By Elliott L. Epstein, Esquire[1]

After the brief trend towards liberalization of the “employment-at-will” doctrine in the late 1970s and early 1980s, the Maine Law Court has largely returned to that backward social policy, which enables employers to fire employees under virtually any circumstances. In the process, it has done violence to basic principles of contract law that could have provided the basis for a more balanced relationship between employer and employee.
THE EMPLOYMENT-AT-WILL DOCTRINE

The employment-at-will doctrine is a 19th century notion that is based upon “freedom of contract.”[2] It states that “a contract of employment for an indefinite length of time is terminable at will by either party.”[3]

Many express contracts for an indefinite term and all implied contracts fall within its ambit. Theoretically, this rule treats both employer and employee fairly and equally. In fact, because of the inequality of economic power, knowledge and sophistication between employer and employee, it gives the employer almost unfettered discretion to end the relationship for the most arbitrary reasons, regardless of the assurances of longevity it has given the employee. Often the employee remains vulnerable to discharge even if he reasonably believes he has tenure until there is “cause” for his dismissal.[4] Only workers protected by collective bargaining agreements, employees with the economic clout to negotiate individual written contracts, and government civil service workers can feel secure in their jobs.[5]
TERRIO AND IMPLIED EMPLOYMENT CONTRACTS

In the 1977 case of Terrio v. Millinocket Community Hospital,[6] the Law Court seemed to signal a change in this century-old judicial policy by enforcing what was tantamount to an implied contract of employment under the guise of enforcing an express contractual promise for employment of definite duration. The case involved a hospital lab technician, who had been fired after being promised by a supervisor that she would be “‘secure in her job’ for the rest of (her) life.”[7] The Court ostensibly relied upon that promise as “the critical evidentiary support” for an express contract claim and sidestepped the fact that it was a contract for employment of indefinite duration by characterizing the promise as one for “a definite term, that is, until ‘normal retirement age,’ . . .”[8]

The Court also found corroborative evidence of a tenured employment relationship in the existence of a company personnel policy containing discharge and grievance procedures, an employee’s retirement plan and the plaintiff’s long employment history “marked by repeated raises and gradual improvement in job status and benefits.”[9] The latter factors were really indicia of an implied contract rather than substantiation for an express one. They implied that the parties intended an employment relationship that would last until retirement age absent “cause” for dismissal. Even the supervisor’s promise, which had been made long after the employee had been hired and for no additional consideration, could have been viewed as proof of an existing implied contract rather than the promise creating an express one.[10]

By 1984, however, the Court was already in retreat from Terrio. It held Larrabee v. Penobscot Frozen Foods that “parties may enter into an employment contract terminable only pursuant to its express terms – as ‘for cause’ – by clearly stating their intention to do so, . . .”[11] Although the Court in Larrabee conceded, for the first time, that “for cause” contracts of indefinite duration could be enforced,[12] its use of the terms “express” and “clearly” to describe the requirements for such enforceable agreements formed the basis of later cases severely restricting the enforceability of unwritten employment contracts.
EMPLOYEE HANDBOOKS AND IMPLIED EMPLOYMENT CONTRACTS

Employee handbooks and written personnel policies stand at the borderline between express and implied employment contracts. On the one hand, they can be seen as enforceable, unilateral promises by the employer to treat its employees in a certain fashion, promises which should reasonably be expected to induce and do, in fact, induce employee behavior in reliance on them. On the other hand, they can constitute evidence of the parties’ conduct from which one can infer that a contractual relationship exists.

In recent decisions, Bard v. Bath Iron Works Corp.[13] and Libby v. Calais Regional Hospital,[14] the Court has emphatically ruled that “written or oral language merely implying that discharge is for cause only is not sufficient to bind an employer.”[15] Both cases involved company handbooks or personnel policies which set forth rules of conduct and provided graduated disciplinary and termination procedures as sanctions for violations of those rules. Ignoring general principles of contract law which recognize that enforceable contracts can arise either from unilateral promises coupled with detrimental reliance[16] or from inferences drawn from the words or the conduct of the parties,[17] the Court held such personnel policies insufficient to establish a tenured contract of employment unless they:

a. “expressly restrict the employer’s common law right to discharge the employee at will” and

b. “clearly limit the employer to the enumerated method or methods of terminating the employment.”[18]

In other words, a handbook cannot create tenured employment status unless it clearly and expressly limits the grounds on which, and the method by which, an employee can be terminated.

