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"The State Of The New York Rule To At-Will Employment Law" by Neema J. Kassaii

The State Of The New York Rule To At-Will Employment Law

by Neema J. Kassaii

I. Introduction

The majority of workers in New York, and in the greater United States, are subject to the at-will rule to employment law merely by virtue of being an employee with an indefinite employment term. The judicially created at-will rule to employment law states, "where an employment is for an indefinite term it is presumed to be a hiring at-will which may be freely terminated by either party, at any time, for any reason, or for no reason." See Martin v. N.Y. Life Ins. Co., 148 N.Y. 117 (1895). Thus, most American employees are subject to being freely terminated for any reason, or for no reason at all.

The at-will rule is viewed as an equitable approach to employment termination decisions not only because it grants the employer the right to terminate, at any time, for any reason, but also because it provides the employee with that same right; accordingly, an at-will employee has the liberty to quit, at any time, for any reason. There are three exceptions to this judicially created rule in New York. Two of the exceptions were judicially created, and one is a statutory exception promulgated by the New York State Legislature. The following article provides a general overview of the current state of the New York at-will rule to employment law. Specifically, Section II provides a brief history of the at-will rule in New York and Section III discusses the exceptions to the New York rule.

II. Antecedents of the New York At-Will Employment Rule

The New York at-will employment rule was initially recognized in 1895 in the case of Martin v. New York Life Insurance Company. See 148 N.Y. at 119. In Martin, the plaintiff, Edward Martin, who began his employment term in 1891, made an annual salary of $10,000, on a month-to-month basis. See id. As such, there was not an explicit agreement for the precise employment term between Mr. Martin and the New York Life Insurance Co. Id. After being discharged by the insurance company, Mr. Martin filed suit and argued that his employment relationship was a yearly one, thus entitling him to his "salary for the balance of the year." Id. Mr. Martin further asserted that according to Adams v. Fitzpatrick, an 1891 New York case involving a similar hiring agreement, "a general hiring means, as a matter of law, an employment from year to year." See Adams v. Fitzpatrick, 125 N.Y. 124 (1891). Thus, the two questions presented in Martin were: whether there was sufficient evidence to establish an annual contract between Mr. Martin and the insurance company, and whether the general hiring implied employment by the year. See Martin, 148 N.Y. at 120.

As to the first issue, the court simply stated that the only available evidence was a letter of termination, which the court found to be insufficient to prove the existence of an annual contract between Edward Martin and the New York Life Insurance Company. Id. Whether the general hiring implied employment by the year, however, remained an unsettled question in the state of New York. As a result, the court had to parse the various legal precedents and principles regarding the at-will rule in New York in order to determine whether the general hiring of Mr. Martin implied employment by the year.

As a matter of due course, the court in Martin analyzed the precedent set forth by Adams, and then the court proceeded to distinguish the two cases. The court in Adams, relying on English precedent, found that the contract was equivalent to a general hiring, which, the court stated, "means from year to year." Adams, 125 N.Y. at 127. According to the Adams court, the notion that a general hiring means from year to year was bolstered by "the fact that an annual compensation was agreed upon." Id. at 128. Under this rationale, it would be logical to assume that Mr. Martin's agreement with New York Life Insurance Company was for annual employment. The court in Martin, however, took an unexpected and unusual path in reaching its decision.

Rather than simply relying on the precedent set forth by Adams, the Martin court inexplicably proceeded to look at a treatise that was authored by Horace C. Wood, a lawyer from Albany, New York. In his treatise, Mr. Wood asserts, "A hiring at so much a day, week, month or year, no time being specified, is an indefinite hiring, and no presumption attaches that it was for a day even, but only at the rate fixed for whatever time the party may serve." See Martin, 148 N.Y. at 121. In other words, according to Wood's treatise, a general hiring for an indefinite duration is terminable at the behest of either party, at any time, for any reason.

Surprisingly, instead of following the precedent set by the court in Adams, the court in Martin proceeded to apply Mr. Wood's treatise, thus holding that "a hiring at so much a day, week, month or year, no time being specified, is an indefinite hiring," and "in all such cases the contract may be put an end to by either party at any time." Martin, 148 N.Y. at 121. The court concluded that Mr. Wood correctly stated the rule, but it failed to provide an explanation as to why Mr. Wood's rule trumped the precedent set forth by the court in Adams. Ostensibly, the court followed the Woods' rule simply because it had "been adopted in a number of other states." Id. Later courts also have suggested that the court was simply adjusting to a laissez-faire nineteenth-century America. See, e.g., Weiner v. McGraw-Hill, Inc., 57 N.Y.2d 458, 462 (1982).

Either way, one thing is clear. The ubiquitous at-will rule to employment law emerged, in 1895, from the bench and chambers of the New York State Court of Appeals and not through the state's legislative process.

III. Exceptions to the At-Will Rule in New York

After Martin, the New York at-will rule remained relatively undeveloped for almost a century. Beginning in 1982, however, the New York courts grudgingly began to consider the potential need for various exceptions to the rule.

The first such case was Weiner v. McGraw-Hill, Inc., which promulgated the "handbook exception." See Weiner, 57 N.Y.2d 458. In Weiner, the court held that although a hiring of indefinite duration is terminable at-will, an employer could still be liable for arbitrarily discharging an employee. See id. at 462. Therefore, an employee could recover for an arbitrary discharge if the employee can establish that the employer had a written policy limiting its right of discharge, which the employee was both aware of and relied detrimentally on in accepting the employment. Id. The court in Weiner thus seemingly believed that it had the responsibility of stepping in and recognizing an exception to an inequitable aspect of the at-will rule.

