Erosion of the At-Will Employment Relationship: Discipline/Termination Policies and Procedures
by Donald S. Rothschild and Brian M. Dougherty
Practitioners and many lay persons know that Illinois is an employment “at-will” state. This means that an employer-employee relationship without a fixed duration is terminable at will by either party. There are statutory and judicially-created exceptions, such as terminating one’s employment for reasons that violate public policy (e.g., opposing sexual harassment at work or filing a worker’s compensation claim). One issue that has arisen over the years is how an employee handbook or other policy statement may confer additional rights on employees that could erode the at-will relationship. If an employee handbook is crafted too much like a contract, it could create binding obligations on both parties. This article will explore one facet of employee handbooks: discipline/termination policies—and how the courts have analyzed those policies in determining if the employee is truly “at-will.”
The at-will doctrine is not a hard and fast rule, but is a rule of construction that creates a presumption that hiring without a fixed term is at will.1 This doctrine was confirmed and described in the seminal Illinois case of Duldulao v. Saint Mary of Nazareth Hospital Center. But as with all presumptions, the at-will employment presumption can be rebutted. Typically, the presumption can be overcome by demonstrating that the employer and employee contracted otherwise.2 Most at-will employees will not have a written contract, so the evidence rebutting the at-will presumption must derive from another source. In today’s business world, employers will often publish and disseminate “employee handbooks” which establish various employment policies. These handbooks also contain language making it clear that the employer is not promising any definite term or contract of employment, thus preventing the employee from maintaining that the handbook is a contract. In addition to this “disclaimer” language (that is usually contained on the first page of any employee handbook), the employer will also set forth other policies or practices that generally govern employee behavior (e.g. attendance, dress, computer usage), benefits (e.g. vacation, holidays) and rights guaranteed under the law (e.g. workplace free of unlawful discrimination, FMLA). Another such area of coverage is employee discipline/termination. Employers may set forth certain acts that may result in discipline, how the discipline will be meted out and what may occur if the offending behavior continues.
Similar to the other provisions in the employee handbook, a discipline/termination policy does not generally create contractual rights such that the employer must follow the discipline policy before taking adverse action against the employee. Any employer is free to discipline employees as it sees fit based upon the myriad of peculiar factual circumstances that come before it.
Creating Contractual Rights. If an employer desires to create contractual rights via an employee handbook, Duldulao provides some guidance. An employee handbook or other policy statement creates enforceable contractual rights provided the following requirements are satisfied:
1) the language of the policy statement must contain a promise clear enough that an employee would reasonably believe that an offer was made; 2) the statement must be disseminated to the employee in such a manner that the employee is aware of its contents and reasonably believes it to be an offer; and 3) the employee must accept the offer by commencing or continuing to work after learning of the policy statement.3 Employers must be careful when crafting employment contracts, employee handbooks or other policy statements, as poor drafting could result in the eradication of the at-will relationship and can unwittingly create a situation where the employer would need to establish “just cause” before terminating an employee.
A good example of this is seen in Linker v. Allstate Ins. Co.4 In Linker, the employee had a contract that provided for a review procedure by the employer before it could terminate. Plaintiff argued that this transformed his employment from at-will to “for cause” termination.5 Otherwise, plaintiff argued, the review procedure would be meaningless.6 In agreeing with plaintiff, the appellate court reviewed the contract as a whole and stated as follows:
[I]f the R830 contract was intended to be an at-will contract, there would be no logical or rational reason to include paragraphs two [unsatisfactory work and procedures for terminating employee] or three [criminal conduct]. Such provisions would be superfluous. Likewise, if the contract was an at-will contract, there would be no rational reason to include paragraphs four [termination review procedure] or five [review and approval procedure]. *** If the contract was truly at will, all defendant would have to say is, “There’s the door, you’re gone.” However, the contract does not allow this. *** In any event, based [up] on the fact that employees are given some sort of review for termination for “any reason,” it must therefore be concluded that the contract is not an at-will contract.7
The Linker contract created a vehicle requiring “for cause” termination because plaintiff could only be terminated for “unsatisfactory work” if he was warned and given an opportunity to cure his unsatisfactory performance, while the termination action would need to be reviewed and approved. It is also worth noting that the contract did not use the term “for cause.” The absence of such language is not dispositive of the employment relationship because the entire contract must be viewed to give effect to each provision.8 The Linker court did not go through the Duldulao three-step analysis probably because an actual contract was at issue. Linker’s impact is that a termination review procedure could erode the at-will employment relationship by making terminations subject to a “for cause” standard. Other courts have had opportunities to review employee handbooks or other policy statements under Duldulao’s framework to determine if the employee was subject to termination only “for cause.”