Some of the language in the Calais Regional Hospital handbook might have satisfied even these rigorous requirements. However, ambiguous and conflicting policy provisions were interpreted in favor of the hospital, which had drafted the handbook, and against the employee – again in contravention of a basic contract principle that ambiguity is to be construed against the drafter.[19]

The landmark Michigan case of Toussaint v. Blue Cross & Blue Shield[20] has pointed out the fallacy of such an approach. It permits employers to mislead employees by creating legitimate expectations that employees will retain their jobs if they are loyal, conscientious and competent, while it imposes no obligation on the employer to fulfill these expectations. The employer gets the advantage of heightened employee morale and lower personnel turnover, while the employee gets only the illusion of security:

While an employer need not establish personnel policies or practices, where an employer chooses to establish such policies and practices and makes them known to its employees, the employment relationship is presumably enhanced. The employer secures an orderly, cooperative and loyal work-force, and the employee the peace of mind associated with job security and the conviction that he will be treated fairly. . . The employer has then created a situation “instinct with an obligation.”[21]

If the language of a personnel handbook cannot provide the basis for an enforceable implied contract of employment in Maine, then a fortiori, tenure cannot be established through less explicit statements or conduct of an employer such as:

a. the initiation of employee retirement of other benefit plans that vest only after a specified period of service,

b. the practice of preparing regular personnel evaluations and awarding pay raises and promotions for favorable evaluations, and

c. an historical pattern of discharging employees only for “cause.”[22]

Terrio had suggested these factors were relevant. Libby and Bard have made them superfluous to a breach of employment contract claim.
BREACH OF EXPRESS EMPLOYMENT CONTRACTS

Even where there is an express promise of tenured employment, the Law Court has placed so many obstacles in the path of enforcement that the employer is often free to terminate at will.

First, the Court has insisted that the promise be a “clear” one[23] in contrast with other contractual promises for which no such requirement exists. Second, the Court has ruled on several occasions that relatively clear employer promises were unclear and hence ineffective as a matter of law. In LeGault v. Eastern Maine Medical Center, the promise that the employee’s job would last as long as he “was doing his job” was held insufficient.[24] In Rancourt v. Waterville Osteopathic Hospital, the promise that the employee “would never have to worry about losing her job” was held unenforceable.[25] In Broussard v. CACI, Inc., the First Circuit Court of Appeals interpreted Maine law to hold that an employer’s statements that it was hiring the employee “for a career” and “if he did a good job he would have long-term employment” were mere puffing “in an atmosphere of optimism and mutual hope” where the “air is redolent with expectation of duration on the part of the employee and of satisfactory performance by the employee.”[26]

Finally, even where a promise is sufficiently clear, the Court has held it to be unenforceable under the statute of frauds if it is oral and cannot be performed within a year.[27] The normal exception to the statute of frauds – that an oral promise becomes enforceable where the promisee has reasonably relied upon the promise to his detriment – will not apply.[28] Only clear and convincing evidence that the employer committed fraud – that is, made the promise with intent to deceive the employee – will avoid the statute of frauds.[29]
TORT OF WRONGFUL DISCHARGE

For a time, the Law Court suggested it might recognize a tort of wrongful discharge where the employee was terminated for reasons which offended public policy. This issue was addressed, but not resolved, in Larrabee v. Penobscot Frozen Foods[30] and Pooler v. Maine Coal Products.[31] However in Bard v. Bath Iron Works Corp.,[32] the Law Court refused to recognize this theory, which is now accepted in about 40 other states.[33] It held that the existence of a statutory right and remedy which addressed the relevant public policy (in that case the Whistleblowers’ Protection Act) made wrongful discharge a “redundant tort.”[34] Given the existence of sweeping federal and state statutory schemes which broadly forbid most types of discriminatory or retaliatory discharges, it is hard to imagine a situation in which wrongful discharge would not be considered a “redundant tort” that would be preempted by statute.

