Firms Ask That Workers Waive Job Security

N. Lee Pullins spent four happy years at a San Francisco Bay Area computer software firm, taking phone calls from confused customers and working them through the complexities of the company’s accounting programs. The work was fun and challenging, calling for a knowledge of both finance and programming.

Pullins said his performance reviews went well and the pay kept getting better. “We had a good relationship, and (I) poured in a tremendous amount of energy and hours, helping grow that company,” he said.

So the mustachioed, 41-year-old programmer was astonished last year when his company, Small Business Technology of Sausalito, asked him to sign a new employee manual with a special clause.

On page one, it said his job and pay “may be terminated at any time, with or without cause, at the sole discretion and option of SBT.”

Refused to Sign

Pullins refused to sign, but it didn’t do him any good. He was quickly fired, and he spent a year without a job. Now he’s suing for $1.25 million in a case that may affect hundreds of thousands of workers in California and throughout the nation.

The boundaries of so-called employment-at-will clauses like SBT’s are emerging as an important new legal issue as the provisions become an increasingly common fact of business life. Employers using them include Sears, the investment bankers Donaldson, Lufkin & Jenrette, and Eastman Inc., a Long Beach firm that sells office supplies.

Executives who have adopted the clauses say they just reassert the age-old premise that a company hires and fires “at will.” As such, the clauses have become the latest weapon of employers seeking to head off, or weaken, costly suits from employees who contend they have been unfairly fired.

Opponents, however, say they are a license to cheat workers out of the gains from decades of legal battles intended to provide increased job security.

Workers often don’t fully realize the significance of the provisions, said Raymond L. Hilgert, a professor of management and industrial relations at Washington University in St. Louis. Hilgert said that when he warned students about employment-at-will clauses, “they couldn’t believe this was happening in 1988.”

One unhappy Eastman employee said: “It’s kind of a strange way of working, if you ask me.” The employee, a salesman, reluctantly signed a new contract stating that “the company may terminate my employment at any time, for any reason, or no reason, with or without notice.” Eastman President William E. Pichler did not return phone calls seeking comment.

Won’t Discuss Suit

SBT President Robert Davies refused to discuss Pullins’ lawsuit but said his company’s employment clause is not unusual. He added that it is needed to protect firms against wrongful-discharge suits. “The laws are all prejudiced against the company. . . . They always sue you for a million, and you go into a jury, and they say: ‘This company is rich and this guy is poor,’ ” he said.

Employment law experts say Pullins’ lawsuit is among the first of its kind but is unlikely to be the last, given the way the clauses are spreading.

Since 1981, court decisions in California and elsewhere have given increased job security and legal protection in many cases to workers who spend years with a single firm--thereby limiting the ability of companies to fire employees at will and inspiring a throng of wrongful-discharge suits. In response, employment-at-will provisions have become widespread, particularly since a California appeals court upheld them four years ago--much to the displeasure of workers’ rights advocates.

Security Taken Away

The clauses take away the modest job security that courts have granted many veteran employees, said Joel H. Siegal, a San Francisco lawyer representing Pullins. “What the employer is making them do is sign away five years of their life or more.”

No one knows how widely the clauses are used. “Virtually all of my clients have considered such arrangements, and that includes some of the largest companies in the state and the nation,” said Paul W. Cane Jr., a partner with Paul, Hastings, Janofsky & Walker in Los Angeles. Between one-third and one-half of these clients have introduced the clauses, he added.

Altogether, hundreds of thousands of California workers may already be subject to them, he estimated.

The clauses appear in “at least half of the contracts coming across my desk,” said Lawrence Z. Lorber, a prominent Washington attorney specializing in employment law.

‘That’s Pretty Strange’

Even some two-year contracts now include provisions allowing the company to fire the worker at any time, he added. “That’s pretty strange.”

Some groups of workers are more likely to be confronted with employment-at-will clauses than others, employment attorneys say. Middle and senior managers--those employees seen as most inclined to call a lawyer if fired--are the most likely to be asked to sign employment-at-will contracts, said David Lewin, professor of industrial relations and human resources at Columbia University in New York. “It’s rarely your production employees, it’s rarely your clerical employees, it’s rarely your lower office employees.”

Union contracts typically have special rules for firing workers that override employment-at-will clauses.

But many companies are putting the clauses into their employment manuals, which apply to all employees, white-collar and blue-collar alike, said Frederick Brown, a lawyer with Orrick, Herrington & Sutcliffe in San Francisco. Apple Computer, based in Cupertino, said it is in the final stages of evaluating such a move. “A decision is imminent,” said Christopher Escher, a spokesman.

Corporations Worried

Large corporations lead the trend, said JoAnne Dellaverson, a San Francisco management lawyer with Schachter, Kristoff, Ross, Sprague & Curiale. “Their chances of terminating someone and being sued are greater,” she said.

The rapid spread of employment-at-will provisions in the last several years shows that many corporations are now more worried about losing expensive wrongful-discharge lawsuits than about providing union activists with added ammunition for organizing drives, said William B. Gould, a Stanford University law professor specializing in labor and employment issues. “The decline of unions and of union-organizing activity has made this consideration much less (important).”

