"Employment at-Will" Doctrine Is Loosened

Andrew L. Abrams

Employers in South Carolina used to have virtually absolute carte blanche if they wanted to fire employees. This is no longer the case.

Andrew L. Abrams is Vice-President for Legal Affairs, Associate Provost, and Chair of the Department of Accounting and Legal Studies at The College of Charleston. He formerly was an attorney with Abrams, Bowen and Parham in Greenville, South Carolina.

The concept of an employee's being terminable at the will of the employer is actually a relatively recent development in the law.


 

    CASE: Nolte vs. Gibbs International, Inc . 1

The plaintiff, William Nolte (Nolte), is a certified public accountant (CPA) hired in 1992 by Jimmy Gibbs (Gibbs) to serve as controller for Gibbs' closely held corporation Gibbs International, Inc. (Gibbs International), a firm in the business of buying and selling used textile equipment. Nolte had no written employment contract with Gibbs International, and was an "at-will" 2 employee. In January 1994, after less than 16 months on the job, Nolte was informed by Gibbs that Gibbs International was eliminating the controller's position and that Nolte was, therefore, discharged. Nolte disputed the cause of his dismissal and contended that he was actually fired because he objected to, and refused to participate in, "Gibbs' questionable accounting and business practices." 3

Nolte then filed a lawsuit in the South Carolina Circuit Court against Gibbs International, alleging wrongful discharge, tort of outrage, and failure to make proper payment of wages. Based on a motion for summary judgment filed by Gibbs International, the Circuit Court dismissed Nolte's wrongful discharge and tort of outrage causes of action. Nolte appealed the dismissal of his wrongful discharge cause of action to the South Carolina Supreme Court, and alleged that he had presented "sufficient evidence to create a genuine dispute of material fact as to whether he was discharged in violation of a clear mandate of public policy." 4

The South Carolina Supreme Court transferred the appeal to the South Carolina Court of Appeals. On October 5, 1998, a three-judge panel of the South Carolina Court of Appeals agreed with Nolte and unanimously reversed the decision of the lower court, thereby reinstating Nolte's suit against Gibbs International for wrongful discharge. The Court of Appeals held that because a motion for summary judgment dismisses the case before its submission to a judge or jury, such a motion should only have been granted where there was no genuine issue of any material fact. Additionally, the Court of Appeals held that these motions should not be granted when "inquiry into the facts is desirable to clarify the application of law." 5 Finally, in ruling on the motion, the Court of Appeals found that it was incumbent upon the lower court "to construe all ambiguities, conclusions, and inferences arising from the evidence against the moving party [i.e., Gibbs International]. 6 The significance of this case for the business community is best seen upon examination of the facts, as they have been developed to date, as well as the applicable law surrounding the "employment at-will" doctrine.

According to Nolte, he became concerned about various business improprieties that were occurring at Gibbs International. For example, Nolte testified he felt that several payments made to individuals and companies were, in fact, unlawful kickbacks. He indicated that on one occasion which he regarded as a potential kickback situation, when he insisted on issuing the required federal tax 1099 form, he was told that if he did so he would be fired.

Nolte also testified about instances in which he felt corporate funds were being used improperly for personal use. Nolte cited, for example, the use of a corporate account to pay for Gibbs' personal maid, and that when he (Nolte) brought this to the attention of his superior, Nolte was told that if he did not like it, he could resign. On another occasion, according to Nolte, Gibbs used corporate funds to pay for a dehumidifier at Gibbs' home. Nolte testified that he was instructed to call the air conditioning company and request that it alter the invoice to show the charge as being for work at the office rather than for the home. When Nolte refused to make the call, he contends that his superior found someone else within the department to do so. Additionally, Nolte testified that he was specifically told not to express to the CPA firm preparing the corporate tax returns his concerns about this use of corporate funds to make personal purchases.