It is true that statutes such as the Maine Human Rights Act,[35] the Whistleblowers’ Protection Act,[36] the Equal Employment Opportunities Act,[37] the Age Discrimination in Employment Act[38] and the Disabilities in the Workplace Act[39] do protect employees in many situations from termination for reasons falling under the public policy umbrella. However, they do not cover all such situations; nor do they usually provide a complete array of remedies. Hence, there are chinks in the armor. A whistleblower, for instance, to the extent he is not a federal employee, is protected by neither state nor federal law for reporting a violation of federal law to a federal official.[40] Moreover, employees under the aforementioned statutes are generally not entitled to damages for future lost wages (“front pay”) or emotional distress.[41] Finally, these statutes do not protect employees from arbitrary or even malicious firings unless they are in a designated minority group covered by the statute.
BREACH OF IMPLIED COVENENT OF GOOD FAITH AND FAIR DEALING

In Bard v. Bath Iron Works Corp.,[42] the Law Court also declined to recognize a cause of action for breach of an implied covenant of good faith and fair dealing, a theory in force in 12 other jurisdictions.[43] Indeed, the Court held that it would not recognize a breach of any implied promise or covenant to an employee-at-will.[44]
THE LAW COURT’S MOTIVATION

Why is the Law Court so unfriendly to the aggrieved employee in these cases? One can only surmise the reasons. Perhaps the Court is still as enamored with the virtues of “freedom of contract” as were jurists in the last century. Perhaps it does not wish to invite a flood of litigation.[45] Perhaps it sees itself as safeguarding Maine’s economy by preventing the introduction of a rigid, civil-service system of employment tenure into the private sector.

Whatever the Court’s motivation, its resurrection of the employee-at-will rule is ill conceived. Based upon an outmoded philosophy, the rule is an extreme example of the doctrines devised by 19th century apologists to justify and protect the excesses of the Industrial Revolution; it has little place in a more sophisticated and humane era.[46] Nor is its modification likely to open the flood gates of litigation, since employers could avoid liability by inserting in their personnel handbooks clear, conspicuous and unambiguous disclaimers about tenure.[47] Finally, a civil service system need not result from a liberalization of the rule unless employers choose to create such a system by setting up bureaucratic rules and procedures for termination in order to engender the loyalty and boost the morale of their employees; when employers do make this choice, however, it is only fair that they be obliged to adhere to it.[48]
[1] The author was Plaintiff’s counsel in Bard v. Bath Iron Works Corp., 590 A.2d 152 (Me. 1991), a wrongful discharge case discussed in this article.

[2] The rule appears to have originated in the treatise, Wood, Master and Servant, § 134 (1877), and to have been first judicially adopted in Martin v. New York Life Insurance Co., 148 N.Y. 117, 42 N.E. 416 (1895).

See also Note, “Protecting At-Will Employees Against Wrongful Discharge: The Duty to Terminate Only in Good Faith,” 93 Harvard L. Rev. 1816, 824-8 (1980); Comment “Employment At-Will and Law of Contracts,” 23 Buffalo L. Rev. 211, 212-16 (1973-4).

[3] Terrio v. Millinocket Community Hospital, 379 A.2d 135, 137 (Me. 1977), citing Merrill v. Western Union Telegraph Co., 78 Me. 97, 100 (1886) and Blaisdell v. Lewis, 32 Me. 515, 516 (1851). This doctrine was most recently reaffirmed in Bard v. Bath Iron Works Corp., 590 A.2d 152, 155 Me. (1991).

[4] Note, “Protecting At-Will Employees Against Wrongful Discharge: The Duty to Terminate Only in Good Faith,” supra at 1828-36.

[5] Note, “Protecting At-Will Employees Against Wrongful Discharge: The Duty to Terminate Only in Good Faith,” supra at 1816 n. 1 and n. 2. (1980).

[6] 379 A.2d 135.

[7] 379 A.2d 135, 138.

[8] 379 A.2d 135, 138.

[9] Id. at 137-8. The Court stated that the hospital’s personnel policy “standing alone, does not, . . . expressly purport to establish either an employment relationship with any individual or a definite tenure of employment,” that the personnel policy, together with a 1972 version of the institution’s retirement plan, furnished “only terms relating to employment,” and that “no one has a job by reason of it and no obligation to any individual ordinarily comes into existence from it alone.”

[10] In the later case of Larrabee v. Penobscot Frozen Foods, Inc., 486 A.2d 97-99, 100 (Me. 1984), the Court held that no consideration other “than services to be performed or promised is expected by the employer, or is performed or promised by the employee” when the parties clearly state their intent to enter into an employment contract terminable only “for cause.” It is unclear from Larrabee whether post-employment promises are enforceable without additional consideration.

[11] Larrabee v. Penobscot Frozen Foods, supra at 99-100.

[12] Larrabee v. Penobscot Frozen Foods, supra at 97,99.

[13] 554 A.2d 1181, 1183 (Me. 1989).

[14] 590 A.2d 152, 155.

