Citation. 147 Ariz. 370, 710 P.2d 1025 (Supreme Court of Arizona, En Banc, 1985)
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Brief Fact Summary.
Two parties entered into an employer / employee relationship. The employee was harassed by her supervisor and then dismissed from the employ of the employer after refusing to partake in certain activities on a camping and rafting trip.
Synopsis of Rule of Law.
The court adopts a "public policy" exception and an
"implied-in-fact contract term" exception to the at-will termination rule, but refuses to allow recovery for a breach of the "implied covenant of good faith and fair dealing."
The Plaintiff, Catherine Wagenseller (the "Plaintiff"), was employed by the Defendant, Scottsdale Memorial Hospital (the "Defendant"), in March 1975. The Plaintiff was an "at-will" employee, meaning she was not hired with a specific contractual term. Throughout her employment with the Defendant, the Plaintiff was consistently promoted and received very good evaluations. The Plaintiff was terminated on November 1, 1979. In May of 1975, the Plaintiff went on a camping and rafting trip with her supervisor Kay Smith ("Ms. Smith") and various employees of other hospitals. The Plaintiff refused to participate with Ms. Smith and the others in certain activities on the trip, including heavy drinking, "grouping up" and "mooning". After the trip, the Plaintiff alleges that Ms. Smith began harassing her. Shortly thereafter, the Plaintiff was terminated. The Plaintiff appealed her dismissal to various of the Defendant's personnel, but her appeals were denied. The Plaintiff then brought suit against the Defendant and the Defendant moved for summary judgment. The Defendant argued that since the Plaintiff was an employee at will, she could be fired for cause, without causeor for "bad cause."
"Is an employer's right to terminate an at-will employee limited by any rules which, if breached, give rise to a cause of action for wrongful termination?"
• "If 'public policy' or some other doctrine does form the basis for such an action, how is it determined?"
• "Did the trial court err, in view of [Leikvold v. Valley View Community Hospital] when it determined as a matter of law that the terms of Scottsdale Memorial Hospital's personnel policy manual were not part of the employment contract?"
• "Do employment contracts contain an implied covenant of 'good faith and fair dealing,' and, if so, what is the nature of the covenant?"
Yes, "in the absence of contractual provision such an employee may be fired for good cause or for no cause, but not for "bad" cause." The court initially analyzes the history of the employment at will doctrine, and examines how the doctrine was initially strictly applied. The court also recognizes that most jurisdictions recognize a cause of action for wrongful discharge. Additionally, three exceptions have been recognized. First, the public policy exception "which permits recovery upon a finding that the employer's conduct undermined some important public policy." The second exception "requires proof of an implied-in-fact promise of employment for a specific duration, as found in the circumstances surrounding the employment relationship, including assurances of job security in company personnel manuals or memoranda." Third, other courts "have found in the employment contract an implied-in-law covenant of "good faith and fair dealing" and have held employers liable in both contract and tort for breach of that covenant."
• The court adopted a public policy exception to the at-will termination rule and held "that an employer may fire for good cause or for no cause. He may not fire for bad cause–that which violates public policy."
• The court then attempts to define the contours of the public policy exception. First, the court found that "an employer may not with impunity violate the dictates of public policy found in the provisions of our statutory and constitutional law." The court elaborated on this statement by observing "that expressions of public policy are [not] contained only in the statutory and constitutional law, nor do we believe that all statements made in either a statute or the constitution are expressions of public policy." As such, the court determined that the definition of public policy must include prior judicial decisions. The court then limited the scope of this pronouncement by observing "[a]ll such pronouncements, however, will not provide the basis for a claim of wrongful discharge. Only those which have a singularly public purpose will have such force." The exception does not apply where the interest involved is "private or proprietary." In other words, a worker does not have a right, to employment if they subjectively do not wish to follow an employers order. The court also says it finds guidance as to what violates public policy in criminal statutes.
• Here, the court observed that the alleged conduct of the Defendant's agent Ms. Smith violated an indecent exposure statute. The court found that the statute does recognize "bodily privacy as a 'citizen's social right.' " The court then "uphold[s] this state's public policy by holding that termination for refusal to commit an act which might violate [the indecent exposure statute] may provide the basis of a claim for wrongful discharge."
• As to the "implied- in fact contract term" exception, the court observes that this is "inferred from the statements or conduct of the parties." The court observed that "[c]ourts have found such terms in an employer's policy statements regarding such things as job security and employee disciplinary procedures, holding that by the conduct of the parties these statements may become part of the contract, supplementing the verbalized at-will agreement, and thus limiting the employer's absolute right to discharge an at-will employee." One such promise that can become part of the employment contract is a personnel manual. Here, the court found that the "document, read in its entirety, [does not have] the clarity that the court of appeals attributed to its individual portions." In other words, "reasonable persons could differ in the inferences and conclusions they would draw from the Hospital's published manual regarding disciplinary policy and procedure." Therefore, since there are questions of fact, the lower court should not have granted summary judgment.
• The court then construes the third exception, which concerns those courts that "have held employers liable in both contract and tort for breach [of] an implied-in-law covenant of 'good faith and fair dealing' " present in an employment contract. The Plaintiff argues that "discharge without good cause breaches the implied-in-law covenant of good faith and fair dealing contained in every contract." The court refused to adopt a variation of this exception certain other court have adopted, based on the longevity of an employees employment, because it felt that such a decision "would tread perilously close to abolishing completely the at-will doctrine and establishing by judicial fiat the benefits which employees can and should get only through collective bargaining agreements or tenure provisions." Nonetheless, the court does recognize "an implied covenant of good faith and fair dealing in the employment-at-will contract, although that covenant does not create a duty for the employer to terminate the employee only for good cause." The rationale for this is that tenure is not a benefit in an "at-will" agreement. As such, the Plaintiff here has the right to receive the benefits that were part of her contract with the Defendant, but those benefits do not include a claim for future employment. The court then concludes, "because we are concerned not to place undue restrictions on the employer's discretion in managing his workforce and because tenure is contrary to the bargain in an at-will contract, we reject the argument that a no cause termination breaches the implied covenant of good faith and fair dealing in an employment-at-will relationship."
This case offers a very comprehensive look at how courts construe an at-will employment agreement and how they must engage in a very delicate balancing act whenever doing so, in order to keep the spirit of an at-will employment relationship alive.