The only other judicially created exception to the at-will rule in New York is the overly narrow "professional exception," which was set forth in the case of Wieder v. Skala. In this case, the plaintiff, Howard Wieder, worked as a commercial litigation attorney and was associated with the defendant law firm. Wieder v. Skala, 80 N.Y.2d 628 (1992). Wieder discovered that one of the partners of the firm had made several mistakes in a real estate transaction, which the partner sought to cover up. Id. Upon being confronted by Mr. Wieder, the partner "acknowledged that he had lied about the real estate transaction and later admitted in writing that he had committed 'several acts of legal malpractice and fraud and [sic] deceit.'" Id. at 632.

Mr. Wieder subsequently made the decision to report the partner's misconduct to the Appellate Division Disciplinary Committee as required under DR 1-103(A) of the Code of Professional Responsibility. Id. Ultimately, the firm terminated Mr. Wieder, allegedly because he insisted that the firm report the partner's misconduct. Id. As a result, Mr. Wieder brought a wrongful discharge claim against Skala, his employer. In its narrow decision, the New York State Court of Appeals held that there is an exception produced by DR 1-103(a) because Mr. Wieder had a duty to the New York State Bar to report the misconduct. Id.

Thus, the court in Wieder purportedly created a narrow professional exception to the at-will employment rule. The same court, however, has refused to recognize the professional exception in cases that did not involve members of the bar, thereby limiting the Wieder exception to cases involving employees who are members of the New York State Bar Association. See, e.g., Horn v. N.Y. Times, 2001 WL 36085201 (finding that physicians are not subject to the same ethical duties as attorneys and thus are not covered by the Wieder exception to the at-will employment rule).

The New York courts have had several other opportunities to recognize further exceptions to the at-will rule. However, they have been failed to do so. Many New York courts have stated that such an alteration to the at-will rule is best left to the Legislature.

In Murphy v. American Home Products, for instance, the Court of Appeals had the opportunity to make out a public policy exception to the at-will rule. The employee, Joseph Murphy, was discharged after "his disclosure to top management of alleged accounting improprieties" amounting to more than "$50 million in illegal account manipulations of secret pension reserves which improperly inflated the company's growth in income and allowed high-ranking officers to reap unwarranted bonuses from a management incentive plan on the part of corporate personnel." Murphy v. Am. Home Prods., 448 N.E.2d 86, 87 (1983). The court found that "as a matter of policy," whether employers can be held liable to at-will employees discharged in circumstances for which no liability has existed at common law, are issues better left to resolution at the hands of the Legislature." Id. at 89.

Similarly, in Sabetay v. Sterling Drug, the plaintiff asked the court to recognize a public policy exception to the at-will rule. The Court of Appeals held that such a considerable change of employment relationships is "best left to the Legislature because stability and predictability in contractual affairs is a highly desirable jurisprudential value." See Sabetay v. Sterling Drug, Inc. 69 N.Y.2d 329, 336 (1987).

The peculiar aspect about these decisions is that they stand for the proposition that any modification to the at-will rule is best left to the Legislature. Given that it is overtly clear - through Martin, Wieder, and Weiner - that the Court of Appeals unilaterally created the at-will rule and the non-statutory exceptions, it is flabbergasting that the New York State courts have decided to voluntarily cede their authority to the Legislature. That said, the court's refusal to recognize further exceptions to the at-will rule is nonsensical, especially when considering that the recognition of such exceptions are clearly within the ambit of the Judiciary's authority, as demonstrated by both Wieder and Weiner.

The New York State Legislature has also refused to recognize more than one exception to the at-will employment rule, thus further entrenching the rule in New York. Despite the Judiciary's repeated announcements regarding the Legislature's role in recognizing additional exceptions to the rule, it is evident that the Legislature has - for the most part - also refused to act. The sole exception that has been recognized by the New York State Legislature is the "whistleblower exception." See N.Y. Labor Law ยง740. The "whistleblower exception" has been interpreted, by New York's highest court, to protect only those employees who report violations that endanger public health or safety. See Remba v. Fed'n Emp't & Guidance Serv., 545 N.Y.S.2d 140 (N.Y. App. Div. 1989), aff'd, 559 N.E.2d 655 (N.Y. 1990). As a result, employment terminations that are made in bad faith or that stem from the reporting of financial improprieties, such as that in Sabetay and Murphy, respectively, are not covered by the "whistleblower exception," and thus are not covered under the at-will employment exception.

IV. Conclusion

For better or for worse, the current at-will rule in New York closely resembles the original rule that was promulgated by the Martin court in 1895. There have been various attempts by plaintiff-employees to update the rule, but the majority of these attempts have proven to be futile. One would think that the "great recession" has created a sense of urgency in protecting New York workers, but it still remains to be seen whether the New York State government will take into consideration the volatility of the current job market when making future decisions regarding the inflexible at-will rule. Until then, the New York at-will rule to employment law will undoubtedly remain intact and New York employees will be freely terminable for good reason, bad reason, or no reason at all.

Neema J. Kassaii is a student at Brooklyn Law School (BLS) where he is a staff member of the Journal of Law and Policy. While at BLS, Neema has primarily focused on Labor, Employment and Intellectual Property law. As such, he has interned for the Office of the Solicitor at the U.S. Department of Labor and the New York City Mayor's Office of Labor Relations. Additionally, he expects to receive a certificate in Intellectual Property law from BLS. Neema is a December 2011 J.D. candidate. For those interested in the above article, a more in-depth discussion can be found in the upcoming edition of the NYSBA Labor and Employment Law Journal. See Neema Kassaii, Note, Socially Constructing Non-Statutory Exceptions to the New York At-Will Rule to Employment Law, NYSBA Lab. and Empl. L. J., Vol. 36, No. 2 (Summer 2011).

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