Human Resources Outsourcing: Employment Manuals as Basis for Exceptions to the Employer’s Liability for Wrongful Termination of Employment and Defamation
Human resources outsourcing involves facilitation of the employer/customer and management of its human resources. This includes assistance by the HR service provider in avoiding or limiting the risks of litigation by employees who are terminated for matters arising out of breach of contract and other policy issues that could embroil the employer in statutory liability. This article addresses issues relating to wrongful termination of employment under New York law and defamation.
Prerequisites for a Breach of Implied Covenant of Good Faith and Fair Dealing. It is well settled (under New York law) that absence of an agreement establishing employment of a fixed duration, an in the employment relationship is presumed to be a hiring at will, terminable at any time by other party.” Gill v. Pathmark Stores, Inc., 655 N.Y.S.2d 623, 624 (2d. Dept 1997). Furthermore, New York law does not impose a duty of good faith and fair dealing with respect to the termination of an at-will employment agreement. See Nunez VA-T Financial Info, Inc., 957 F.Supp. 438, 443 (S.D.N.Y. 1997).
Obligation to Pay Commissions.
However, in certain circumstances an employment at will contract will result in liability for the employer when the employer has failed to pay the agreed commission, provided that the commission is calculable and not merely discretionary. Wakefield v. Northern Telecom, Inc., 769 F.2d 109 (2d Cir. 1985).
Advice for Employers.
Upon hiring, the employer and/or its HR service provider should ensure that the agreements of employment or terms of employment for a breach employee of an employer governed by New York law will specify conditions under which any bonus or commission has been earned.
Breach of contract.
Most employers that are well advised have adopted a series of policies and procedures applicable to their employees operations. These may include:
- a compliance program, which may require employees to be responsible for reporting violations of a code of ethics;
- a code of ethics, which sets forth the culture and specific rules governing conflicts of interest and other issues of potential impropriety;
- an open door policy, in which issues of concern to employees should be available for discussion with their supervisors, and
- a discipline and discharge policy, which permits certain discussions and opportunities for improvement in performance prior to termination, following a series of verbal and written warnings.
General Rule: Manuals Set the Rules.
The use of such written employee manuals and codes of conduct do not create a basis for an employee to file a claim for breach of contract, where the employee manual expressly preserves the right of the employer to terminate the employment at will.
An Employer’s Policy Manual
Whether a policy manual successfully sets the rules depends on what it says about the “at will” nature of employment. In one case, the policy manual stated:
The policies and rules stated in this manual are intended as guidelines for company employees and managers, and do not create a contractual obligation. The company is an “at will” employer and can terminate an employee’s employment at any time without notice, for any reason, with or without cause, unless an employee has a written employee agreement or is covered by a collective bargaining agreement which expressly limits the company’s right to terminate the employee’s employment at will. Mirabella, v. Turner Broadcasting Systems, Inc. (___F.2nd ___, Judge Jones, NYLJ May 28, 2003, p.24, cols. 2-5,
Location of the General Policy.
It is important to note that such limitation applied under the table of contents and was therefore deemed to apply to all provisions contained in the manual, barring a claim for breach of contract based upon the terms of the manual.
Discipline and Discharge Termination by Employer.
In addition, with respect to the discipline and discharge provision of the manual, a reservation was significantly important, to support the reserved right to terminate, when the employer’s manual set forth a bold warning at the top of the page calling attention to the “at-will” nature of employment:
This policy is not intended to restrict or interfere with the company’s right to terminate or suspend employment in accordance with the terms of written employment contracts, or on an “at will” basis, without cause and without notice.
Employee’s Disclaimer of Reliance.
In addition, each new employee was required to expressly disclaim any reliance upon any kind of employment contract that was not expressly signed as an employment agreement. In that case, upon hiring, each employee signed a separate Employee Acknowledgement Statement approximately at the time of hiring, which stated:
I am aware that the policies and procedures contained in the Policy Manual do not constitute a contract of employment. The Company does not guarantee anyone employment for any specific duration or for any specific hours per week. I understand that employment with this company is on an at-will basis for an indefinite period unless terminated at any time by myself or by the company, or unless altered by a written employment agreement between myself and the Company which is signed by the President of the Company or an authorized officer of the Company. I understand that employees hired by this company may voluntarily leave employment and may be terminated by the employer, at any time and for any reason.
HR Outsourcing: Impact of Employee Manuals.
Generally, employment manuals are critical documents for the protection of the employer from claims of abuse by the employee. As seen in this case, a well drafted series of policy manual and Employee Acknowledgement Statement at the time of employment was sufficient to defend against a claim of wrongful termination by an employee who was terminated at will.
Thus, under the New York Court of Appeals rules, an express disclaimer of contractual rights in an employee manual bars an action by the employee for breach of contract based upon the terms of the manual. Barthelps Lobosco v. New York Tel. Co. / NYNEX, 96 N.Y.2d 312, 317 (N.Y. 2001). However, if a personnel manual states that employees may only be terminated for cause, such a provision is support of breach of contract claim if the employee detrimentally relied upon that limitation when accepting employment.
Slander and libel are forms of common law defamation.
Definition of Slander.
To establish a claim for slander under New York law, a plaintiff must allege four conditions:
(1) A false and defamatory statement of fact;
(2) of or concerning the claimant;
(3) the publication of such statement to a third party; and
(4) injury to the claimant as a result. Scholastic, Inc. v. Stouffer, 124 F.Supp 2nd 2d 836, 849 (S.D.N.Y. 2000).
The injury element is presumed when “the defamatory statement takes the form of slander per se,” which may include statements that tend to injure the plaintiff in his or her trade, business or profession being slanderous per se. Albert v. Loksen, 239 F.3rd 256, 271 (2d Cir).
In disclosing the termination of an employee, New York law provides a qualified privilege to be available to a defendant when “a communication is made by a person with an interest or duty to make the communication and sent to a person with a corresponding interest or duty. Weldy v. Piedmont Airlines, Inc. 985.F.2d 57, 62-63, as 62, 61 (2d Cir. 1993). Further, a claimant (such as an employee) may rebut the defendant’s assertion of a qualified privilege by proving that a defendant (such as an employer) made the statement knowing that it was false or with reckless disregard as to its truth. Weldy, 985 F.2d at 62 (stating that
“[a] plaintiff may demonstrate abuse of the privilege by proving that the defendant acted (1) with common law malice.or (2) outside the scope of the privilege.or (3) with that the statement was false or with a reckless disregard as to its truth.”
Impact of Slander Principles on HR Outsourcing.
The significance of such employment law requirements for HR outsourcing is clear.
Employers and HR outsourcing service companies that engage in actions that, if they had been done by the employer would give rise to the liability of the employer, can be protected by compliance procedures. The HR service provider therefore should be fully familiar with the legal requirements for accordance of liability in connection with the employment transactions that it manages or administers.
At the same time, the employer is liable directly for such errors, the employer should maintain, as part of its retained team, compliance process managers familiar with applicable conditions.
The HR Outsourcing Contract.
The employer and HR outsourcing services provider must come to prior agreement that anticipates such litigation situations. The HRO agreement should alleviate risks relating to the liability of the parties arising out of the different threads of the employment relationship.