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终身制的正当理由 (2)
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In short, termination standards from the nonunion market, responding largely to the exit of young workers, may not

reflect the aggregate costs and benefits as well as the union collective--choice mechanism, which reflects the preferences of

average workers. On the other hand, also unwarranted is the bolder statement that the collective choice outcome is clearly

a superior way of toting up the costs and benefits. As with many analyses, showing the flaws of a market mechanism does

not, by itself, demonstrate the superiority of other solutions. In this case the problems with union median--voter solutions

are well known. n88

 

Ultimately, then, an appeal to empiricism cannot provide a universal answer to whether at will or just cause is the

optimal standard. Each standard has costs and benefits, and the balance may shift depending on the situation. Those who

debate the issue too frequently ask whether at will or just cause should be the presumption in all employment relationships.

A universal answer cannot be found. The next section attempts to break down the inquiry into parts of the life cycle, and

to explain the inherent logic of the common law solution.

 

III. Legal Supervision of Opportunistic Firings

 

It is time to examine the employment termination cases. In explaining the common law approach, I will first show

that courts have attempted to police opportunistic firings by employers. I will then attempt to fit their efforts into the

efficiency--wage framework.

 

A. Ad Hoc Judicial Scrutiny of Employer Opportunism

 

A party to a long--term relationship is most vulnerable to opportunism when the party has substantially performed

while the other side has not. n89 The other side, having received most of its benefit, has an [*33] incentive to terminate

the relationship to avoid paying out its side of the bargain. Contract doctrine generally imposes a duty of good faith upon

parties, in part to protect against such opportunistic behavior. Section 1--203 of the Uniform Commercial Code (U.C.C.),

for example, mandates good faith in commercial transactions. n90 While good faith defies simple definition, n91 for

our purposes an appropriate meaning is that a party to the contract cannot deprive the other party of the benefit of the

bargain. n92

 

Courts have hesitated in imposing a generalized good--faith standard upon at--will employment relationships. The

courts fear that a nebulous legal standard will make the delicate relationship too rigid or legalistic. n93 Nevertheless,

some courts have made good--faith inroads [*34] on at--will employment. Although the courts rarely articulate it in

these terms, they tend to make these inroads when investment asymmetries make the employee particularly vulnerable to

opportunistic firings.

 

A leading example of a good--faith inroad is Fortune v. National Cash Register Co., n94 in which the court imposed

a good--faith limitation on an employer's ability to fire a salesperson about to receive a commission. Orville Fortune wasa

salesperson under a written at--will contract that entitled him to a bonus for equipment orders placed in his territory and

an additional bonus when the equipment was installed in his territory. One day after Fortune signed a $5 million order,

National Cash Register (NCR) fired him, depriving him of the installation part of the commission. n95 The Massachusetts

Supreme Judicial Court, in upholding a jury verdict for Fortune, recognized that NCR had paid Fortune all the bonus to

which he was entitled under the express contract. The court found NCR had breached, however, an implied covenant to

act in good faith. n96

 

Richard Epstein has attacked the Fortune decision as "wrong in principle." n97 He points to the important fact that

NCR did not keep the disputed commission for itself, but rather paid it to an installations employee. n98 Epstein argues,

therefore, that "the case is not simply one where a strategically timed firing allowed the company to deprive a dismissed

employee of the benefits due him upon completion of per [*35] formance." n99 Rather, "the contractual provisions

concerning commissions represent a rough effort to match payment with performance where the labor of more than one

individual was necessary to close the sale." n100

 

We should heed Epstein's warning against applying the good--faith principle without carefully considering the

incentive and bonding devices the parties have created. Perhaps the Fortune decision is wrong in application. By paying

all of the commission to some employee or other, the company avoided the temptation of an opportunistic termination.

But the Fortune case is not wrong in principle. The valid principle, for which Fortune is usually read to stand, is that courts

should scrutinize opportunistic firings in which the employee has largely performed his side of the bargain but has yet to

reap his reward. Salespeople on commission are classic examples of persons who can find themselves in that situation.

 

Another classic example of a good--faith analysis occurs when an employer fires an employee shortly before he

qualifies for a pension. Again, the usual self--interest check on an employer's decision to fire a productive employee is

missing. An employer can save itself considerable money by exercising its at--will discretion just before a pension vests.

A routine practice of firing all employees before their pensions vest might have severe reputation costs. But the occasional

firing for this reason might be less damaging. The issue arose in Ingersoll--Rand Co. v. McClendon, n101 in which an

employee with nine and three--quarters years of service was fired four months before his pension was to vest. Such a firing

clearly violates the good--faith notion that an employer must give the employee the benefit of the bargained--for pension.

The Texas Supreme Court allowed a common law tort action for wrongful discharge in violation of public policy. The

U.S. Supreme Court did not disagree with the underlying rationale but reversed the Texas Supreme Court. It held that

the employee must bring this claim under section 510 of the Employee Retirement Income Security Act (ERISA), which

clearly prohibits an employer from discharging a worker "for the purpose of interfering with the attainment of any right

to which the worker may become entitled under the pension plan." n102 [*36]

 

Employer opportunism can occasionally surface when a worker quits rather than is fired. Again, the law must

decide whether to regulate opportunism. An example is Jordan v. Duff and Phelps, Inc., n103 a well--known case due

to the disagreement between two law--and--economics--oriented judges about the application of the good--faith duty to

employment at will. The majority opinion by Judge Easterbrook emphasized that courts should scrutinize situations in

which opportunism is a danger. Jordan was an at--will employee of a close corporation who acquired one percent of the

company's stock as part of his compensation plan. When Jordan resigned, he sold his stock for book value, as required

under the plan. The company's chairman accepted his resignation without telling him of a possible merger that would

increase his share's value from $23,000 to over $600,000. When Jordan learned of the merger, he filed a 10b--5 action

alleging fraud in the purchase of corporate securities. n104 The majority opinion by Judge Easterbrook reversed a

summary judgment for the employer, distinguishing between an employer who is "thoughtless, nasty, and mistaken" from

one who engages in "avowedly opportunistic conduct." n105 While the employer perhaps could have fired Jordan for

any reason, n106 reasoned Judge Easterbrook, it could not cash out the stock option on the eve of its appreciation. n107

