ULC

Employment Termination Act, Model Summary

Except as agreed otherwise in specific contract, employers have had the power to fire em­ployees "at will" in the Ameri­can common law.  The "at will" doctrine requires no justifica­tion for dismissing anybody.  This rule pertained from at least the middle of the 19th century until the seventh dec­ade of the 20th century.  In the 1970s the American common law of employment began a dras­tic change.  Cases flooded the courts in the 1980s.  In al­most every jurisdiction in the United States, the "at will" doctrine suffered attri­tion in the courts.  In nearly every state, employees are able to sue employers under one or another theory of wrong­ful ter­mination of employment, and to obtain legal relief for that termination if the termi­nation can be found wrongful. In some juris­dictions, extraor­dinarily large damages have been award­ed.

 

This revolution in the law has not occurred in an orderly fashion.  Differing theories of relief pertain in different jurisdictions.  A claim for relief that may be successful in one jurisdiction may not be successful in another.  The effect is extensive capricious­ness in determination of lia­bility and award of damages from jurisdiction to jurisdic­tion.  The economic impact of this capriciousness upon em­ployers, employees, and the economy as a whole is incalcul­able.  Nobody can doubt that it is expensive, however.  In ad­dition to being capricious, the existing state of law has a serious socioeconomic bias.

 

Most of the successful cases have involved upper-level management in larger business­es.  Relief has mostly gone to those with upper middle-class incomes or better, those with the ability to go to the courts and sustain the costs and risks of litigation.  Peo­ple with middle-class or work­ing-class incomes have not been so fortu­nate.  The expense of litiga­tion mostly precludes seeking a remedy when salaries or wages are not very large.  Yet, among persons who do not have the benefit of labor con­tracts and whose incomes are comparatively modest, the need for protection is the greatest.

 

In 1991 it is not possible to return to the original com­mon-law rule.  The common law development of the last two decades indicates neither the desirability nor the pos­sibility of that option.  At the same time, a reasonable, uniform solution that fairly balances the equities of both employers and employees seems essential to eliminate the so­cial and economic costs in­herent in the current confused situation.  The Uniform Law Commissioners propose to remedy these defects in the growing law of employment termination, beginning in 1991, with the Model Employment Termination Act (META).  It offers the states, for the first time, a fair solution to the problems inherent in the recent common law revolution of employment law.

 

Any qualified employee under META may not have his or her employment terminated with­out "good cause."  An employee is anyone who works for hire.  But not all employees are cov­ered by META.  An employer that employs fewer than five employ­ees is not subject to META, for example.  Each state is left to decide whether to apply META to employees of local government, and should make the determina­tion based upon existing law protecting municipal employees.  In addition, an employee must serve an employer for a sig­nificant enough time to be qua­lified for "good cause" ter­mination.  An employee must be employed by the firing employer for one year or longer.  More­over, the employee has to have worked for the employer at least 520 hours during the 26 weeks next preceding the ter­mination.  An employee, so qua­lified, is entitled to protec­tion under META. 

 

The good cause standard can be waived or modified, al­so, in specific agreement.  However, a complete waiver is obtainable only if the employer agrees to severance pay upon dismissal equal in amount to one month's pay for each full year of employment—up to a maximum amount of 30 months' pay.  If there is a contract of employment for specific dura­tion related to the completion of a specified task, project, undertaking, or assignment, the termination of employment based upon the running of that con­tract, also, is not subject to the good faith standard.

 

Also, nothing in META dis­places rights and claims aris­ing under collective bargaining agreements.  But, at the same time, employees under collec­tive bargaining agreements are not deprived of their rights under META.  State and federal government employees are treat­ed the same way as employees subject to collective bargain­ing agreements.  They are de­prived of nothing in the law and regulations pertaining to their employment.  They have their rights under META.

 

"Good cause" is carefully defined in META.  Basically, it can be one of two things.  The employee's own inadequate or improper conduct in the per­formance of the job is one kind of "good cause."  The second involves the economic or insti­tutional goals of the employer.  If these goals require reorgan­izations, discontinuing func­tions, and changing the size and character of its work force, employees discharged as a result are discharged with "good cause."  Of course, such determinations must be in "good faith," which means that they must be honestly made.  Thus an employer, who must in good faith curtail operations be­cause of lost markets or any downturn in business, can dis­charge employees to survive these adverse business condi­tions.  

 

If a qualified employee is terminated without "good cause," META provides a remedy for that discharge.  The reme­dies that may be sought under META are reinstatement, back­pay, lost benefits, or, in the al­ternative, a lump-sum sever­ance payment.  META excludes recov­ery for pain and suffer­ing, emotional distress, defa­mation, fraud, punitive damages, com­pensatory damages, or any other monetary award.  At­torney's fees are recover­able, so that employees with modest incomes have an oppor­tunity to obtain legal assist­ance in bringing legiti­mate claims.

 

Perhaps the most signif­icant aspect of the remedies provisions is the reliance upon arbitration for determination of any award under META.  En­forcement in META is entirely by arbitration.  Judicial re­view of arbitration awards is permitted only for various abuses of the discretion or office of the arbitrators.  Review is not in any sense "de novo."

 

META also protects em­ploy­ees who participate in ter­mina­tion proceedings.  No em­ployer can retaliate against an em­ployee for filing a com­plaint, giving testimony, or otherwise lawfully participat­ing in pro­ceedings under META.  Any re­taliation can make the employer subject to damages, including punitive damages. 

 

META would provide fairer and more efficient adjudication of employment termination cases in any adopting jurisdiction.  It is an important step forward for state law.