Winning a quick dismissal of a wrongful-discharge suit can cost a company $40,000 to $80,000 in legal fees, Cane said, and fighting a bitter legal battle through several appeals can cost “into seven figures.”

Arranging for Benefits

Persuading longtime employees to sign the clauses is particularly controversial, Gould said. To avoid future lawsuits, “the clever employers who are well advised will try to arrange for some sort of benefit or compensation for the employee who is signing.”

Although strongly advocating employment-at-will clauses for job applicants, Cane agreed that the clauses are best presented to existing workers as a condition of obtaining a promotion, a pay increase or stock options. To avoid wrongful-discharge lawsuits similar to Pullins’, he said, employers can deny promotions and raises to employees who refuse to sign, while keeping them with the company.

Employers put workers in a very awkward position by confronting them with employment-at-will clauses. Job applicants are especially vulnerable. “If you’ve got any individuality, you wouldn’t sign it--and you wouldn’t be considered” for the job, Hilgert said.

‘Everyone in Uproar’

When Eastman told its sales staff to sign a new contract, “Everyone was in an uproar about it,” said one employee, who asked not to be identified.

But only four salesmen left the company. The rest, some fearful of what might befall their families if they were thrown out of work, signed the document. “A chicken reaction,” the employee said bitterly.

So far the clauses have been upheld in court. The critical decision in California came in February, 1984. A state appeals court ruled that Steven Shapiro, a fired vice president and treasurer of Wells Fargo Realty Advisors, had not been wrongfully discharged. Shapiro’s stock option plan contained an employment-at-will clause, and the clause was evidence that Shapiro had never been guaranteed continued employment, the court found.

Disagreement Voiced

Not surprisingly, lawyers for management and workers disagree over the impact and wisdom of the Shapiro decision. Dellaverson, who represents companies, says the decision establishes that explicit statements about the relationship between employer and employees should have more legal force than any implied commitment based on length of service.

But Lester Ostrov, a partner with Los Angeles-based Fogel, Feldman, Ostrov, Ringler & Klevens, who represents workers, said the appeals court ruling merely tells other courts to view employment-at-will clauses as just another piece of evidence to consider.

Even attorneys who have defended the clauses concede that they have their limits. The occasional whistle-blower who loses a job after refusing to commit illegal acts can still sue, even if he has such a clause in his contract, they say. And the clauses are unlikely to rescue employers from race, age and sex discrimination suits. “You can’t sign away your civil rights,” Hilgert said.

Clauses Still Valuable

But employment-at-will clauses are still valuable, because employers these days are much more likely to face wrongful-discharge lawsuits than discrimination cases, Cane said. Bias is hard to prove in court and tends to produce small settlements, he explained.

As for Pullins, now a software salesman, he won one legal skirmish with Small Business Technology, but more battles remain. He persuaded the California Unemployment Insurance Appeals Board to order SBT to pay him state unemployment benefits.

SBT had argued that Pullins disobeyed a reasonable work order in refusing to sign the revised employee manual with its new clauses concerning employment-at-will and invention rights. The appeals board sided with Pullins, however, saying the clauses represented such a change in the original terms of employment that he had “good cause to leave the work and to refuse to accept the new terms.”

SBT is suing to overturn the board’s decision while preparing its defense against Pullins’ suit, filed June 14 in San Francisco Superior Court.

Pullins says he misses his old job but is bitter about the agreement he was asked to sign. “I don’t feel the employer has the right to come in one morning and say: ‘Things are going to be different now.’ ”

RISE IN WRONGFUL TERMINATION SUITS

The number of wrongful termination lawsuits decided by California juries. The average judgment includes damages, and represents only what the juries awarded, not what defendants ultimately received. Some of the awards may have been reduced or eliminated on appeal.

Won by Average Biggest Cases Employee Verdict Verdict 1987 53 33 $1,469,327 $17,450,000 1986 45 25 493,640 5,115,000 1985 50 37 992,797 20,000,000 1984 22 13 952,308 6,271,000 1983 15 6 107,833 234,000 1982 18 15 489,959 4,740,000 1981 3 2 1,212,500 2,125,000 1980 5 2 87,750 119,000 1979 3 2 45,000 70,000 1978 0 0 -- --

Source: Orrick, Herrington & Sutcliffe

EMPLOYMENT-AT-WILL CLAUSES All employees are employed by SBT at will. This means that any employee’s employment and compensation may be terminated at any time, with or without cause, at the sole discretion and option of SBT. Nothing in this Employee Manual shall limit or otherwise alter the foregoing.

--Small Business Technology, Sausalito, Calif.

I understand that I am employed on an at-will basis, and that I may quit for any reason, or no reason, with or without notice, and that the Company may terminate my employment at any time, for any reason, or no reason, with or without notice. I further understand that no representative of the Company has any authority to enter into an employment agreement with me for a specified period of time.

--Eastman Inc., Long Beach