Judge Posner, in dissent, noted that "the possibility that corporations will exploit their junior executives ... may well be

the least urgent problem facing our nation." n108 Judge Posner argued that business executives would rather rely on their

employer's good will and interest in reputation, and on their own bargaining power, than "pay for contract rights that are

difficult and costly to enforce." n109

 

Although leading examples of recent trends, the cases discussed so far do not illustrate the general hesitancy of courts

to adopt an across-- [*37] the--board good--faith standard for termination of employment. This hesitancy is clearest in

New York, where the highest court has declared that any good--faith requirement is inconsistent with employment at

will. In Murphy v. American Home Products Corp., n110 a company fired an accountant after he told top management

that corporate officers had illegally manipulated the accounts of secret pension reserves. Conceding he was an at--will

employee, Murphy complained that the employer breached the covenant of good faith by firing him simply for doing his

job - which was, after all, to disclose accounting improprieties. The court of appeals rejected his claim, reasoning that the

good--faith covenant was inconsistent with the employer's unfettered right to terminate employment at any time. n111

The Murphy holding is consistent with the asymmetric--investment rationale for policing terminations. Admittedly,

Murphy was between a rock and a hard place: be fired for being a poor internal auditor or be fired for being a vigorous

internal auditor. The firing seems arbitrary and unfair, but it is not an example of employer opportunism. n112 The

company will suffer if it wrongly chooses to smooth internal politics at the cost of chilling vigorous internal audits.

Society suffers no injury other than that borne by the company. n113 Because the dangers of contract opportunism and

third--party effects are absent, courts do not need to police the situation. To intervene in a situation like Murphy would

leave no room for employment at will.

 

Even in Massachusetts, from which the seminal Fortune n114 case on good faith originated, courts have been

careful to limit good--faith protection to situations of asymmetric investments. An employee has no [*38] claim for a

"bad faith" termination unless the employer intended "to benefit financially at the employee's expense, such as for the

purpose of retaining for itself sales commissions or pension benefits which would otherwise be due to the employee."

n115 For example, in one case employees sued when the employer changed its evaluation policy to a "Bell Curve," thus

assuring that some employees would receive low ratings and be constructively discharged. n116 The Supreme Judicial

Court found no violation of the good--faith standard, reasoning that the employees were merely complaining they had lost

the opportunity for "future compensation for future services" n117 rather than being denied compensation "specifically

related to a particular past service." n118 Only the latter termination is a form of opportunism, whereby the employer is

firing an employee who has largely performed his side of the bargain without receiving benefits.

 

B. Regulating Opportunism Over the Life Cycle

 

These cases represent classic but ad hoc examples of courts protecting employees against opportunistic terminations.

In Fortune an employee was fired before a commission came due. In Ingersoll--Rand an employee was fired before a

pension vested. In Jordan an employer repurchased a terminated employee's stock just before it enormously increased

in value. One can easily justify legal intervention on good--faith grounds. Employees can invest in the relationship more

freely, making the relationship more valuable to both sides, when courts are available to ensure that employers will

not exploit their investments. Likewise, Murphy illustrates the limits of a good--faith analysis. Without the potential for

opportunism, courts should be reluctant to intercede in the relationship.

 

Unfortunately, an ad hoc "opportunism" test is unsatisfying for several reasons. Courts may have difficulty identifying

opportunism when they see it. Even if courts can identify opportunism after the fact, an ad hoc test gives limited

prospective guidance to employers and employees. Finally, the amorphous nature of an ad hoc opportu [*39] nism test

may mean it becomes so broadly applied that it is indistinguishable from a just--cause requirement for all terminations.

This would weaken the deterrence of employee shirking - the prime rationale for employment at will.

 

If we recall the life cycle of the career employee, we can identify a more systematic pattern of legal intervention. Over

the life cycle of a career employee, a sequence of possibilities for opportunism exists. A career employee is particularly

vulnerable to opportunism at the beginning and end of his career. By contrast, employers are especially vulnerable to

opportunism at the employee's midcareer. The cases suggest that courts are sensitive to this life cycle. Courts are most

likely to scrutinize firings at the beginning and end of the life cycle. Courts do not get involved during midcareer unless

they see an obvious case of particular opportunism, such as a firing before a pension vests or a sales commission is due.

 

1. Beginning--Career Opportunism

Employees face a risk of opportunistic termination at the beginning of the life cycle. The risk arises because employees

commit irretrievable investments to the relationship before the employer does. n119 Usually the beginning--career cases

involve employees who have moved to take a job or quit another job in reliance on a job offer.

 

Grouse v. Group Health Plan, Inc. n120 provides an example of a court protecting a beginning--career employee

from opportunistic termination. A drugstore pharmacist resigned with two weeks notice in reliance on a job offer from a

health clinic. When he called to begin work at the clinic, however, the employer told him that it had filled the position.

The pharmacist was unemployed for some time. The court allowed the employee to recover under a promissory estoppel

theory. n121 It determined that the employee had reasonably relied on the job offer and that justice required that the

court hold the employer to its promise. The employer had argued it would be incongruous to [*40] provide a remedy

for firing someone the day before work begins when the employee, being at will, would have no remedy for being fired

the day after work began. The court agreed that such a result would be incongruous, but it resolvedthis contradiction by

suggesting that an employee might also have a reliance claim if the employer fired him shortly after beginning work.