[15] Libby v. Calais Regional Hospital, supra at 1183; Bard v. Bath Iron Works Corp., supra at 155.

[16] Lodge v. Shell Oil Co., 747 F.2d 16, 19 (1st Cir. 1984); Martin v. Scott, 511 A.2d 1048, 1050 (Me. 1986); Wilson v. Strong, 474 A.2d 176, 178 (Me. 1984).

[17] Thurston v. Nutter, 126 Me. 609, 610 (1928).

[18] Libby v. Calais Regional Hospital, supra at 1183; Bard v. Bath Iron Works Corp., supra at 155.

[19] The employee handbook, for instance, contained a letter from the hospital president informing the employee that the handbook explained “what you can expect from the hospital, as well as what the hospital will expect from you

. . . ,” while elsewhere the handbook stated that “the handbook does not constitute a contract of employment.” Libby v. Calais Regional Hospital, supra at 1183. Other examples are cited in the dissenting opinion of Hornby, J. and Roberts, J., Id. at 1183-4.

[20] Toussaint v. Blue Cross & Blue Shield, 292 N.W.2d 880 (Mich. 1980).

[21] Toussaint v. Blue Cross & Blue Shield, supra at 892.

[22] All of these conditions existed in Bard v. Bath Iron Works Corp. and were discussed in Plaintiff’s Memorandum in Opposition to Defendant’s Motion for Partial Summary Judgment, filed in Superior Court.

[23] Larrabee v. Penobscot Frozen Foods, supra at 99-100.

[24] 493 A.2d 330, 332 (Me. 1985).

[25] 523 A.2d 578 (Me. 1987).

[26] 780 F.2d 162, 164 (1st Cir. 1986).

[27] 33 M.R.S.A. § 51(5); Stearns v. Emery – Waterhouse Co., 596 A.2d 72 (Me. 1991). The Court first hinted at this defense in Buchanan v. Martin Marietta Corp., 494 A.2d 677, 678 N. 1 (Me. 1985).

[28] Stearns v. Emery – Waterhouse Co., supra at 74-5.

[29] Boivin v. Jones & Vining, Inc., 578 A.2d 187, 189 (Me. 1990).

[30] 486 A.2d 97, 100.

[31] 532 A.2d 1026, 1027 (Me. 1987).

[32] 590 A.2d 152, 155-6. See also Maine Bonding v. Douglas Dynamics, 695 A.2d 1079, 1080 (Me. 1991).

[33] “Individual Employment Rights Manual, BNA Labor Relations Reporter,” 505:51-2.

[34] Bard v. Bath Iron Works Corp., supra at 156; See also Greene v. Union Mutual Life Ins. Co., 623 F.Supp. 295, 299 (D. Me. 1985).

[35] 5 M.R.S..A § 4571, et seq.

[36] 26 M.R.S.A. § 831, et seq.

[37] 42 U.S.C. 2000e, et seq.

[38] 42 U.S.C. 12110, et seq.

[39] 29 U.S.C. 621, et seq.

[40] Under 26 M.R.S.A. § 832(4), a whistleblower who reported alleged violations of the Act to a federal agency or office would not be reporting to a “public body.”

[41] Remedies generally are limited to injunctions, reinstatements, back pay, and sometimes civil penalties and attorney’s fees, 5 M.R.S.A. § 4613, 4614, 4622; 42 U.S.C. § 2000e-5; 42 U.S.C. § 12117; 29 U.S.C. § 626(c).

[42] Bard v. Bath Iron Works Corp., supra at 156.

[43] “Individual Employment Rights Manual,” BNA Labor Relations Reporter, 505:51-2.

[44] Bard v. Bath Iron Works Corp., supra at 156.

[45] Broussard v. CACI, Inc. supra, at 164.

[46] Nineteenth-century judges, for instance, held that when an employee, who had agreed to work for a period of time – often a year – and be paid at the end of the term, left his job before the term was over, he would forfeit his pay for the balance of the term; this absurd result was justified on the basis that it was consistent with the agreement of the parties. In fact, it represented a judicial bias in favor of the employer. Horowitz, “The Historical Foundations of Modern Contract Law,” 87 Harvard L. Rev. 917, 953-6 (1974).

[47] 590 A.2d, 152, 155.

[48] This is certainly a less radical suggestion than that put forth by the Commissioners on Uniform State Laws in the “Model Employment Termination Act,” adopted August 8, 1991. The Model Act creates a “good cause” standard for any termination of employment in companies with five or more employees.