State’s High Court Takes Wrong Turn on Job Rights

Last month the California Supreme Court delivered what may be this decade’s most significant decision on employee rights.

Until the late 1970s, the prevailing view was that employers had unfettered discretion to dismiss employees not covered by union contracts or Civil Service regulations. Such workers were, as the courts had put it for most of this century, “at-will,” or without protection against employer retaliation unless such issues as discrimination on account of race, sex, age, religion, national origin or union membership were involved.

But in the 1980s, courts throughout the country fashioned numerous exceptions to the at-will principle. California courts, encouraged by a 1980 ruling of the state Supreme Court under Chief Justice Rose Elizabeth Bird, led the way.

The state court’s Dec. 29 ruling in Daniel D. Foley vs. Interactive Data Corp., widely heralded as a victory for the business community, has attempted to remove California’s mantle of leadership, pull the judiciary back into the pack with those of most other states and diminish mammoth jury awards for workers--awards that frequently exceeded demands of the plaintiff’s own lawyer--and thus reduce the frequency of employee challenges to corporate firings.

In the Foley case, a narrowly divided court held that employees may not sue employers for breach of the so-called “duty or covenant of good faith and fair dealing” to obtain punitive or compensatory damages. The opinion was written by Chief Justice Malcolm M. Lucas, an appointee of Gov. George Deukmejian, and joined in by three of the governor’s four other appointees,

As the court’s opinion makes clear, the fact that damage awards have been fashioned generously, erratically and unpredictably was a major factor in the ruling--although the opinion failed to note that damage awards diminished dramatically between 1987-88. The practical significance of the Foley decision is to eliminate damage awards that cover anything but loss of income in most cases, and consequently discourage lawyers who accept 40% contingency-fee arrangements with employees in anticipation of a large recovery.

The court’s overriding objective in the Foley case is both to circumscribe employee rights--and indeed, in my view, to sacrifice them at the altar of management’s interest in a stable business environment--and to damp down the litigious habits of trial lawyers. But it is doubtful the court will accomplish either.

In the first place, the court in the Foley decision made it clear that the Reggie Jacksons and Dan Rathers of this world, who frequently have explicit, detailed written agreements, are not the only employees who have contractual protection against dismissal. The court held that employees may possess an implied contract through which a discharge can be challenged when it is not for “good cause.”

Even though such cases do not produce large damage remedies, managerial and professional income losses (traditionally such employees have filed a disproportionate number of these cases) may still attract lawyers, the absence of punitive damages notwithstanding. Moreover, the court, with its Deukmejian-appointed majority, has not eliminated large wrongful-termination awards altogether.

In the Foley case the court reiterated California law establishing legal protection for employees where the employer’s conduct is inconsistent with “public policy” considerations. Indeed, Lucas’ opinion did not restrict these cases to firings arising out of employer insistence that the worker violated the law. Moreover, the court’s holding did not affect the wide array of legal theories that produce large damage awards, of which fraud, defamation, loss of consortium and intentional infliction of emotional distress are prominent examples. In this regard, the chief justice’s opinion leaves unresolved more issues than it puts to rest.

Yet the bottom line is that this court is hostile to efforts by employees to regulate arbitrary behavior by an employer through substantial monetary awards. The views expressed in the Foley decision should spell trouble for other legal theories and engender narrow readings of the public-policy exception to at-will status.

For instance, in distinguishing insurance from employment cases, the court in the Foley decision said that damages were appropriate in insurance cases because the public has no alternative to insurance, whereas the dismissed worker can get another job. But as Justice Marcus M. Kaufman, a Deukmejian appointee, said in eloquent dissent: “What market is there for the factory worker laid off after 25 years of labor in the same plant, or for the middle-aged executive fired after 25 years with the same firm?”

Equally troubling is the court’s view that it must partially bar the courthouse door to workers on the ground that the complexities of the issue make it more suitable for resolution by the Legislature. The California courts--and indeed all tribunals that follow the Anglo-American tradition of common law (based on decisions and opinion of law courts and on customs and usage)--have not hesitated to intervene simply because the Legislature could do so as well. Indeed, the Legislature’s failure to address social problems has served as a basis for judicial involvement--one current illustration is regulation of the insurance industry.

Ironically, a California State Bar Committee that I chaired five years ago recommended to the Legislature that arbitration, coupled with the traditional labor-law remedies of back pay, reinstatement costs and attorneys’ fees, take the place of punitive and compensatory damage awards. The committee’s idea was that a more economical and expeditious system would provide an employee with a better chance to reclaim his job quickly, without the expense of litigation. If the employer lost in arbitration, liability exposure would be far more limited than it has been in the courts.

Because of substantial opposition by powerful special interests, the Legislature has never taken action on that recommendation.

Trial lawyers, who bemoan the court’s Foley decision and who have benefited from the existing system more than employees, were outraged because the recommendations would have deprived them of lucrative fees based upon the size of the award. The business community also opposed reform, because arbitration would provide workers with more opportunity to protest. They wanted it both ways, and their increased use of at-will forms, which require employees to give up the “good cause” protection against dismissal provided by the court in the Foley ruling, make it clear that their objective is to return to the bad old days, notwithstanding vast improvements in personnel practices by many companies--improvements attributable, of course, to the legal doctrines that the court has now limited.

Now more than ever it is imperative for the Legislature to accept the invitation provided by the court in the Foley case. The difficulty, of course, is that because the court has denied employees some of the rights that the lower courts had almost unanimously accorded them, employer incentive to compromise before the Legislature will decline and their resolve to resist reform will stiffen.

The coming months demand what has been completely lacking for these past five years: leadership on both sides of the aisle. We need Democrats and Republicans who are willing to do what is both civilized and right for employee, employer and the public. The court’s decision in the Foley case does not help matters.