 

Other courts have used a theory of additional consideration to give employees who moved to a new job a reasonable

time to recoup their investment before being arbitrarily dismissed. While many courts hold that merely working is

insufficient consideration to make a just--cause promise enforceable, some additional detriment to the employee or benefit

to the employer may lead to an enforceable promise. In Veno v. Meredith, n122 for example, a newspaper fired an

editor eight years after he quit a prior job and moved from Newark to Pennsylvania to accept a position. The court, citing

Corbin on Contracts, n123 declared that an employer could not arbitrarily discharge an employee for a reasonable

time commensurate with the hardship the employee had endured. n124 The court upheld a directed verdict against the

employee, however, declaring that after eight years the reasonable length of time "had surely passed." n125 In denying

the employee's claim, the court distinguished a prior case that upheld an employee's verdict for breach of a "permanent"

employment contract when he was fired three days into a job after moving from New York to Philadelphia. n126

 

Some courts have held that relocating or leaving secure jobs is evidence that the parties must have agreed on a fixed--

term contract rather than at--will employment. In Lanier v. Alenco, n127 a worker "with a wife and four children left a

secure and well--paying position with General Electric, a position that he had held for eleven years," to [*41] take a new

job. n128 The court found it "unlikely" that the worker would have left without substantial assurances of job security,

and it held that this fact corroborated evidence of a fixed one--year contract. n129

 

Similarly, in Miller v. Community Discount Centers, Inc., n130 a worker left his family in Toledo and moved to

Chicago after he received a letter from his new employer stating he had "a rewarding and satisfying career ahead of him"

and confirming the employer would pay one--half of his moving expenses immediately and the balance after one year.

n131 The employer dismissed the worker after three months. The court upheld his claim for breach of a definite one--year

contract, finding it "inconceivable that a man of plaintiff's age would leave his home to come to Chicago for the mere

possibility that he would have a permanent position." n132

 

We see, then, that courts sometimes allow claims by beginning--career employees who are arbitrarily fired after

moving or quitting a prior job. n133 Some courts use a promissory estoppel or reliance theory, some find an implied

contract for a reasonable time to allow the employee to recoup his expenses, and some simply use the decision to move or

to quit as evidence of an actual definite--term agreement. Regardless of the theory for recovery, one can explain these cases

as attempts to regulate opportunistic firings early in the life cycle. Employers have not yet invested in the relationship and

thus are not hurt if they arbitrarily dismiss the new employee. This means that the relationship is not self--enforcing, as it

is when both parties have incurred sunk costs.

 

Nevertheless, protection for beginning--career employees is far from universal. Many or even most courts refuse to

find that reliance on an at--will job offer is reasonable. n134 In these cases, an employee [*42] quits another job or

moves to a new job at his own risk.

 

The ambivalence of courts in this area is understandable. For at least three reasons, the opportunistic termination

rationale for protecting employees is weaker in these beginning--career cases than it is later in the life cycle. First, very

often the employer also makes substantial investments early in the relationship. Recruiting and training new employees

can be a major cost to many firms. As Paul Weiler describes recruiting costs:

 

The recruiting process itself imposes significant costs on the firm; not merely on the personnel department, which must

do the initial advertising and screening, but also on the operating divisions, which must interview and judge the suitability

of candidates. The magnitude of these costs can vary widely, depending on the nature of the job, the skills required, the

number of applicants, and so on, but on occasion they can be substantial indeed. n135

 

One study estimated that a typical firm spends 160 hours in hiring and training a new worker in the first three months

on the job, and that these costs are nearly thirty percent of the value of an experienced coworker during the three--month

period. n136 If the employer as well as the employee sustain heavy early costs, the risk of opportunistic termination is

smaller. An employer that arbitrarily or unjustifiably fires an employee hurts itself as well, for it wastes the expenses of

recruiting.

 

Second, even if recruiting costs are insignificant - as they will be in many cases - so that arbitrarily firing the

employee does not penalize the employer, the employer gains nothing from firing a person early in his career. Thus, while

employees often suffer no penalty from an arbitrary beginning--career firing, they gain no benefit from them either. This

fact distinguishes beginning--career from late--career firings, in which the employer can gain from firing employees whom

it pays more than their current output. [*43]

 

A final problem with job protection for new employees is that employers often need a probationary period to sort

out hiring mistakes, wherein they can fire employees without explanation or extensive documentation of their reasons.

Relevant here is the fact that competitive firms, largely responding to the entry and exitof early--career employees, virtually

always contract for at--will dismissal. n137 Even the Model Employment Termination Act, which calls for general good--

cause protection for employees, refuses to protect employees with less than a year of service. n138

 

In sum, in many situations employer opportunism against beginning employees is either a trivial threat or outweighed

by legitimate needs to maintain employer flexibility. In these situations, courts do not scrutinize the sudden termination.

Still, the potential for opportunistic employer offers is real. An employer engages in opportunistic behavior when it hires

a better person before training anyone but after the first job applicant has relied on the offer. Courts protect beginning

employees from such opportunism.

 

2. Late--Career Opportunism

 

Late--career employees face the greatest danger of opportunistic firings. At the end of their life cycle, they often earn

more than their current productivity. If they do, the employer has a financial incentive to terminate them, even if it violates

an implicit promise to allow the employee to reap the rewards of hard work earlier in his career.

 

The Age Discrimination in Employment Act provides one check against late--career opportunism. By prohibiting

employers from firing workers above the age of forty because of their age, the ADEA protects older workers from

discharges based upon stereotypes that lead employers to underestimate their productivity. "We need new blood" and

"Doe is slowing down a notch" are classic statements that create age discrimination lawsuits.