As a result of his unwillingness to participate in the activities discussed above, 7 Nolte contends he was fired. He noted that some of the activities he described would have required him to violate a number of state and federal laws (e.g., tax and mail fraud). Nolte argued, and the Court of Appeals agreed ,that if he could indeed prove that he was required by his employer to violate the law, this would constitute a "public policy" exception to the "employment at-will" doctrine. More importantly, however, the Court of Appeals also went on to hold that "[e]ven if Gibbs did not mandate that Nolte violate the law, a cause of action may still result if Nolte's discharge resulted from his refusal to participate in Gibb's [ sic] unlawful or unethical [emphasis added] conduct." 8
Point

Absent a contract to the contrary, the employment relationship between employer and employee is "at-will," meaning that either party can sever the relationship at any time and for any cause.

 

The language used by the Court of Appeals in Nolte, noting the possibility of a wrongful discharge suit for "unlawful or unethical conduct," 9 may signal a potentially significant shift in South Carolina's "employment at-will" doctrine and, therefore, warrants further analysis. To understand the current and possible future status of the doctrine, it is useful to examine the evolution of "employment at-will," particularly in South Carolina.

The concept of an employee's being terminable at the will of the employer is actually a relatively recent development in the law. Under English common law, the rule was that employment contracts that did not specify a period of employment were presumed to be for one-year increments, absent termination for good cause. 10 Similarly, under the common law, any termination would require reasonable notice prior to termination.

The departure from the English common law rule to an "employment at-will" doctrine was first championed in 1877 in a legal treatise by Professor H.G. Wood. 11 The effect, if not the clear purpose, of this departure was to promote industrial development in the United States, and was consistent with the laissez-faire approach to business in the late nineteenth century. By moving to a rule that gave employers the right to terminate their employees for "good cause, no cause ,or even cause morally wrong", 12 American employers suddenly had a significant arrow in their quiver for dealing with workers.

South Carolina first adopted this "employment at-will" doctrine in 1936, 13 and strictly adhered to the principle for nearly 50 years. Eventually, however, American courts had to address the conundrum created by the unchecked, blanket application of the rule. In 1985, both South Carolina and North Carolina dealt with the dilemma created by the unfettered application of the "employment at-will" doctrine.

For the North Carolina courts, the issue came to a head in a perjury-related discharge case entitled Sides v. Duke Hospital. 14 The plaintiff was a nurse at Duke Hospital who was threatened with termination if she gave a truthful deposition in a lawsuit involving the hospital. After the nurse elected to ignore the threat and give an honest deposition, she was fired. The North Carolina Court, in establishing limits on the "employment at-will" doctrine, observed that "… while there may be a right to terminate a contract at will for no reason, or for an arbitrary or irrational reason, there can be no right to terminate such a contract for an unlawful reason or purpose that contravenes public policy." 15 As the court noted,[a] "different interpretation would encourage lawlessness, which law by its very nature is designed to discourage and prevent." 16

The same year the South Carolina Supreme Court addressed the identical issue in the case of Ludwick v. This Minute of Carolina, Inc. 17 In Ludwick, the employee was a seamstress who worked as an at-will employee at one of the employer's sewing plants. While working at the plant, she was served with a subpoena requiring her to testify in a hearing before the South Carolina Employment Security Commission. Her plant managers advised her that if she honored the subpoena and testified she would be fired. Faced with termination on one hand and legal sanctions on the other if she ignored the subpoena, Ms. Ludwick elected to testify pursuant to the subpoena. The next day, as promised, she was fired. Thereafter, she filed a lawsuit for wrongful discharge, which the trial court dismissed and the South Carolina Court of Appeals upheld 18 because of the absence of any exception to the "employment at-will" doctrine in South Carolina.

