CHAPTER 14

1. CHAPTER 14 The Employment Agreement

2. INTRODUCTION This chapter examines the traditional at-will employment, as well as various exceptions to this rule. The chapter also explores hiring practices, and some employment procedures, such as drug and polygraph testing, and employee surveillance.

3. AT-WILL EMPLOYMENT • At-Will Employment - indefinite duration without an express agreement. • Employees Not Subject to the “At Will” Rule • Public Employees • Employees with Individual Contracts • Union Contracts

4. AT-WILL EMPLOYMENT • Wrongful Discharge • The Public Policy Exception - refusal to commit an unlawful act. • Remedies • Sources of Public Policy • Statutory Protections: e.g., National Labor Relations Act, Fair Labor Standards Act. • Implied Contracts - Parties’ conduct limits the Employer’s right to discharge the Employee even though there is no express contract. • Implied Covenant of Good Faith and Fair Dealing - not recognized in all states.

5. WRONGFUL DISCHARGE Case 12.1 Synopsis. Rocky Mountain v. Mariani (Colo. 1996).  Mariani, a C.P.A., was employed in various capacities over several years with Rocky Mountain. She consistently objected to questionable accounting practices utilized by Rocky Mountain to make its records more attractive. When she was fired she sued claiming that firing her for not doing what she is forbidden to do by a professional code of ethics is contrary to public policy. ISSUE: Can an at-will employee state a claim for wrongful discharge under the public policy exception based on a professional code of ethics? HELD: Yes. The Supreme Court of Colorado agreed, ruling that she was wrongfully discharged based on professional ethics that embody principles of public policy.

6. AT-WILL EMPLOYMENT Case 12.2 Synopsis. Haddle v. Garrison (US 1999). A federal grand jury indicted Healthmaster, Inc. and two of its officers (Garrison and Kelly) for Medicare fraud. Haddle was an at-will employee of Healthmaster who cooperated with the federal agents in the investigation that preceded the indictment. He also appeared in response to a subpoena to testify before the grand jury but did not testify. Haddle was expected to testify as a witness in the criminal trial resulting from the indictment. Garrison conspiried with Molloy, another officer of Healthmaster, to terminate Haddle’s employment. They terminated him in order to intimidate him and also to retaliate against him for attending the federal court proceedings. Haddle filed claims under the Civil Rights Act and state law. Pursuant to the requirements of Section 1985 of the Civil Rights Act of 1871, he alleged that he had been “injured in his person or property” and was entitled to recover damages. CONTINUED

7. AT-WILL EMPLOYMENT Case 12.2 Synopsis. (Cont’d) The district court dismissed his claim on the grounds that because he was an at-will employee, he had no constitutionally protected interest in continued employment. The appeals court affirmed, and Haddle appealed. ISSUE: Was Haddle “injured in his property or person” when Garrett and Kelly induced Healthmaster to terminate his at-will employment as part of a conspiracy prohibited by the Civil Rights Act? HELD: Reversed. The Supreme Court held that that the harm alleged by Haddle—third-party interference with an at-will employment relationship—was a basis for relief under the Civil Rights Act. Haddle was permitted to proceed with his suit.

8. RIGHT TO FAIR PROCEDURE AND MANAGED CARE Individuals have a common law right to fair procedure protecting individuals from arbitrary exclusion or expulsion from private organizations that control important economic interests. This right has become increasingly important for health care providers belonging to managed-care networks.

9. FRAUDULENT INDUCEMENT Businesses may be held liable for overzealous sales pitches to attract highly qualified personnel under a theory of fraudulent inducement.

10. FRAUDULENT INDUCEMENT Case 12.3 Synopsis. Lazar v. Rykoff-Sexton (Cal. 1996). Lazar was President of a family-owned restaurant equipment company in New York where he lived with his wife and two children. In September 1989, a vice-president of Rykoff-Sexton, Inc. (Rykoff) contacted Lazar and asked him to move to Los Angeles to work as Rykoff’s West Coast general manager for contract design. The company intensively recruited Lazar through February 1990 promising him significant pay increases, advancement, security and a long-term relationship with the company. Rykoff represented that the company was very strong financially and anticipated profits and growth in the future. Based on these representations, Lazar and his family moved to L.A., performing in an exemplary manner. Lazar was terminated three months later and discovered the representations were materially false. Lazar was unable to find comparable employment and sued Rykoff. The trial court dismissed most of Lazar’s claims but the appeals court vacated this order. Rykoff appealed. HELD: Affirmed, finding that Lazar had stated a cause of action for fraudulent inducement.

11. NON-COMPETE AGREEMENTS Ancillary agreements to protect a company’s or individual’s interests by limiting a former employee’s ability to work against the former employer. The agreement must be reasonable under the circumstances of the case.