 

However, the ADEA may offer only limited protection against the central concern of the life--cycle model -

opportunistic firings when salary and forthcoming benefits outweigh current productivity. In Hazen Paper Co. v. Biggins,

n139 the Supreme Court unanimously held that an employer did not violate the ADEA when it fired a sixty--two-- [*44]

year--old employee just before his tenth anniversary with the company in order to keep his pension benefits from vesting.

Although the Court agreed that the firing was actionable under section 510 of ERISA, it held "that an employer does

not violate the ADEA just by interfering with an older employee's pension benefits that would have vested by virtue of

the employee's years of service." n140 Justice O'Connor, writing for the Court, emphasized that age is not the same as

years of service. n141 "The ADEA only requires an employer to ignore an employee's age; it does not specify further

characteristics that an employer must also ignore." n142 Under the life--cycle model, the employee becomes vulnerable

to opportunism with years of service, not with age. The ADEA is therefore of little help.

 

A recent Second Circuit case, consistent with but not cited in Hazen Paper, shows even more clearly the limitations

of the ADEA in protecting workers from late--career opportunistic firings. In Bay v. Times Mirror Magazines, Inc., n143

a fifty--four--year--old publisher who made nearly $200,000 per year brought an ADEA claim after being fired from his

position at Field and Stream. The employee thought he had a "smoking gun" when he produced an internal memorandum

from the company's chairman stating that the employee's salary alone mandated his dismissal. The employee asserted the

memo established his "high salary was a critical factor in the decision," and that the high salary was "a direct function

of his longevity, experience, seniority or periodic salary raises." n144 The Second Circuit, without disputing these

assertions, affirmed summary judgment for the employer. Conceding that "high salary and age may be related," the court

declared that "nothing in the ADEA ... prohibits an employer from making employment decisions that relate an employee's

salary to contemporaneous market conditions ... and concluding that a particular employee's salary is too high." n145

 

Other cases interpret the ADEA more expansively. In Metz v. Transit Mix, Inc., n146 for example, the Seventh

Circuit reversed a trial court judgment for an employer who had replaced a fifty--four--year--old, highly paid manager with

a younger, cheaper colleague. The court emphasized that an employer cannot assess the costs of employ [*45] ing an

older worker when deciding whom to terminate because pay is a " "proxy' for age." n147 Under this interpretation,

which received an enigmatic citation from the Supreme Court in Hazen, n148 the ADEA protects older workers fired

because their salary exceeds current productivity. Because of the close connection between a worker's age and time he

spends with the company, the ADEA indirectly protects late--career employees as well.

 

Greater protection may come from common law courts, which in recent years have begun policing opportunistic

firings of late--career employees. n149 The leading case is Pugh v. See's Candies, Inc., n150 in which a thirty--two--

year employee was abruptly fired after working his way up from dishwasher to corporate vice president. The employee

never had a clear agreement about job security, although managers had given him encouraging evaluations over the years.

n151 The court held that this career pattern, including the length of service and the policies and practices of the company,

could establish an implied--in--fact promise against arbitrary dismissal. n152 Pugh epitomizes the effi [*46] ciency--

wage story and its end--game dangers. Pugh committed himself to a single firm, worked hard to gain promotions to the

promised easy life, but then was terminated. Pugh also demonstrates the effect of the arrival of new management on job

security. In Pugh, new management arrived a year before Pugh's firing. Such major corporate changes may diminish the

reputational check on firings of late--career employees.

 

Length of service is the key element that motivates courts to scrutinize a late--career firing. Most opinions, like Pugh,

also examine oral statements and the company's general procedures. But a Montana case, Flanigan v. Prudential Federal

Savings & Loan Association, n153 starkly illustrates the centrality of longevity. In that case, a bank fired Mildred

Flanigan without notice or a hearing after twenty--eight years of service. The Montana Supreme Court affirmed a nearly

$1.5 million judgment for Flanigan, declaring that her "28 years of employment by Prudential gave her a secure and

objective basis for believing that, if her work was satisfactorily performed, her employment would continue." n154

In its decision, the court quoted extensively from a California appellate case, Cleary v. American Airlines, Inc., n155

which also emphasized longevityof service as a key element of a bad faith claim. In Cleary, the court upheld a claim

brought by an employee dismissed without cause after eighteen years of service. The court declared that "termination of

employment without legal cause after such a period of time offends the implied--in--law covenant of good faith and fair

dealing contained in all contracts including employment contracts." n156

 

Occasionally, an employee faces the danger of beginning--career and late--career opportunism at the same time. This

situation occurs when a long--time employee agrees to a job transfer. A prominent example is Foley v. Community Oil

Co., n157 in which a thirty--year employee was fired three years after accepting a job transfer to another state. The

court's explicit rationale in finding the employee had stated a claim tracks the life--cycle theory. The court first noted that

"uprooting and moving a family" could give rise to a contractual claim. n158 The court then declared that "longevity of

service can also give rise to an implied contract right." n159 Tracking the lock--in problem with [*47] which we have

wrestled, the court explained that "the employee, in providing long--term employment to a single employer substantially

diminishes his economic mobility." n160

 

In sum, one can explain these cases as attempts to monitor and enforce the implicit life--cycle employment contract.

Late in an employee's career, the usual checks against opportunistic firings unravel. Courts enter to monitor the bargain.

The bargain does not give late--career employees complete job security. They can be dismissed for cause, because

otherwise the shirking problems would be immense, but the employer does not prove cause simply by proving that salary

exceeds current productivity. That is the typical life--cycle pattern that both sides to career employment anticipate and, ex

ante, it is in the interests of both sides.

 

3. Midcareer Shirking

 

Once the employer has begun to make substantial, asset--specific investments in an employee, the risk of arbitrary

firing diminishes. The greater danger of opportunistic behavior - at least, behavior that an appropriate dismissal standard

could limit - comes from the employee's side. Because the employer does not want to repeat recruiting and training

costs with another employee, the incumbent employee has an opportunity to shirk without fear of dismissal. Shirking at

midcareer can occur even if the employer has the right to dismiss at will, but the shirking problem can be exacerbated if

the employer must also surmount the hurdle of proving just cause.

