Good cause for termination, they say, clearly includes layoffs or reorganizations designed to make companies more efficient. And if an employer subjectively believes that an employee is not performing, the worker may legally be terminated, said Cliff Palefsky, a Bay-Area lawyer known for his work in wrongful termination cases.

“But when they start cooking up phony reasons, they can turn an otherwise valid discharge into a bad-faith discharge,” Palefsky said.

Clearly, juries have little sympathy with employers who treat their employees unfairly. In a six-year period ending last November, California juries decided in favor of employees suing former employers in 133 cases, or 71.9% of the time, according to a survey conducted by Frederick Brown of the San Francisco law firm of Orrick, Herrington & Sutcliffe. The jury awards in those cases totaled $77.5 million, almost half of which came in the form of punitive damages.

Settled Claims Lower

The numbers in that survey make it clear that employers who have settled claims out of court have fared much better than those who have gone to trial. In the six-year period, juries gave plaintiffs who went to trial and won almost twice as much, on the average, as they were willing to accept in settlement negotiations just before trial to abandon their claims.

What prompted the flurry of court decisions that has so radically reshaped the employment relationship in much of California in the last seven years?

There is no simple answer, but scholars and lawyers point to the development of anti-discrimination laws, labor unions and the growth of bureaucracy in large firms in attempts to explain it.

State and federal guarantees against job discrimination based on sex, race or religion have led to “rising expectations and demands which have made the courts more sensitive to the public interest in protecting employment relationships,” said Prof. William B. Gould of Stanford University.

Much More Complicated

Dealings between employers and employees that once were governed by basic economic principles of supply and demand have become much more complicated as the law has evolved. The relationship between an employer and his employee simply has grown too complex for pure free-market rules, said Daniel J.B. Mitchell, director of the Institute of Industrial Relations at UCLA.

Prof. Philip Selznick, of the Boalt Hall School of Law at the University of California, Berkeley, points to the growth in the size of private companies’ administrative ranks and the increasing complexity of rules for dealing with employees in explaining the trend.

Also, the union movement and governmentally imposed affirmative action policies have chipped away at employers’ discretion in dealing with those who work for them, and that has set the stage for court-imposed employee rights, Selznick said. Unions and affirmative action have “made it comfortable for people to say the responsibility of larger corporations can easily extend to the protection of employment.”

Modify Practices

Whatever the reason for the trend, employers have found themselves faced with the need to modify some of their traditional practices to compensate for it.

“Employers are responding by sanitizing their handbooks,” said Paul Schrade, board member of the Southern California Chapter of the American Civil Liberties Union and head of the group’s workers’ rights committee. “They now force employees to sign contracts that state they are at-will employees. We’ve seen statements where employees have to waive all rights once they are terminated.”

While the courts continue to be the moving force in the development of wrongful-termination law, powerful interests have turned to the Legislature in an effort to halt or quicken the pace of change.

Since 1984, rival bills intended to define the employment relationship and provide remedies for grievances have stalled as employers’ groups, organized labor and trial lawyers effectively canceled each other’s efforts.

Bill in Legislature

Grossman’s employers group is backing a bill in the Legislature authored by Sen. Robert G. Beverly (R-Manhattan Beach) that would allow dismissals for “just cause” and would wipe out punitive damages in wrongful-termination cases.

But the California Federation of Labor, which represents the 1.6 million union workers in the state affiliated with the AFL-CIO, has maintained that the provisions in the measure providing for arbitration of disputes between employers and employees are not strong enough.

While judges and legislators continue to grapple with the emerging doctrines of fairness in the workplace, new lawsuits stream steadily into the courts.

Defense attorneys bemoan the trend, described by one as the “fire me and make me rich” syndrome. But lawyers for employees who have been fired contend that their task is the tough one.

Difficult to Prove

Proving that an employer acted in bad faith, for example, is extremely difficult, Newport Beach lawyer William M. Crosby said.

“It’s so difficult you almost need a smoking gun,” he said. “I tell any potential clients who come to me--I tell them, ‘You really need a thick skin for this sort of case. They will fight you at every turn.’ ”

Crosby successfully represented a woman last year who won $136,500 in a wrongful-termination jury trial against Alpha Beta. She was fired by then-vice president Ruth Thomas.