Enforceable Rights. In Wheeler v. Phoenix Co. of Chicago,9 the issue was whether defendant’s employee handbook created an employment contract that mandated following a progressive discipline policy. After reviewing the policy’s language, the court, relying upon Duldulao, found that the disclaimer language in an employee manual or policy statement may negate language that could otherwise reasonably be construed as an offer.10 Whether there is a disclaimer is the first of the three requirements under Duldulao. The employee manual, however, had no express, explicit or unequivocal disclaimer language.11 The court held that the benefit of progressive discipline was not otherwise required by law and must be viewed as an inducement for plaintiff to become an employee.12 As such, the court reasoned that it would be unfair for the defendant to disclaim the use of mandatory progressive discipline in a non-conspicuous manner.13 To be conspicuous, the court noted that language such as this “is not a contract” or other words to that effect should have been included in the handbook.14
In Long v. Tazewell/Pekin Consolidated Communication Center,15 plaintiff was provided with a “Rules and Regulations Manual.” Plaintiff was terminated for performance issues and was allowed to appeal that decision internally; the appeal process upheld the termination. Plaintiff filed a complaint arguing that the manual created a contractual relationship to which defendant did not adhere. The issue was whether the manual met the first prong of Duldulao, namely, whether the manual could be construed as an offer.16 The manual set forth a disciplinary procedure (oral reprimand, followed by written reprimand, suspension and dismissal) with the right to appeal the decision internally.17 The appellate court found the manual to be “phrased in an unequivocal mandatory manner,” that plaintiff learned of the manual’s contents, and continued to work for defendant after learning of the policy statements.18 The manual also provided that “[t]he employer may discharge the employee at any time.”19 The court viewed this as a disclaimer. However, the court found that the disclaimer was ineffective because 1) it was hidden within the text describing the duties of the telecommunicator; 2) the disclaimer was not unequivocal; and 3) the disclaimer did not specifically state that the defendant would not be bound by the provisions in the manual as it applied to plaintiff.20 Thus, the manual created a contractual relationship which was not negated by the disclaimer.
In Perman v. ArcVentures, Inc.,21 defendant provided plaintiff with a personnel policies and procedures manual. The manual’s introduction stated that defendant was not restricted or limited in its right to terminate or discipline employees.22 That was the disclaimer. In terms of discharge from employment, the manual provided that terminations must be approved by the director of employee relations and would be subject to employee appeal through a grievance procedure.23 The grievance procedure was a four-step process.24 Plaintiff filed suit claiming that his discharge violated the manual’s provisions concerning progressive discipline. In finding that the disclaimer was ineffective, the court reviewed the manual’s language concerning approval of discharges and the right to appeal and concluded that plaintiff could not be terminated at will because the manual provided an established grievance procedure.25
No Enforceable Rights. Other Illinois decisions have come to the opposite conclusion on the effectiveness of disclaimers in employee handbooks/manuals. What can be discerned from these opinions is that the court will engage in a fact-intensive inquiry on the pertinent provisions in the handbook/manual. For example, in Anders v. Mobil Chemical Co.,26 plaintiff was terminated and filed suit against his employer claiming that his termination had violated the employee handbook. The front pages of the handbook stated that the handbook was subject to change unilaterally and that the handbook was not intended to be a contract for employment.27 The handbook provided for a five-step disciplinary process and an opportunity to appeal to a higher level of management prior to discharge.28 The court found that the handbook did not create a contract because the first Duldulao element (an offer) was not present.29 This was due to the disclaimer at the front of the handbook. The court also noted, after considering a federal case, that the disclaimer and disciplinary policies were not inconsistent or conflicting.30 The court expressly noted that the disciplinary section in the handbook did not contain an express “just cause” provision.31 As a whole, the handbook merely outlined general policies that the defendant was not legally bound to follow.32
In Daymon v. Hardin County General Hosp.,33 the employee handbook contained a disclaimer that it was not a contract and that it was intended to describe general policies and procedures.34 The handbook also contained a grievance procedure.35 The appellate court, in a 2-1 decision, found that the grievance procedure did not clearly apply to terminations, as opposed to on-the-job problems.36 The court ultimately found that the first Duldulao element was not met because an employee could not reasonably believe an offer had been made to not terminate the employee except for cause.37 The dissenting opinion argued that any ambiguity in the handbook should be construed against defendant since it drafted the handbook.38 The dissent also suggested that the disclaimer in Perman was stronger than the facts at bar, but yet in Perman, the court found that the enforceable contractual rights were created.39