 

This is not to say that the employer cannot exploit the midcareer employee. Indeed, as I emphasized above, n161

being trapped by investments in firm--specific capital and in community roots can make a midcareer employee ripe

for exploitation. But the exploitation will not take the form of firing because the employer is making money from the

relationship. Rather than fire a midcareer employee, an employer may pay him less than would be called for under a fair

division of the gains from the long--term relationship or make his workload or working conditions more onerous. Just

cause cannot protect the midcareer employee from these abuses. Better, then, for the law to focus on something it can

handle, which is deterrence of shirking by midcareer employees.

 

The courts seem to have intuited this fact by refusing, in general, to create contract protections against arbitrary

terminations for mid [*48] career workers. Midcareer employees have made the fewest contributions to the doctrinal

erosion of at--will employment. n162

 

The most detailed data on wrongful termination plaintiffs come from a Rand study n163 of 120 California jury trials

n164 in the early 1980s. Over half the plaintiffs in this sample were early--career employees, with five or fewer years of

job tenure. n165 Nearly a quarter of the plaintiffs had over fifteen years of tenure, n166 with the remaining quarter of

the plaintiffs being midcareer employees with six to fifteen years tenure. n167 This sample of jury trials suggests that

midcareer employees are a minority of wrongful termination plaintiffs, and many of these may be bringing public policy

and other tort claims not inconsistent with the life--cycle model. n168

 

The leading cases also suggest to some extent the courts' reluctance to protect midcareer employees. One case that

typifies this hesitation is Rowe v. Montgomery Ward & Co. n169 The case is especially significant because Michigan

courts have been leaders in eroding the at--will presumption. In Rowe, a salesperson with eight--years tenure was fired for

leaving the store one day without explanation. The employee sued, claiming she had been orally told she would have a job

as long as she met her sales quota, and pointing out that when she was hired she had signed a "Rules of Personal Conduct"

that enumerated only four reasons - all involving theft, dishonesty, or immorality - [*49] for immediate discharge. The

Michigan Supreme Court denied her claim, n170 emphasizing that the words of assurance were "more akin to stating

a policy" n171 than offering an express contract, and noting that nothing in Montgomery Ward's "Rules of Personal

Conduct" suggested that the enumerated conduct was the only basis for dismissal. n172 The Rowe court distinguished

Toussaint v. Blue Cross & Blue Shield, n173 a leading employee--rights case, by emphasizing that Toussaint involved

actual negotiations over job security by high--level employees. n174 Rowe evoked a spirited dissent by the author of

Toussaint, who insisted that an enforceable promise was equally present for the low--level salesperson. n175

 

The Court in Rowe did not rely heavily on her moderate job tenure but simply disallowed her claim because it found

the circumstances were insufficient to infer an implied--in--fact contract. n176 One can only speculate that the court

would have viewed Rowe's claim more sympathetically if she had thirty--years tenure rather than eight. Under the life--

cycle model, the case would be dramatically different if Rowe had been a late--career employee.

 

The most prominent counterexample to my claim about midcareer employees not receiving protection is Foley v.

Interactive Data Corp, n177 in which the California Supreme Court upheld an implied--in--fact contract claim as well

as an implied--in--law breach of good--faith claim brought by an employee who served the company just six years and

nine months before he was terminated. The Foley case is remarkable for at least two reasons. First, and ironically, most

commentators view the decision as a dramatic cutback on employee rights because the court refused to grant tort damages

for employees claiming a breach of the covenant of good faith. Second, and more pertinent to our analysis, Foley pushes

the limits for defining a "late--career" employee. Basing an employee's just--cause claim on less than seven years of service

cannot realistically be viewed as an attempt to deter opportunistic firing of late--career employees whose seniority--based

earnings outrun their current productivity. n178 Indeed, the court recognized [*50] that short tenure might weaken

Foley's implied contract claim. n179 It emphasized, however, three additional factors: (1) Foley alleged (rather vague)

oral assurances of job security and consistent promotions and salary increases; n180 (2) Foley alleged breach of written

"Termination Guidelines" that suggested self--imposed limitations on the employer's right to terminate employees; n181

and, (3) unlike Pugh, Foley had "supplied the company valuable and separate consideration" by signing a promise not

to compete against the employer for one year after termination. n182 Many employees can allege the first two factors.

The third factor is less common, although far from unique. Perhaps these other elements explain why Foley is not

consistent with the general claim that courts rely on longevity of service and scrutinize only late--career terminations for

opportunism. More realistically, Foley probably reflects a general move in California toward a good--faith standard for all

terminations. n183

 

In summary, my argument is that the general pattern of good--faith and implied--contract cases reflects an intuitive

understanding by the courts that employees are subject to opportunistic discharge at the end, and less consistently at

the beginning, of the life cycle. Courts are reluctant, however, to give general protection against arbitrary dismissal to

midcareer employees. The economic self--interest of employers should keep such dismissals in check. The greater concern

is with employee shirking.

 

To clarify the distinction I draw between scrutinizing opportunistic late--career terminations and scrutinizing all

employment decisions under a just--cause standard, let me return to the facts of Murphy v. American Home Products.

n184 Murphy, like the California Foley, was an internal whistleblower who reported to upper management wrongdoing by

immediate supervisors. n185 While bucking the corporate hier [*51] archy often gets employees into trouble, courts are

hesitant to referee the resulting turf fights. n186 Internal whistleblowing resembles too closely legitimate, but practically

unverifiable, concerns that an employee is not a team player or that an employee creates difficulty in the office. Legal

limning of these situations is probably not worth the costs.