12. NON-COMPETE AGREEMENTS Case 12.4 Synopsis. BDO Seidman v. Hirshberg (N.Y. 1999). Hirshberg was employed in the Buffalo, New York office of BDO, a national accounting firm. As a condition of receiving a promotion to the position of manager, Hirshberg was required to sign a “Manager’s Agreement.” Paragraph SIXTH of the agreement provided that if, within eighteen months following the termination of his employment, Hirshberg served any former client of BDO Buffalo office, then he would be required to compensate BDO Seidman “for the loss and damages suffered” in an amount equal to one-and-a-half times the fees BDO Seidman had charged that client over the last fiscal year of the client’s patronage. Hirshberg resigned from BDO and BDO claimed it lost 100 clients who were billed $138,000 in the year Hirshberg left the firm. BDO sued and the trial court invalidated the reimbursement clause on the grounds that it constituted an overbroad and unenforceable anticompetitive agreement. BDO appealed. CONTINUED

13. NON-COMPETE AGREEMENTS Case 12.4 Synopsis (Cont’d). ISSUE: Is an agreement requiring a former employee to reimburse the employer for any loss sustained by losing its clients to the employee enforceable? HELD: Reversed. The Court of Appeals found the agreement was reasonable and enforceable except to the extent that it required Hirshberg to compensate BDO Seidman for fees paid by his personal clients or by clients with whom he had never acquired a relationship through his employment at BDO Seidman.

14. AT-WILL EMPLOYMENT AND PRE-EMPLOYMENT PRACTICES Companies should have a system in place to facilitate implementation of a company’s policies.

15. RECOMMENDATIONS FOR FORMER EMPLOYEES Conditional privilege (defense) to defamation actions protects former Employers if the information given to future Employers is fair and in good faith and not published to third parties. Also, Employers may be protected if the Employee signs a waiver and release.

16. EMPLOYEE DRUG AND GENETIC TESTING Limited usefulness and problematic for the Employer. Should be part of the company policy manual and apply to all Employees.

17. EMPLOYEE DRUG AND GENETIC TESTING • Public Employees: protected by Fourth Amendment from unreasonable search and seizures and the right to privacy. • Genetic Testing and Health Screening. • Private Employers: no Fourth Amendment limitation on drug testing in the private sector. • Constitutional Limitations - right to privacy. • Statutory Limitations - state restrictions on employee testing. • Employee Challenges - such as contract violation, public policy violation, right to privacy, and emotional distress.

18. POLYGRAPH TESTING OF EMPLOYEES The Employee Polygraph Protection Act of 1988 makes it generally unlawful for employers to use polygraph exams.

19. EMPLOYEE SURVEILLANCE Employers have a legitimate interest in employee productivity, but under certain circumstances surveillance may transgress the employee’s privacy rights.

20. RESPONSIBILITY FOR WORKER SAFETY • OSHA - safe and healthy work environment is required for employers. • Ergonomics Regulations and Repetitive Stress Injuries. • Criminal Prosecutions. • State Analogues to OSHA.

21. RESPONSIBILITY FOR WORKER SAFETY • State Criminal Prosecutions - Prosecutions of managers and companies who endanger their employees with criminal negligence or recklessness resulting in employee injury or death. • Tort Liability for Violence in the Workplace - Employers may be liable after notice and failure to take reasonable precautions.

22. WORKERS’ COMPENSATION Companies should bear the risk of Employee injuries that occurs in the workplace. WC can be provided through self-insurance, purchased from the state or a private insurance companies.

23. MINIMUM WAGE, OVERTIME, AND CHILD LABOR • Who Is Covered? - Employers (not independent contractors) involved in interstate commerce or the production of goods in interstate commerce. • Hours Worked - no limit, if appropriate overtime paid. • Compensation - required for all hours worked.

24. MINIMUM WAGE, OVERTIME, AND CHILD LABOR • Minimum Wage and Overtime • Exempt Employees -for example: salespersons, and executive, administrative, and professional employees. • Who is Liable for Violations? • Child Labor • Children under 14, generally not employable. • Children aged 14-15 may be employed outside of school hours subject to daily and weekly limits. • Children aged 16-18 may work in manufacturing occupations subject to some limitations. • Modern-Day Slavery

25. EMPLOYEE RETIREMENT AND INCOME SECURITY ACT (ERISA) • Coverage - all pension and employee benefit plans. • Pension Plans - officers and trustees of plans are fiduciaries of beneficiaries. • ERISA and HMO’s. • Federal Preemption – Although ERISA preempts many state laws, it does not preempt all of them. • Penalties – ERISA imposes various penalties for failure to conform to requirements.

26. OTHER LAWS AFFECTING THE EMPLOYMENT RELATIONSHIP • Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1986. • Employers with 20 or more Employees that sponsor a group health plan. • Employees must be given up to 18 months to continue coverage after they leave employment. • Health Insurance Portability and Accountability Act - special protection for employees with life-long illnesses. • Worker Adjustment and Retraining Notification Act - forces Employers to timely notify Employees of a plant closure or permanent work force reduction

27. REVIEW 1. Why is at-will employment positive for the economy? 2. Should there be limitations on covenants not to compete? 3. Why should employers be allowed to use genetic information for employment decisions?