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Fourth Circuit Reverses Judgment Against Employer Based Upon At-Will Employment Disclaimer
Last November, the Fourth Circuit reversed a $555,000 jury verdict in favor of an employee who alleged that her former employer’s decision to fire her breached certain policy statements the employer had issued in the employment contract. In Scott v. Merck & Co., Inc., No. 11-1584, 2012 WL 5911203 (4th Cir. Nov. 27, 2012), the court ruled that under Maryland law, a terminated employee seeking to enforce a policy statement in a breach of contract suit “must show both that the policy statement limited the employer’s discretion to terminate the employment at will and that the employee justifiably relied on the statement.” Id. at *3. The court further found that the presence of a clearly expressed disclaimer precludes an employee from proving justifiable reliance in a breach of contract action “regardless of how readily the employee could satisfy the other part of the analysis.” Id. This means that under this court’s interpretation of Maryland law, a clear and conspicuous at-will employment disclaimer may bar terminated employees from succeeding in breach of contract actions.
In her complaint, plaintiff alleged that although she was hired as an at-will employee, the company had issued two policy statements after the commencement of her employment that limited its ability to terminate her at will. Specifically, she cited the company’s Code of Conduct and a policy issued by the company’s Office of Ethics, which both provided that an employee who reported an unethical business practice in good faith would be protected from retaliation and could not be denied benefits, terminated, demoted, suspended, threatened, harassed or discriminated against because she had done so.
During the final years of her employment, plaintiff received negative performance reviews and was placed on a “performance improvement plan.” Thereafter, but prior to her termination, she reported her supervisor to her employer’s Office of Ethics for conduct that she believed violated the company’s ethical standards. Shortly thereafter, the company terminated her employment.
The company moved for summary judgment on the basis that as an at-will employee, the plaintiff could be terminated at any time for any reason, so she could not bring a claim for breach of contract. Denying the company’s motion, the district court ruled that the policy statements the company had issued subsequent to the plaintiff’s hiring were “sufficiently specific and definite to constitute an enforceable contract term” under Maryland law and that a jury could reasonably conclude that the company had breached those contractual provisions by terminating the plaintiff. Id. at *1. A jury subsequently found that the company had breached its employment contract by terminating the plaintiff in retaliation for raising an ethical issue and awarded her $555,000 in damages. The company appealed.
The Fourth Circuit noted that although Maryland follows the common law principle of employment at will, Maryland recognizes a limited exception in which “policy statements that limit the employer’s discretion to terminate an indefinite employment or that set forth a required procedure for termination of such employment may, if properly expressed and communicated to the employee, become contractual undertakings by the employer that are enforceable by the employee.” Id. at *2 (citing Staggs v. Blue Cross of Md., Inc., 486 A.2d 798, 803 (Md. App. 1985)). Courts applying Maryland law have held, however, that an employer can avoid contractual liability with terms that “clearly and conspicuously disclaim contractual intent.” Id. at *3 (citing Castiglione v. Johns Hopkins Hosp., 517 A.2d 786, 793 (Md. App. 1986)).
In a breach of contract claim, therefore, an employee must show that a policy statement limited the employer’s discretion to terminate the employment at will and that the employee justifiably relied on the policy statement. The Fourth Circuit reasoned that an employer’s disclaimer of any contractual intent bars an employee from showing that she justifiably relied on the policy statement.
Analyzing plaintiff’s employment application, in which she acknowledged that the company maintained the right to terminate her employment for any reason, and the company’s policies, the Fourth Circuit concluded that the company had clearly and conspicuously notified the plaintiff that her employment with the company was at will. As a result, the plaintiff could not have justifiably relied on the language in the Code of Conduct Policy or the policy issued by the Ethics Office as creating contractual rights. Notably, the company’s at-will employment disclaimer specifically stated that such policy statements should not be viewed as creating contractual rights and obligations. Although the Court did not reach the issue of whether a clear and conspicuous disclaimer would always defeat an employer’s policy statements under Maryland law, it held that in this instance, the district court erred in denying the defendant’s motion for judgment as a matter of law.
Scott emphasizes the importance of contractual disclaimers and at-will employment statements in employee handbooks for employers. Based on the Court’s opinion, employers should ensure that they include contractual disclaimers and at-will employment statement in multiple places in order to protect themselves from breach of contract suits brought by terminated employees. Employers should similarly be sure to disclaim subsequently issued policy statements from creating contractual right.
Anne E. Di Salvo is an associate in the Labor & Employment Department of Saul Ewing in Baltimore, Maryland. She can be reached at firstname.lastname@example.org.