 

Thus, I would have greater sympathy for Murphy if he claimed that he was fired after twenty--three years of service

n187 because he was no longer pulling his weight or earning his salary. Unless the parties have clearly agreed to at--will

dismissals throughout the life cycle, such a firing smacks of an employer opportunistically firing an employee who has

committed the best years of his life and should reap, based on the norms of seniority, the benefits of a career commitment

to the employer. In fact, Murphy did claim age discrimination - a claim that was still being litigated a decade after his

discharge. n188 But a legitimate defense might be that opportunism had nothing to do with the termination; he was fired

because he attempted to buck the corporate system. Of course, when an employer fires an older worker allegedly for such

a reason, the proof problems in sorting out the real reason for discharge are enormous. This dilemma quite likely will

make employers wary of firing older workers. My point, in short, is that just--cause protection should be limited to an

inquiry into whether the employee was fired in breach of the life--cycle commitment to pay seniority--based wages and

benefits or for other opportunistic reasons.

 

IV. Default Rules

 

"Aren't we done now?" the dear reader might ask. Not quite. We have seen that a life--cycle rule may be the best way

for employer and employee to minimize the dangers of opportunism on each side of the employment relationship. One

might still argue, however, that parties seeking this arrangement should put an explicit life--cycle rule in the contract.

If they do not, courts should presume the contract is at will [*52] or just cause. The final step in my argument, then,

explains why the life--cycle rule should be the default rule for courts, even though the parties could choose any rule by

explicit contract.

 

A. Minimizing Transaction Costs

 

The traditional law--and--economics literature on default rules suggests that courts do and should choose rules that

minimize transaction costs. Two sometimes conflicting tests come from this approach. First and most prominent is the

"mimic the market" or "would have wanted" test, whereby courts supply the default contract term that most parties would

put in the contract were they bargaining without costs and with full information. This test saves most parties from the

costs of acquiring information and bargaining over the term. The trick in applying this test is to determine which rule

maximizes joint gains by helping one party more than it hurts the other. In general, a complex default rule is likely to

"mimic the market" better than a simple rule, in that parties who were bargaining costlessly would probably agree to

share risk and minimize opportunism on both side. The second test, the "improve bargaining that occurs" approach, urges

a default rule that lowers costs for those who must bargain rather than allows most parties to avoid bargaining. n189

A simple, clear default rule may be easier for the parties to bargain around, and it may thus lower transaction costs for

parties who will actually bargain over the particular term. n190

 

Luckily, in our situation both tests point in the same direction. n191 [*53] First, under the would--have--wanted

default test, our previous analysis suggests that a life--cycle termination standard would be optimal for most career

employees; by minimizing opportunism on both sides, it allows for the most productive relationship. Because it maximizes

the overall gains to the relationship, most parties bargaining under low transaction costs would opt for the life--cycle rule.

 

Second, the lower--bargaining--costs approach also favors a life--cycle default rule because it is easier for parties to

bargain away from than toward the life--cycle rule. At--will clauses are easy to compose. n192 Just--cause clauses are also

straightforward to write, although the phrase "just cause" is a rich and complex term of art in labor arbitration. n193 In

Professor Rose's marvelous terminology, these are "crystal" rules. n194 By contrast, a life--cycle rule would be hard to

draft because it would be difficult to specify at the outset of a relationship exactly when the relative vulnerability switches

from employer to employee. Rose would call the life cycle a "muddy" rule. n195 The parties cannot easily articulate

at the time of initial hire the proper governing structure for their future relationship. They may prefer to rely on courts'

often bumbling and instinctive judgment about relative vulnerabilities. Under the life--cycle default, parties can simply

say nothing too explicit in the contract and count on courts to apply the life--cycle approach. In short, the parties can

easily draft away from a life--cycle default if they choose, but they cannot easily draft away from an at--will or just--cause

presumption toward a life--cycle rule.

 

Indeed, the ambiguity in the timing of a life--cycle default rule may be itself desirable. Suppose a contract explicitly

called for at--will em [*54] ployment for the first fifteen years of the relationship but just cause thereafter. The employer

would have a strategic incentive to review an employee at fourteen years and eleven months and terminate if forecasts of

future performance were not rosy, even if current performance were adequate. The costs of termination to an employee

after nearly fifteen years are tremendous. n196 But under the more malleable life--cycle default, the strategic doomsday

evaporates. An employer, unsure when the at--will standard changes to just cause, is more likely to act in good faith.

Under either approach, then, a life--cycle default rule is optimal. To reiterate, under a life--cycle default, the court

presumes that midcareer employees have an at--will relationship with their employer because that contractual structure best

deters opportunistic behavior by the parties. Late--career employees, by contrast, are ripe for opportunistic termination,

and so courts require good cause for terminating such employees. The optimal standard for new employees is more

nuanced. On the one hand, employees who have quit other jobs or who have significant moving expenses perhaps should

have a reliance damages default. On the other hand, employers often need a probationary period to sort out poor matches.

Perhaps a default probationary period should be presumed, absent unusual reliance expenditures by the beginning

employees.

 

B. Relational Contract Default Rules

 

Recently, the literature on default rules has examined long--term relational contracts. The debate centers on whether

simple or complex rules are better able to deter opportunistic behavior in the relationship. Some have argued that complex

default rules that consider the particular circumstances of the parties better control the strategic behavior problems of

relational contracts. n197 Certainly the life--cycle default, which is premised on the fact that both employer and employee

can exploit the other's sunk costs, attempts to control strategic behavior on both sides. In this way it is a complex default

rule.