In Spann v. Springfield Clinic,40 plaintiff argued that the defendant violated the employee handbook by not affording her a right to grieve under a grievance procedure. The handbook contained a disclaimer that the handbook should not be considered a contract of employment.41 The court’s opinion did not set forth the entire grievance procedure, but rather included a prefatory statement that a “formal Problem Clearance Procedure” existed.42 The appellate court found that the first Duldulao element was missing because there was no clear promise due to the disclaimer and the handbook did not create any “rights” as opposed to creating “benefits.”43 The court came up with the “rights” versus “benefits” dichotomy based upon a provision in the handbook stating that completing the probationary period would give rise to an employee being eligible for certain “benefits.”44 The court stated that the Duldulao handbook spoke in terms of “rights” rather than “benefits” and termination was permitted after “notice,” “warning” and “investigation.”45
Stand-Alone Dispute Resolution or Grievance Policies. The above cases have a common theme: the discipline/termination policies are contained in an employee handbook. But what about situations where the employer publishes and disseminates a separate “dispute resolution policy” (“DRP”) that covers employee discipline/termination and possibly provides for mediation and mandatory arbitration of employment disputes? A DRP could come about after the employee is already employed by the company, the consideration being continued employment. A large company may adopt such a policy because it can:
1) require employees to waive participation in class-action lawsuits; and 2) require mediation and eventually binding arbitration of expensive and time-consuming claims, such as claims under state and federal anti-discrimination statutes.46 For instance, in Caley v. Gulfstream Aerospace Corp.,47 the employer created and disseminated a DRP to its employees via the company’s intranet.48 The purpose of the DRP was to resolve all employment-related workplace disputes.49 The DRP had an effective date and would be a condition to continued employment.50 The DRP had a four-step grievance procedure: 1) human resource review; 2) management review; 3) mediation; and 4) arbitration.51 The employee was required to complete each step before proceeding to the next step.52 Interestingly, the DRP stated that it was a contract between the employer and employee, but it would not change the at-will relationship.53 Applying Georgia law, the court found that the DRP created an enforceable contract.54 The Caley DRP did contain a (somewhat weak) disclaimer, which the court did not address.
In Lorntzen v. Swift Transp., Inc.,55 the employer had both an employee handbook and DRP.56 The handbook stated that it was not a contract, but excluded the DRP from that disclaimer.57 The handbook also stated that it could be modified at any time, but yet again carved an exception for the DRP.58 The court found that the DRP was not illusory and intended to create a contract, while the handbook did not intend to create a contract.59
The Illinois Supreme Court weighed in on this as well in Melena v. Anheuser-Busch, Inc.60 There, the employer promulgated a DRP that provided for binding arbitration of employment-related claims.61 The DRP also had a disclaimer that the DRP did not change the employment at- will relationship.62 The employee argued that the DRP was not enforceable because it was not entered into knowingly and voluntarily.63 The Court rejected this argument, finding that arbitration agreements are enforceable if they satisfy general contract principles, namely, offer, acceptance and consideration.64
What to Make of All This? Terminated employees should review their employee handbooks to see if an argument can be made that the employment relationship could be terminated only for cause. Employees whose companies communicate through an intranet should also check to see what information was sent or published during the employment relationship that may have bearing on their rights.
Careless drafting of an employee handbook could result in the creation of a contract when none was contemplated. General policy statements in employee handbooks are a good way to let any employee know what to expect so that an unsatisfactory employee’s performance can be rehabilitated. It can also be useful in fending off unemployment claims when the employee has engaged in “misconduct.”65 Unless the employer wants to create a “dismissal-only-for-cause” employment relationship, clear and conspicuous disclaimers should appear in the beginning of every handbook, the handbook should reinforce that it is not a contract and the employment relationship is at-will, while employers should couch progressive discipline/termination policies in permissive as opposed to mandatory terms.
An employer seeking to restrict an employee’s right to a judicial forum to resolve employment-related disputes may certainly do so under Illinois law. Litigation is expensive and can at times be cost-prohibitive. But creating a contractual DRP works both ways: the employee must adhere to it and so too must the employer. But one of the unintended consequences of a DRP is possibly creating a “dismissal- only-for-cause” relationship because of the multiple levels of post-termination review. This is where the court’s analysis in Linker comes into play. But one distinguishing feature in Linker was that the termination had to be approved before it took effect.66 In Caley, the DRP provided for review after the termination took effect. Depending on how broadly one reads Linker, it could provide support for an argument that pre- and post-termination review creates a “dismissal-for- just-cause” employment relationship.
If the relationship is truly at-will, then the employer says, “Here’s the door.” Providing a termination review process can be seen as inconsistent with at-will employment because the review process contemplates some implied standard by which to measure the employee’s offending conduct. All contract terms are presumed to be inserted for a reason, and the court would need to make sense out of a post-termination review clause.
The solution might be to carve out an exception for performance-related terminations while allowing the employee to contest terminations based on violations of statutory law67 or based on other contractual arrangements.68 The DRP should state in unequivocal terms that any termination based on unsatisfactory conduct or poor performance is not reviewable under the DRP or any other forum.