The South Carolina Supreme Court readily conceded that by adhering to an unlimited "employment at-will" doctrine, it had created a "no-win" situation for employees. As the court stated, Ms. Ludwick found herself "confronted with the dilemma of choosing between her livelihood, on the one hand, and obedience to the law of the state, on the other." 19 The court then established a public policy exception to the "employment at-will" doctrine "when an employer requires an at-will employee, as a condition of retaining employment, to violate the law." 20 The South Carolina Supreme Court also noted with some concern, however, the potential for "vexatious and frivolous litigation" 21 that could potentially occur with the modification of this doctrine and, therefore, limited its decision to those instances "where the retaliatory discharge constitutes a clear violation of a mandate of public policy. 22

Since the South Carolina Supreme Court's adoption of a "public policy" exception to the "employment at-will" doctrine, the appellate courts in South Carolina have wrestled with the problem of determining the appropriate limits and application of this exception. The South Carolina Court of Appeals was given the first opportunity to apply and potentially expand the "public policy" exception in the 1989 case of Miller v. Fairfield Communities, Inc. 23

In Miller, a husband and wife sued the husband's employer for wrongful discharge arising out of the husband's resignation from his at-will employment as a resort golf professional. According to the plaintiffs, the husband resigned when his employer conditioned the husband's continued employment as a golf pro on the wife's resignation as a real estate agent at a competitor resort. The Court of Appeals declined to expand the "public policy" exception to include instances where the employee is subjected to civil (rather than criminal) penalties or sanctions as a condition of continued employment. The Court of Appeals offered as its underlying rationale for this restricted application of the "public policy" exception the following language from a then current federal at-will employment decision:

[l]imitation to the claim for abusive discharge to situations involving the actual refusal to engage in illegal activity, or the intention to fulfill a statutorily prescribed duty, ties abusive discharge claims down to a manageable and clear standard 24
   

The Court of Appeals did note that "[t]he Supreme Court may want to consider this question and pass upon it; 25 however, the South Carolina Supreme Court elected not to hear the case. 26 The South Carolina Supreme Court did enter the "employment at-will" fray the following year in the case of Dockins v. Ingles Markets, Inc. 27 Stanley Dockins worked as an at-will employee of Ingles Markets, and alleged that Ingles had violated the Fair Labor Standards Act (FLSA) by requiring Dockins and others to work an excessive number of hours without compensation. Dockins filed a complaint with the U.S. Department of Labor, charging Ingles with violating the FLSA. Shortly thereafter, Dockins was fired. Dockins then filed suit against Ingles, alleging wrongful discharge and contending that the "public policy" exception should be extended to cover retaliation for filing complaints, in this case complaints filed under FLSA. The South Carolina Supreme Court declined to extend the exception and instead held that because FLSA provided a statutory remedy for retaliatory firing, the plaintiff's exclusive remedy and relief had to come from that statute and not from carving out exceptions to the "employment at-will" doctrine.28

Later, during this same term of court, the South Carolina Supreme Court was again given the opportunity to expand or at least clarify the "public policy" exception created seven years earlier in Ludwick. 29 Gerald Culler worked for Blue Ridge Electric Cooperative and, while under its employ, refused to join and contribute to PAC, a political action organization that funded political candidates supportive of cooperative utilities. According to Culler, as a result of his refusal to support PAC, he was demoted and subsequently fired. Blue Ridge denied these allegations and contended that Culler was fired because of a "bad attitude." Culler filed suit for retaliatory discharge and argued that firing an employee for refusing to contribute to a political action organization is contrary to "public policy" and, therefore, should constitute an exception to the "employment at-will" doctrine.

The South Carolina Supreme Court agreed with Culler, at least in principle. In Culler v. Blue Ridge Electric Cooperative, Inc., 30 it ruled that because South Carolina law made it a "crime against public policy" to fire any person in South Carolina for their political beliefs, 31 if an employee were discharged for this reason, then the employer could not invoke the "employment at-will" defense. Unfortunately for Culler, the South Carolina Supreme Court then found there was an adequate basis in the record to conclude that his firing was not because of his refusal to join PAC. Nevertheless, the Culler case's holding that the "public policy" exception at a minimum covered those instances where the legislature had specifically declared certain activities to be "crimes against public policy" 32 revealed the first hint the South Carolina courts might be willing to expand the "public policy" exception.

