LAW REVIEW

Can Dr. Smith Fire Cheryl?

by Craig Steinberg, O.D., J.D.

Editor's note: This month we introduce a new column "Law Review" by Craig Steinberg, O.D., J.D., of Sherman Oaks, Calif. This will look at legal issues that often arise in your practice. If you have questions or suggestions for future topics, please e-mail them to us at reviewofoptometry@jobson.com.

Cheryl has worked in Dr. Smith's dispensary for almost five years. She has been a loyal employee and has always done a good job. But Dr. Smith is merging his practice with that of a nearby friend, and they need to lay off one dispenser. Can Dr. Smith lawfully fire Cheryl?

The answer may depend on whether or not Cheryl is an at will employee. "At will" is a simple enough concept. It means an employee may quit or you may discharge him or her with or without cause, at any time and for any lawful reason (i.e., so long as it's not based on race, sex, national origin or a disability). If you fix the term of employment, it is not at will.

In this column, the first of two on at will employment, I'll explain the concept of at will and implied contracts that can lead employees to think you can only fire them for just cause. Next month, I'll outline steps you can take to make staff understand their at will status.

Employers often unwittingly jeopardize an employee's at will status by inadvertently creating implied contracts that they will only terminate the employee for just cause. As an employer, you must avoid saying or doing anything an employee may reasonably believe creates such an implied promise. This is vital for Dr. Smith in our example to avoid or successfully defend a wrongful termination lawsuit Cheryl could bring.

What might Dr. Smith have done to give Cheryl the idea she has a contract? Typical conduct that creates implied contracts includes the use of probationary periods, mandatory progressive discipline and regular bonuses not based on merit. What could get him off the hook? A properly worded at will statement in the employee handbook, on the job application and on Cheryl's annual performance reviews, and if he's avoided office policies that could create an implied contract.

Most employees are at will when hired. However, their status sometimes changes, either intentionally or inadvertently, so that you must give just cause to terminate them. Just cause may be described as "a fair and honest cause or reason regulated by the employer's good faith." It's vague, and that makes it easy for lawyers to exploit. This can lead to wrongful termination lawsuits or costly severance packages. In the former, the employee typically claims there was an implied contract not to terminate without cause.

What's an implied contract? Most of us are familiar with the concept of an express contract even if we don't know the phrase. With a few exceptions, an express contract may be either written or oral. Implied contracts, also called implied-in-fact contracts, however, arise out of the conduct of the people involved, not from any express or intended agreement. Often, this conduct is subtle.

In our example, an implied contract not to terminate without just cause may arise based on Cheryl's interpretation of certain actions and events in Dr. Smith's practice. There are two key ingredients in this mix: It must be Cheryl's subjective belief, and that belief must be reasonable. Dr. Smith's intent is not relevant, and is no defense against whether or not Cheryl has an implied contract.

Of course, there's little you can do to challenge an employee's subjective belief. So, you must instead take prudent steps to avoid letting employees think that you can only discharge them for just cause. Courts and juries look to the "totality of the circumstances" when judging whether or not an employee's belief is reasonable. Next month I'll look at some of the steps Dr. Smith could have taken to ensure that Cheryl had understood her at will status.

Dr. Steinberg is author of the Employer's Guide for Optometrists. His e-mail is craig@visioncare.com.