 

In contrast, Robert Scott has noted that most default rules in commercial relational contracts tend to be simple,

categorical, and winner-- [*55] take--all. n198 Scott cautions that these prevailing default rules may have normative force,

so that concocting a complex default may be a misguided attempt to control strategic behavior. n199 As he emphasizes,

legal rules "are both a threat and a temptation." n200 Legal attempts to prevent opportunism by one side invite evasive

responses from the other side. Certainly this is true for employment relations. Preventing employer opportunism by a

just--cause standard invites increased employee shirking. Scott concludes by emphasizing that legal sanctions are not the

only control on opportunism. n201 Social forces of reciprocity and honesty, particularly when benefits accrue to a good

reputation, are powerful deterrents. Rather than legally enshrining these social norms, which may destroy the informality

that makes them so effective, the optimal structure may rely on clear, harsh, legal defaults combined with social sanctions

against failure to cooperate.

 

Scott's argument against complex, contextualized defaults is powerful in the commercial context in which he uses

it, but its lessons may justify a life--cycle default here. First, the life--cycle default may not fall on the complex side of

Scott's spectrum. Although parties could not easily agree on the tipping points, the life--cycle default does call for a

categorical legal winner at every point in the relationship. In that sense, the default is clearer than a default rule that calls

for sharing. Second, to the extent a life--cycle default is complex, its complexity arises from the common law, albeit still

in embryonic form; Scott objects to complex default rules that the common law has ignored or rejected. Thus, like Scott,

I am using the common law to provide both a positive description and a normative base for a life--cycle default rule.

Finally, Scott's argument focuses on commercial relationships of indefinite or permanent length. The opportunism can

come at any time by either side, usually in response to exogenous shocks to the relationship. While random shocks can

also disturb employment relationships, the inevitable life cycle of the employment relationship presents clear end--game

and beginning--game problems, in which the employer's potential for opportunism becomes predictable and one--sided.

In midcycle, by contrast, the self--interest of the employer in not firing productive workers provides a nonlegal check on

arbitrary firings, so the law should focus on the possible opportunism by employees. Given this predictable cycle, the

legal default rule for employment ter [*56] minations can focus more precisely on opportunistic threats than can a default

rule in the usual commercial relationship.

 

V. The Variety of Employment Relationships

 

A. Who Are the Life--Cycle Workers?

 

At the beginning of this article, I noted the great variety of employment relationships. In subsequent sections, I

concentrated on the career employment relationship with two defining characteristics: (1) both sides invest heavily in

the relationship in ways that will be lost if the relationship is severed prematurely; n202 and (2) contracting problems

prevent easy monitoring of work performance or verification of poor performance to outsiders. It is time to consider what

workers fit the life--cycle model. Table 1 provides the framework. n203

 

Table 1

Types of Employment Relationships

and Optimal Termination Standards

 

We must determine whether just cause or at will is the preferable standard for a particular type of job. The employer's

perspective depends on which row of the table applies. When verification is easy (top row), a just--cause presumption does

not harm employers. An employer can simply show a court or arbitrator it has just cause for firing a shirking worker. By

contrast, when verification is hard (bottom row), a just--cause standard makes employers vulnerable to opportunism by

shirking workers because the employer cannot verify to a court or arbitrator the reasons it suspects shirking. [*57]

 

The employee's perspective depends on which column applies. When workers have made only general investments

(left column), their skills are transferable to another firm. Even if they are terminated from one firm, they are not hurt

greatly because other firms are willing to pay them comparable wages. Because terminations are less costly to employees

in this column, at--will protection is adequate. By contrast, when workers have made firm--specific investments, which

include entering an individual firm's career ladder (right column), they suffer greatly from termination.

 

These observations lead to easy conclusions for the off--diagonal boxes (2) and (3). The employer and employee

perspectives clash more directly in boxes (1) and (4). In box (1), neither party is vulnerable, so the discharge standard is

less important. I have spent the bulk of the article addressing box (4) and will simply reiterate that a life--cycle rule best

accommodates the mutual vulnerability.

 

The more challenging task is pigeonholing a worker or job in a particular box. One dichotomy is between general

investments and specific investments. Jobs in which both sides have made only general investments are nearly an empty

set among workers with more than a few years' experience. Importantly, investments are broader than job skills. Many,

perhaps most, workers have skills that many firms value and are thus general. These general skills make them less

vulnerable to opportunism. But most workers develop specific ties to their workplace - familiar faces and routines - that

they will lose if they leave. Often, workers enter a career job ladder with a particular firm, assuming that hard work will

lead to promotions and future rewards. If one defines workers with specific investments as workers who will suffer from

job loss, most experienced workers fall into this category. n204

 

It is harder to draw the line that separates jobs in which acceptable job performance is easy to monitor and verify from

jobs in which monitoring and verification is hard. Perhaps common law courts can draw the line - as they draw so many

others - on an intuitive, case--by--case basis. This approach would be acceptable if the courts kept the function of the line

in mind. The line is supposed to separate jobs in which a just--cause requirement will not create severe shirking problems

from jobs in which an employer cannot easily prove objectionable employee behavior to a court and so employers cannot

credibly threaten to fire shirking employees.

 

Some have suggested that high--level as opposed to low--level jobs [*58] present such a dichotomy. An employer

may only have an unprovable sense that a high--level worker is not performing adequately. Such jobs have many intangible

characteristics, such as the ability to motivate and work with others. By contrast, low--level jobs usually involve the

performance of tangible and verifiable tasks. Even such a staunch and eloquent advocate of just cause as Professor St.

Antoine has suggested that high--level employees should be exempt from a comprehensive just--cause scheme. n205 He

has suggested that we should draw an indirect line excluding from just--cause protection employees entitled to a pension

above a certain amount or employees who have fixed--term contracts of two years or more. n206

 

One must be careful of class myopia in making such proposals. Most jobs, even the most unskilled or menial, require

complex mental states to perform them well. Boredom, frustration, and low morale can impair performance on any job.