1 Duldulao v. Saint Mary of Nazareth Hospital Center, 115 Ill. 2d 482, 489, 505 N.E. 2d 314 (1987)
2 Id. at 489.
3 Duldulao, 115 Ill. 2d at 490.
4 Linker v. Allstate Ins. Co., 342 Ill. App. 3d 76, 794 N.E.2d 945 (1st Dist. 2003).
7 Id. at 778-79 (emphasis in original).
8 Id. at 779.
9 Wheeler v. Phoenix Co. of Chicago, 276 Ill. App. 3d 156, 658 N.E.2d 532 (2d Dist. 1995).
10 Id. at 160.
11 Id. at 163.
12 Id. at 162.
14 Id. at 163.
15 Long v. Tazewell/Pekin Consolidated Communication Center, 215 Ill. App. 3d 134, 574 N.E. 2d 1194 (3d Dist. 1991).
16 Long, 215 Ill. App. 3d at 138.
18 Id. at 139.
20 Id. at 140.
21 Perman v. ArcVentures, Inc., 196 Ill. App. 3d 758, 554 N.E.2d 982 (1st Dist. 1990).
22 Id. at 762.
24 Id. at 762-63.
25 Perman, 196 Ill. App. 3d at 765-66.
26 Anders v. Mobil Chemical Co., 201 Ill. App. 3d 1088, 559 N.E.2d 1119 (4th Dist. 1990).
27 Id. at 1091.
29 Id. at 1094.
30 Id. at 1096.
32 Anders, 201 Ill. App. 3d at 1096.
33 Daymon v. Hardin County General Hosp., 210 Ill. App. 3d 927, 569 N.E.2d 316 (5th Dist. 1991).
34 Id. at 929.
35 Id. at 933.
36 Id. at 934.
38 Id. at 935.
40 Spann v. Spring.fteld Clinic, 217 Ill. App. 3d 419, 577 N.E. 2d 488 (4th Dist. 1991).
41 Id. at 424.
42 Id. at 423.
43 Spann, 217 Ill. App. 3d at 424.
44 Id. at 423-24.
45 Id. at 424.
46 See Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991) and Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001).
47 Caley v. Gulfstream Aerospace Corp., 333 F.Supp.2d 1367 (N.D. Ga. 2004) aff’d, 428 F.3d 1359 (11th Cir. 2005).
48 Id. at 1372.
50 Caley, 333 F.Supp.2d at 1372.
53 Id. at 1373.
54 Id. at 1377.
55 Lorntzen v. Swift Transp., Inc., 316 F.Supp.2d 1993 (D. Kan. 2004).
56 Id. at 1098.
60 Melena v. Anheuser-Busch, Inc., 219 Ill. 2d 135, 847 N.E.2d 99 (2006).
61 Id. at 138.
62 Id. at 139. The Court did not address this because the issue was whether the employer could compel the plaintiff to arbitrate her retaliatory discharge claim.
63 Melena, 219 Ill. 2d at 141. 64 Id. at 150-52.
65 “Misconduct” under Section 602A of the Illinois Unemployment Insurance Act (“Act”) (820 ILCS 405/100 et seq.) has a specific definition attached to it. It is possible to draft a termination policy that considers the “misconduct” elements under the Act and decisional law and thus, make it a bit easier to protest unemployment claims. This would be beneficial to employers who have high employee turnover rates.
66 Paragraph 4 in the Linker contract mentioned a review procedure if the company terminated the contract. Linker, 342 Ill. App. 3d at 774. The court did not address that paragraph at great length.
67 Certain claims are subject to their own processes, such as unemployment benefits, workers’ compensation benefits and claims under the Employee Retirement Income and Security Act.
68 Some employees may sign contemporaneous restrictive covenants or non-disclosure agreements. A breach of these agreements should be included as covered claims under a DRP.
Donald S. Rothschild is a partner at Goldstine, Skrodzki, Russian, Nemec and Hoff, Ltd. He assists employers and employees on matters under state and federal law, provides guidance on rights pertaining to discrimination, unlawful harassment, executive employment, wrongful termination, breach of employment contracts, defamation and wage and hour disputes. He has long been active in numerous legal circles,including the DCBA, National Employment Lawyers Association the Labor and Employment Section of the Illinois State Bar Association, where he serves as associate editor of its Labor and Employment Newsletter. His Burr Ridge firm of 27 attorneys provides employment law and general legal services to closely- held businesses and individuals in DuPage and Cook counties.
Brian M. Dougherty is a senior associate in the litigation group at Goldstine, Skrodzki, Russian, Nemec and Hoff, Ltd. His practice includes representing employees and employers in employment disputes arising under state and federal law, commercial landlord-tenant matters and business torts.Brian is a member of the DCBA Labor and Employment, Bankruptcy Law and Business Law Committees.