In 1995, the South Carolina Supreme Court would once more be given the opportunity to address the question of what situations should be covered by the "public policy" exception to the "employment at-will" doctrine. And, as in Culler, the South Carolina Supreme Court would again provide language that potentially expanded the exception beyond its current state. This case was Garner v. Morrison Knudsen. 33

Cliff Garner was a pipe fitter for M-K Ferguson, a subsidiary of Morrison Knudsen Corporation, and worked at the Savannah River Site (SRS). While employed by M-K Ferguson/Morrison Knudsen, Garner contacted the U.S. Department of Energy, as well as the news media, to report his concerns about radioactive contamination and unsafe working conditions he felt existed at SRS. Additionally, Garner voluntarily testified without being under subpoena before the Defense Nuclear Facilities Safety Board. Garner was fired shortly thereafter, and subsequently filed a lawsuit against his employers, alleging wrongful discharge.

The lower court dismissed the suit before trial, concluding that based on its interpretation of the earlier South Carolina cases discussed above, the "public policy" exception to the "employment at-will" doctrine only applied in

  1. situations where an employer requires an employee to violate a criminal law as a condition of retaining employment, and
  2. situations where the reason for the employee's termination was itself a violation of the criminal law. 34

The South Carolina Supreme Court reversed this ruling and held that the lower court had too narrowly interpreted the Supreme Court's decisions on the "public policy" exception. The Supreme Court observed that

[w]hile we have applied the public policy exception to the situations where an employer requires an employee to violate a criminal law, and situations where the reason for the employee's termination was itself a violation of criminal law, we have never held the exception is limited to those situations [emphasis added]. 35

Because the facts of the case had not yet been fully developed, the Supreme Court declined to rule on whether the exception would apply. Its language made it clear; however, that the Supreme Court regarded its "public policy" exception, created 10 years before in Ludwick, 36 as being broader than the lower courts had been interpreting it.

Accordingly, with the above cases providing context, the seeming boldness of the South Carolina Court of Appeals in its recent decision in Nolte v. Gibbs International, Inc. 37 makes considerably more sense. Through a 10-year series of cases, the South Carolina Supreme Court first adopted a "public policy" exception to the "employment at-will" doctrine and then gently expanded, or at least signaled a willingness to expand, this exception. For that reason, the Court of Appeals' ruling that the "public policy" exception may cover wrongful discharges that require either "unlawful or unethical [emphasis added] conduct" 38 appears to be a natural evolution of the exception. If the courts ultimately adopt this expanded exception, the obvious difficulty for employers will be in determining what constitutes actionable "unethical conduct."

For purposes of interpreting the "public policy" exception to the "employment at-will" doctrine, unethical conduct has been defined as including "those acts which, although not technically illegal, might be financially unfair or physically dangerous to the public." 39 To date, relatively few appellate cases nationwide and no South Carolina cases have been reported dealing with this specific question. From these limited number of cases, however, some general principles seem to be emerging.

First and foremost, the courts are uncomfortable with applying the "public policy" exception when the ethical code in question is personal rather than professional. As one court stated,

[e]mployees who are professionals owe a special duty to abide not only by federal and state laws, but also by the recognized code of ethics of their professions. That duty may oblige them to decline to perform acts required by their employers. However, an employee should not have the right to prevent his or her employer from pursuing its business because the employee perceives that a particular decision violates the employee's personal morals, as distinguished from the recognized code of ethics of an employee's profession. 40

Additionally, because of their concern over dramatically expanding the "public policy" exception and unnecessarily infringing on a business's freedom of contract, i.e., ability to discharge employees "at-will," the courts also appear to prefer to limit the application to those codes of ethics "that express a clear mandate of public policy" 41 and that were not created simply to "serve the interests of a profession or were merely concerned with technical matters." 42 Applying these principles, one court has allowed the extension of the "public policy" exception to a corporate attorney who disclosed officers misconduct to the board of directors pursuant to the attorney's professional code of ethics. 43 Conversely, another court declined to apply the exception to a scientific researcher who was fired for refusing to perform research on a drug containing saccharin, where the researcher contended that, in her opinion, to do so would violate her Hippocratic Oath to do no harm to other human beings. 44

