Employees don't understand legal rights in firings

Employees don't understand legal rights in firings

by Ann Nicholson

Contact:
Washington University in St. Louis
Ann Nicholson
314-935-5251
[email protected]

Your employer unjustly accuses you of stealing $50 from the office coffee fund. You are able to prove your innocence, but your employer fires you anyway. Can your boss legally do this?

If, like most non-union employees, you do not have a specific ìjust-causeî employment contract, the answer is: Yes.

If you erroneously answered that the above scenario is an illegal firing, you are not alone, according to Pauline Kim, J.D., associate professor of law at Washington University in St. Louis, who recently conducted a survey of employeesí understanding of their legal rights in discharge situations. Kimís written questionnaire uncovered that an overwhelming majority of employees erroneously believe they are legally protected against being unjustly or arbitrarily discharged.

Her article, ìBargaining With Imperfect Information: A Study of Workersí Perceptions of Legal Protection in an At-Will World,î due out in February 1998 in the Cornell Law Review, presents empirical evidence from her survey and analyzes the basic assumptions of ìemployment at will.î That term refers to the legal rule that presumes that an employer can fire workers without just cause, if the employer and employee do not enter into a separate legal contract during the hiring process.

ìThe at-will rule acts as a gap filler: Absent a separate employment contract guaranteeing job security, the employment is presumed to be at will ó permitting the employer to discharge the employee for any reason, so long as no statute is violated,î Kim said. She added that statutory protections prevent employers from discharging employees based on discrimination, such as age, race or sex.

Overestimating job security

More than 330 unemployed workers in the greater St. Louis, Mo., area completed Kimís survey, which documents a widespread misunderstanding of ìemployment at will.î Results from Kimís subsequent surveys in New York and California indicate that this confusion over the rule likely is shared by workers throughout the country. While the at-will rule is the basic default rule in every state except Montana, each state has some limited exceptions, which may be defined differently in different states or may differ in content from state to state.

Kimís St. Louis survey targeted unemployment insurance claimants in both St. Louis City and County who filed initial claims during August, September and October 1996. Although the respondents recently had been laid off or discharged from a job, less than 10 percent could answer more than half of the questions correctly and a large majority overestimated workersí legal rights in a variety of firing situations.

ìFor example, although Missouri law clearly permits an employer to terminate an at-will employee out of personal dislike, so long as no discriminatory motive is involved, an overwhelming majority of the respondents ó 89 percent ó erroneously believed that such a discharge is forbidden by law,î Kim said. Similarly, 82.2 percent were unaware that it is legal for an employer to discharge an employee in order to hire another person to do the same job at a lower wage.

ìThese scenarios fall squarely within the employerís prerogative to fire an employee for an unfair reason or for no reason at all under the at-will rule, and the discharges described are therefore lawful,î Kim said.

Conversely, 92 percent were aware that it is lawful to discharge an employee based on unsatisfactory job performance and 78.6 percent knew it is legal to discharge employees for lack of work (when business is slow). Kim notes that this is not surprising given that these two reasons for discharge would be lawful even under a contract with a ìjust causeî provision designed to protect employees from arbitrary discharge.

The study further tested whether an employerís statements about job security affected a discharge situation, and again, the survey results indicated that respondents overestimated the level of job security afforded by Missouri law.

ìEven among respondents who know that an employer may lawfully discharge an employee solely in order to reduce the companyís wage costs, between 45 and 58 percent erroneously believed that certain informal employer statements, found in an offer letter or personnel manual, are sufficient to create legally enforceable protections against such a dismissal,î Kim said.

Interestingly, 74 percent of those who erroneously believed an employer could not discharge an employee to hire someone else at a lower wage persisted with this belief, even when presented with a scenario in which the employer expressly stated: ìThe company reserves the right to discharge employees at any time, for any reason, with or without cause.î

Dearth of data

While the survey results indicate a profound misunderstanding of the at-will rule, in actual practice, most non-union employees are employed at will. In the academic debate, proponents of the at-will rule argue that this fact shows that the at-will rule is the best arrangement and that both parties prefer it. Critics of the rule claim that so many employees are at will because they do not realize the importance of contractual guarantees of job security. At the same time, both at-will defenders and critics have not presented any empirical data on the issue, Kim said.

ìWhile many have questioned the assumption that workers are legally informed, the debate has been characterized by a remarkable dearth of empirical information,î Kim said. ìThis study for the first time offers empirical evidence on the issue by testing workersí knowledge of the relevant legal rules.î

While, in theory, employers and employees are free to contract outside the at-will rule, very few non-union employees do so, Kim said.

ìAlthough collective bargaining agreements negotiated by unions typically include just-cause protections against discharge, in the world of individual employment agreements, fixed-term contracts are unusual and indefinite-term, just-cause contracts rarer still. Thus the vast majority of non-union, private sector workers are employed at will,î she said.

Exposing employeesí knowledge gap

In addition to analyzing her empirical data, Kimís article presents other theories on the at-will issue. While her study focuses on employeesí confusion over their legal rights, Kim cites other suggested reasons for the prevalence of the at-will rule, including:

ï Employees have a broader expectation of legal protection than what is actually the case due to an increased awareness of discrimination cases. Employees who are aware that they cannot be discharged based on race or sex, for example, mistakenly believe they cannot be discharged for any arbitrary reason.

ï Employees lack information or receive imperfect information about discharge policies at the time of hiring. This is further complicated by the fact that even if potential employees have access to employee handbooks and even if these handbooks include discharge information, state court rulings differ on whether such handbooks are legally binding.

ï Potential employees and employers are unwilling to raise the issue during the hiring process.

ï Employees inaccurately assess the risk of losing their job.

ï Employers have misperceptions about the cost of offering a just-cause agreement relating to discharge.

Kim, who stops short of recommending a just-cause employment standard, says further studies are needed to understand the reasons for the employeesí misunderstanding of their rights. By documenting the misunderstanding, however, her study is a first step in exposing employeesí knowledge gap and demonstrating that the prevalence of the at-will agreement is not due to employee preference.

ìThe study forces a rather dramatic shift in the traditional picture of the employment contracting process, since at least one of the parties ó the employee ó is likely to be seriously misinformed about the background rules,î Kim said.

ìEmployees who systematically overestimate legal job protections are both ill informed about their rights and are unable to negotiate effectively over the issue,î she added. ìContrary to arguments by proponents of the at-will rule, employeesí general silence on the issue cannot speak for itself if employees are wholly unaware of the implications of the default rule.î

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