The foundation of Colorado employment law, the doctrine of employment at-will, is eroding away. It is the consequence of three recent decisions of the Colorado Supreme Court, which held in favor of individuals who had sued their former employers for terminating their employment. The lawsuits were based on assurances that the employers would be fair, or based on other alleged promises not contained in any formal contract.
Traditionally, employers and employees have been free to terminate an employment relationship at any time, without warning, for any reason or no reason at all. Exceptions have applied in cases involving violation of a statute or public policy. Unlawful discrimination is such an example. Apart from these exceptions, an employee faced an uphill battle if he or she alleged that an employer had made an agreement or promise that restricted the right to terminate employment at will. Courts had seemed quick to dismiss such cases.
Our state supreme court has not declared any change in the law, but the court’s treatment of such cases appears more supportive of employee claims than in the past. Controversial cases, based on informal remarks and unspecific assurances allegedly given by the employers, are being allowed to proceed to trial, and verdicts for the employees are being upheld. It is a quiet revolution.
Three of the cases are summarized as follows. In Dorman v. Petrol Aspen, Inc., 914 P.2d 909 (Colo. 1996), a gas station manager alleged he had an employment contract for a definite period of time, based on negotiations he had with his prospective employer and a letter he received offering him the job. The letter said what salary he would receive during the first years of employment. It also described a stock purchase option available to him during the third year, and it contained other references to long-term employment. However, his employment was soon terminated.
The trial court and the Colorado Court of Appeals both held that Dorman’s employment was terminable at will and that his allegations were insufficient as a matter of law. The Colorado Supreme Court disagreed, however, and reversed the decision. It held that the alleged letter agreement was ambiguous. The plaintiff therefor was entitled to take discovery and present evidence of whether there was a contract for a definite term.
In January of 1997, the Colorado Supreme Court rendered two more decisions for former employees. InDecker v. Browning-Ferris Industries of Colorado, Inc., 931 P.2d 436 (Colo. 1997), two garbage men sued their former employer, BFI. They alleged that BFI had a progressive discipline policy and that their prior supervisor had expressly promised them fair treatment in their employment. Although one of the employees had worked for BFI for six years, and the other for about two years, both were let go without warning by a new supervisor, who said that they worked too slowly.
The plaintiffs won verdicts for past and future lost wages, with one of them getting an award for $600,000. One also received a verdict of $80,000 for inconvenience and emotional distress. The Colorado Supreme Court upheld the plaintiffs’ claims for breach of a progressive discipline policy and breach of an express covenant of good faith and fair dealing. It held that punitive damages (to punish the defendant) were inappropriate in the absence of a tort claim, but the claim for emotional suffering was sustained on a finding that BFI’s breach was willful and wanton.
Soon after the Decker case came the Colorado Supreme Court’s decision in Pickell v. Arizona Components Co., 931 P.2d 1184 (Colo. 1997). Pickell had been laid off shortly after she started work for a new branch office opened by Arizona Components. When the company had recruited Pickell, she was told she would have better future prospects than in her old job, paid vacations and a year-end bonus. She was also told that the company would provide financial backing for the new Denver office to endure over time.
On this evidence, a Jefferson County judge held that the employee was promised a job “for a reasonable time,” which the judge concluded was one year. The trial court accordingly awarded her damages equal to one year’s salary. The court of appeals reversed, citing the legal presumption that employment is at-will, but the state supreme court had the judgment reinstated. It said the trial court’s findings of fact had to be accepted.
In view of these recent cases, employers are advised to review their employment policies and practices. Employers should revamp their employment-related documents: to strengthen disclaimers stating that all employment is at-will; to confirm that no promises have been made; and to state that no one is authorized to make enforceable employment-related promises except the company president, under a contract signed by both parties. In addition, training may be provided to management personnel to communicate more clearly with current and prospective employees, and to avoid making promises that the company may not be prepared to keep.
Steps such as these, focusing on the hiring process and terms of employment, may help to avoid misunderstandings and claims by employees down the road. But, it is also important for the employer to consider all the circumstances before making any decision to terminate an employee. The circumstances may affect what is done, or how it is done. Consider, for example, the circumstances in the cases discussed above. In the cases of Dorman and Pickell, the employees were terminated within two to four months after they had been recruited and changed jobs. In the Decker case, the employees were abruptly fired without warning, and the reasons for firing were suspect, given the employees’ clean employment records.
If the circumstances suggest unfair surprise, chances are greater that a claim will be made and sustained. In such cases, it is desirable for the parties to explore their options and perhaps obtain legal advice. Even if termination is inevitable, it is generally best for both sides to negotiate at an early juncture the terms for severance and for release of any potential claims. This is preferable to the protracted expense, disruption and aggravation of a lawsuit later on.
The long-term implications of recent court decisions remain to be seen. In the meantime, the use of improved communications and practices can help you from being in the next case to be heard.