In the former case (corporate attorney), the court concluded that the matter did indeed flow from a professional code and did impact the public interest, while in the latter case (drug researcher) the court determined that the matter was one of personal opinion and interpretation of a professional code. This approach to extending the "public policy" exception is consistent with the limiting principle reflected in other judicial opinions: employees who seek protection from firing on the basis that their actions were protected by a public policy, must assert a public interest recognized by some legislative, administrative, or judicial authority, and the employee must occupy a position with responsibility for that particular interest. 45

The "employment at-will" doctrine, established over 100 years ago, has provided employers in South Carolina with tremendous leverage and latitude in the termination of their employees. As noted above, however, over the past decade and a half,the virtually absolute protection afforded by this doctrine has slowly been eroded. Recent decisions by courts in South Carolina and elsewhere indicate a continuation of this trend; therefore, employers and employees alike would be well advised to monitor the evolving state of the "employment at-will" doctrine and the accompanying "public policy" exception.
   

Additionally, as a result of these decisions, employers and employees should be mindful that the following basic principles regarding the "employment at-will" doctrine currently exist

  • Absent a contract to the contrary, the employment relationship between employer and employee is "at-will," meaning that either party can sever the relationship at any time and for any cause.
  • Because the employment is "at-will," ordinarily the employer can terminate an employee for good cause, no cause, or even wrong cause.
  • An exception to this "employment at-will" status exists, making the termination wrongful, if it is a retaliatory discharge in violation of a clear mandate of public policy.
  • Instances where an employer requires an employee to violate a criminal law (e.g., file false tax returns) as a condition of retaining employment will trigger the "public policy" exception to the "employment at-will" doctrine.
  • Similarly, instances where the reason for the termination is itself a violation of criminal law (e.g., terminating someone for their political beliefs) will likewise remove the "at-will" protections.
  • Where the violation is civil rather than criminal, the courts will be reluctant to invoke the "public policy" exception.
  • Where a statute is violated and that statute already provides a remedy for the aggrieved employee (e.g., Fair Labor Standards Act), then the employee's exclusive remedy will be that provided by the act, and the "public policy" exception will not be available to the employee.
  • Retaliatory discharges for reporting misconduct may potentially invoke the "public policy" exception, if the employee can clearly demonstrate that such reporting is in the public interest.
  • Refusal to participate in "unethical" as well as "illegal" acts may potentially invoke this "public policy" exception.
  • Where the discharge is due to the employee's refusal to participate in "unethical" acts, the courts will look to see if there is an existing set of professional ethical standards that guide this type of employee's conduct.
  • Likewise, where the discharge is due to the employee's refusal to participate in "unethical acts," the courts will not invoke the "public policy" exception if the alleged ethical violation is merely the employee's personal opinion or interpretation of this set of ethical standards.
  • Finally, where the discharged employee contends that he or she has refused to participate in an "unethical act," the employee must also demonstrate (1) the existence of a public interest in the conduct in question; (2) that this public interest is recognized by some legislative, judicial, or administrative authority; and (3) that the employee occupies a position with responsibility for this particular public interest .   ¨
Endnotes

Click on note number to return to text.

 

1. William C. Nolte vs. Gibbs International, Inc., South Carolina Court of Appeals, Opinion No. 2887, Heard September 2, 1998; Filed October 5, 1998. [NOTE: IT IS IMPORTANT TO REMEMBER THAT THE DEFENDANT, GIBBS INTERNATIONAL, HAS DENIED THE ALLEGATIONS, AND THAT TO DATE NO TRIER OF FACT HAS DETERMINED THAT THE ALLEGATIONS DISCUSSED HEREIN ARE TRUE.]

2. This means that either party could terminate the employment contract without cause or notice solely at the will of either the employee or the employer.

3. Nolte vs. Gibbs International @ p. 9 [NOTE: IT IS IMPORTANT TO REMEMBER THAT THE DEFENDANT, GIBBS INTERNATIONAL, HAS DENIED THE ALLEGATIONS AND THAT TO DATE NO TRIER OF FACT HAS DETERMINED THAT THE ALLEGATIONS DISCUSSED HEREIN ARE TRUE.]