While sometimes this fact manifests itself in objective, verifiable ways, many times it does not. Certainly job status and

job complexity do not correlate well. Nevertheless, a duality exists between jobs requiring simple, repetitive tasks and

those requiring complex, varied tasks. If the tasks are simple and repetitive, "successful job performance is relatively

easy to define and measure in ways that virtually every reasonable person would consider fair, accurate, thorough, and

objective." n207

 

Courts and commentators have thoroughly debated the analogous issue in employment discrimination law; few tests

for job applicants have survived a challenge of bias. If objective tests cannot be found to evaluate job applicants, we

should not expect employers to be able to provide objective evidence of cause when they fire a worker for not performing

adequately. Mark Kelman has noted this tension. n208 In advocating a near ban on employment testing for applicants

because objective criteria for hiring cannot be found, he recognizes that employers must be given greater leeway in

dismissing workers who do not live up to the admittedly subjective standards of the job. n209 In [*59] other words, the

law cannot simultaneously squeeze both the hiring and firing decisions.

 

I have noted already that unionized employees are universally governed by a just--cause standard while nonunionized

private employees generally are not. n210 One explanation for this difference is that unionized jobs are typically more

routine or repetitive, thus making objective measures of performance easier and lowering the burden of showing cause.

On the other hand, unions may demand regulation and rules precisely to facilitate objective evaluation of workers. n211

If objective evaluation is feasible, the problem of unverifiable shirking is reduced and the just--cause requirement becomes

less burdensome for employers.

 

Finally, in considering what jobs fit the life--cycle model, we must recognize that the model may apply differently

to female workers than to male workers because the career--employment pattern differs. For many women, the end

of the life cycle is not the period of greatest vulnerability. Rather, their time of concern is the middle period, when

many women leave the workforce temporarily to have children. A common employment pattern is for women to "prove

themselves" by working hard early in their career in exchange for implicit promises that the employer will give them

greater flexibility in early child--rearing years. Having performed their end of the bargain, women face the danger that

an employer will behave opportunistically by dismissing them rather than giving them the promised flexibility. The law

regulates these opportunistic firings under Title VII and other antidiscrimination laws. Although our general analysis

against opportunistic firings applies to this situation, the common law rules we have analyzed apply more often and more

cleanly to "traditional," that is male, life--cycle patterns. n212 Certainly, men have brought most of the leading life--cycle

wrongful discharge cases.

 

B. The Rise (and Fall?) of Career Employment

 

If legal intervention at the end of the life cycle is so wise, a critical [*60] reader might ask, why did it take courts

so long to get it? Or, alternatively, one might ask whether this sudden judicial rush to protect some workers suggests

an unwise departure from the wisdom of the past. In response, I would emphasize that career employment is relatively

recent in our economy, becoming common only after World War II. Thus, only in the last decade or two have employers

and workers played out the end game of career employment. Therefore, courts have only recently had the opportunity to

respond to opportunistic behavior at the end of the life cycle.

 

Certainly, career employment was less prominent fifty or seventy--five years ago. Henry Ford introduced his five--

dollar--per--day pay in 1914 in large part to counter the phenomenal turnover in his River Rouge factory, which exceeded

2000% per year. n213 Much of the rise in career employment can be attributed to the growth of firm size and the

increasing costs of employee turnover and lack of discipline. n214 Immigration and reverse migration before the 1920s

delayed a sense of community and roots among workers, diminishing a desire for job security. n215 Not until after World

War II did pensions - a key bonding feature of career employment - become prevalent. In short, until the last few decades

few workers spent their lives in a single career employment.

 

Because of the recent rise in career employment, I need not dispute Richard Epstein's claim that at will was the

optimal rule to regulate the employment relationship for much of this century. n216 Whether it was or not, times have

changed, and the common law has changed with it. With the rise of career employment has come the life--cycle doctrine

in employment law.

 

Some commentators suggest that career employment is becoming a thing of the past. n217 One bit of evidence for

this claim is the decline in [*61] pension coverage in the 1980s. n218 If life--cycle contracts decline in importance, one

might expect parties to call on courts less frequently to enforce perceived opportunism. As career employment ebbs, so

too may lawsuits ebb whose underlying theories rest on a breach of a long--term relationship.

 

Conclusion

 

The argument of this article has a classic form - it puts court decisions in an area of law into a framework and thereby

declares them to have some coherence. In this case, the declaration is that courts, with their embryonic life--cycle doctrine,

are reacting wisely to the issues litigants present to them. The life--cycle framework that courts have developed provides

the parties in a career employment relationship a legal structure that checks opportunistic behavior. Its fundamental

premise is that both employer and employees can act opportunistically. Consequently, a life--cycle analysis does not

categorically condemn or celebrate employment at will. It supports, in broad outline, the contract law inroads that have

been made on the at--will doctrine, particularly at the beginning and the end of an employee's career, and it explains the

continued vitality of the at--will rule for midcareer employees. The current position of the courts is superior to a dogmatic

insistence on the old at--will regime, which creates an excessive risk of opportunistic terminations for long--term, and

sometimes beginning--career workers. Moreover, the current hesitant, intermediate position may also be superior to a

general just--cause standard, which would lead to excessive shirking by midcareer workers.

 

The life--cycle framework therefore makes coherent the seemingly schizophrenic behavior by courts in employment

termination cases. Within the framework, courts will protect employees when the danger of employer opportunism is

high, but they will retain the at--will presumption when the employer is more vulnerable. One can thus argue that the

courts are reacting appropriately to the employment--termination cases they encounter.

This coherence in the common law is internal to the system. In particular, it assumes that common law litigation is

 

the chosen method of resolving these disputes, and that the courts largely do not consider the systemic costs of litigation.

It may be preferable, all things considered, to opt for an administrative or arbitration system that requires just cause for

all employment terminations. But it is unfair, in arguing [*62] for such a change, to portray the current common law

as hopeless chaos. Far from being chaotic, the current common law provides optimal rules for regulating employment

terminations.


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