4. Id.

5. Id.

6. Id.

7. [NOTE: IT IS IMPORTANT TO REMEMBER THAT THE DEFENDANT, GIBBS INTERNATIONAL, HAS DENIED THESE ALLEGATIONS AND THAT TO DATE NO TRIER OF FACT HAS DETERMINED THAT THESE ALLEGATIONS ARE TRUE.]

8. Id.@ 10.

9. Id.

10. English common law rule is discussed by the South Carolina Court of Appeals in Ludwick vs. The Minute of Carolina, 283 S.C. 149, 321 S.E. 2nd 618 (Ct. App. 1984).

11. A Treatise on the Law of Master and Servant 134, at 272 (2d ed. 1886) cited in Ludwick @ 153.

12. Id

13. Shealy vs. Fowler, 182 S.C. 81 (1936).

14. 74 N.C. App. 331, 328 S.E. 2d 818 (1985).

15. Sides, 328 S.E. 2d @ 826.

16. Id.

17. 287 S.C. 219, 337 S.E. 2d 213 (1985)

18. Ludwick vs. This Minute of Carolina, Inc., 283 S.C. 149, 321 S.E. 2d 618 (Ct. App. 1984).

19. Id.

20. Id.

21. Id.

22. Id.

23. 299 S.C. 23, 382 S.E. 2d 16 (Ct. App. 1989).

24. Id. @ 299 S.C. 23, 27 citing Adler vs. American Standard Corp., 830 F. 2d 1303, 1307 (4 th Cir. 1987).

25. Id. @ 27.

26. Miller vs. Fairfield Communities, Inc., cert. dismissed, 302 S.C. 518, 397 S.E. 2d 377 (1990).

27. 306 S.C. 496, 413 S.E. 2d 18 (1992).

28. This approach is consistent with prior decisions of the South Carolina courts that have held that where statutory remedies are provided, these become the exclusive remedies available to a complainant. See, e.g., Campbell vs. Bi-Lo, 301 S.C. 448, 392 S.E. 2d 477 (Ct. App. 1990).

29. Ludwick vs. This Minute of Carolina, Inc., 287 S.C. 219, 337 S.E. 2d 213 (1985).

30. 309 S.C. 243, 422 S.E. 2d 91 (1992).

31. S.C. Code Ann. 16-17-560 (1976).

32. It is worth remembering, however, that under prior South Carolina appellate court decisions, civil (as opposed to criminal) misconduct that may be against public policy [ Miller vs. Fairfield Communities, Inc., 299 S.C. 23, 382 S.E. 2d 16 (Ct. App. 1989)] and particularly misconduct for which a statutory remedy already exists [ Dockins vs. Ingles Markets, Inc., 306 S.C. 496, 413 S.E. 2d 18 (1992)] will not be subject to the "public policy" exception.

33. 318 S.C. 223, 456 S.E. 2d 907 (1995).

34. Id.@226.

35. Id.

36. 287 S.C. 219, 337 S.E. 2d 213 (1985).

37. William C. Nolte vs. Gibbs International, Inc., South Carolina Court of Appeals, Opinion No. 2887, Heard September 2, 1998; filed October 5, 1998.

38. Id @ 10.

39. ALR 4 th 329, 1(a) [1981].

40. Pierce vs. Ortho Pharmaceutical Corp., 84 N.J. 58, 417 A 2d 505, 512 (1980) cited in Shearin vs. E. F. Hutton Group, Inc., 652 A 2d 578, 587 (1994).

41. Shearin vs. E. F. Hutton Group, Inc., 652 A 2d 578, 587 (1994).

42. Id. quoting from Ortho Pharmaceutical Corp., 84 N. J. 58, 417 A. 2d. 505, 512 (1980).

43. Id.

44. Pierce vs. Ortho Pharmaceutical Corp., 84 N.J. 58, 417 A 2d 505, 512 (1980) cited in Shearin vs. E. F. Hutton Group, Inc., 652 A 2d 578, 587 (1994).

45. Shearin @ 588