The employment relationship is governed by the agreement, oral or written, between the employer and the employee (and the union, if any, which represents the employee), and federal, state, and local laws which impose obligations independent of private agreements.
Employment without a fixed term is "employment at-will," terminable by the employer or the employee at any time and for any lawful reason. Thus, in the absence of a written or oral contract, in fact or implied, the employment relationship will be presumed to be "at-will."4 This legal doctrine is very important for employers, permitting the termination of employees without extensive administrative and judicial review. Employment contracts should be used sparingly, particularly by small non-profit organizations.
While the law in many states, including New York and Connecticut, presumes that employment is at-will and not contractual, over the last decade, employees asserting various theories of "wrongful termination" have succeeded in convincing courts to establish certain exceptions to the at-will doctrine.
Employees who believe they have been wrongfully discharged often attempt to circumvent the at-will doctrine by alleging that oral communications and language contained in job applications, correspondence, performance appraisals, supervisor manuals, hiring letters or, more frequently, employee handbooks, create an "implied" contractual right to continued employment or that their employment can only be terminated for cause.
Language relied on by such employees generally states that an employee will only be terminated for "cause" or "just cause." These terms usually require an employer to prove that an employee was terminated because of legitimate performance deficiencies, misconduct or other economic justification. Therefore, it is important for employers to review their forms, personnel manuals and practices to ensure that no language will be unintentionally construed as a limitation on their right to terminate at-will employees.
It is also recommended that employers add language to their employment applications5, offer letters6 and employee handbooks underscoring that employment is at-will: an employee may resign at any time, with or without cause, and may be discharged at any time, with or without notice and with or without cause. Having employees acknowledge receipt and acceptance of these documents will strengthen the employer's position in the event an employee later claims that his or her employment is not at-will. Appendix F contains a sample employment handbook provision.
Of course, not every employer seeks to employ its employees at-will, and key executive or others with special skills may require a contractual relationship. The initial question to be addressed, therefore, during the review of the hiring process is the nature of the employment relationship. The organization must determine whether it wishes to employ its employees at-will or to require employees to sign employment contracts or to use a combination of these two concepts. A sample employment agreement can be found in Appendix JJ. Employers should review their forms and practices to ensure that the language is consistent with the preferred form of employment relationship, and that such language does not create unintended contractual obligations.
Generally, in New York, employees must point to a writing to establish an express limitation on an employer's ability to terminate employment at-will. Neither mere promises of future employment, expectations of rehiring after expiration of a term of employment, salary patterns, nor other oral assurances have been found to be sufficient to establish employment that is not at-will. On the other hand, a hiring letter or even an oral promise which sets forth a definite term of employment7 may be viewed as a limitation on the ability to terminate at-will.
Furthermore, even at-will employees have statutory, and under certain circumstances, contractual rights, to wages and fringe benefits, including vacation, severance or bonus pay, in accordance with whatever policy the employer has communicated to them. Under the New York Labor Law, an employer is required to notify its employees of its policy on sick leave, vacation, personal leave, holidays and hours.8 A recent amendment to this law requires that employers provide written notice to newly hired employees of their rate of pay and regular payday.8a Also, under this new law, employees who are eligible for overtime must be notified of their regular hourly rate and their overtime rate of pay. An employer is subject to civil and criminal penalties if it fails to pay wages and fringe benefits in accordance with its policies.9 Accordingly, although an employer is not required to provide its employees with severance or vacation pay, for example, if the employer adopts benefits, it must exercise caution in drafting the description of the benefit because it will be required to comply with any policy it decides to adopt.
While, New York courts continue to voice their strong disinclination to alter the traditional rule of at-will employment , a narrow exception to the at-will employment9a doctrine was recognized by one court where an attorney was fired for complying with his ethical duties to report the wrongdoing of other attorneys in his firm.9b
Like New York, Connecticut law presumes that employment is at-will and not contractual. However, representations made in employee manuals or handbooks, offer letters and even oral statements may be sufficient to create a contractual employment relationship. Once a contractual relationship has been established an employer can terminate that employee only for cause. As stated above, "cause" generally requires an employer to prove that an employee was terminated because of legitimate performance deficiencies, misconduct or other economic justification. In contrast, an employer or an employee can terminate an at-will employment relationship for any reason at any time.
Once an employer has determined whether to employ personnel at-will or on a contractual basis, it is important to preserve the nature of that relationship. Employers should review oral and written communications carefully for any language that could alter the employment relationship. In applying a contract analysis to employment manuals and handbooks, Connecticut courts generally defer to the employer when sufficient disclaimers are included in the literature. Such disclaimers should be prominently displayed and clearly state the at-will nature of the employment relationship, that the document is not a contract and that the document can be altered by the employer at any time.
Introduction
Sometimes, exceptions to at-will employment can be beneficial to a non-profit organization. For example, such exceptions can be useful to recruit a particular individual with a unique skill set needed by the organization, recruit executive level employees, or retain specific individuals for an agreed upon time period. In these circumstances, it may be beneficial to the organization to negotiate an employment contract specifying the terms and conditions of employment, as well as any post-employment obligations the employee has to the organization.
Covenants not to Compete
Post-employment obligations can include protection of confidential information, agreements not to compete with the organization, and/or agreements not to solicit employees or clients of the organization for a particular period of time (otherwise known as "restrictive covenants" or "covenants not to compete"). While contracting for such obligations to protect the organization's interests, it is very important to negotiate such terms in compliance with the law so that the employment agreement will be upheld should it ever be challenged in court. See Appendix JJ for sample employment agreement.
Most states, including New York, follow the general rule that such agreements are enforceable, provided they are necessary to protect a legitimate interest of the employer and are reasonably limited in time, geography, and the restrictions they place on the employee in pursuing his or her profession.
Although covenants not to compete are generally disfavored by courts, in most states they will be enforced if the covenant not to compete is designed to "protect against ... 'unfair and illegal' conduct" on the part of the former employee and not simply "to insulate the employer from competition." The prevalent standard is to enforce restrictive covenants to the extent that they are "reasonable." Thus, a covenant not to compete will be enforced only if it restricts the employee's ability to compete no more than is reasonably necessary to protect the employer's legitimate interests.
There are no bright-line rules for drafting enforceable restrictive covenants. Generally, however, courts view non-compete agreements more sympathetically if, for example, the employer attempts to enforce it against a former long-term employee that is in possession of trade secrets or highly proprietary information, an employee going to work for a direct competitor to perform the exact same job functions performed for the prior employer, or an employee who seeks new employment "across the street" from the former employer. In analyzing the enforceability of restrictive covenants, the legitimate interests of the employer in protecting its property are balanced against the public policy prohibiting restraints of trade. Therefore, an employee's promise not to compete is likely to be valid only if the court concludes, after balancing the hardships, that the employer's legitimate interests outweigh the hardship to the employee and likely injury to the public.
Most courts find an employer’s interests legitimate when necessary to prevent some combination of the following:
1. disclosure or use of trade secrets;
2. disclosure or use of confidential customer information;
3. customer solicitation; and
4. special harm to the employer due to the unique nature of the employee's services.
In New York, courts have found that employers have a protectable interest in their trade secrets customer lists, customer relationships and good will of the business, as well as in preventing special harm because of the uniqueness of the employee's services.
In addition to the legitimate employer interest requirement, the restrictions imposed by the covenant must be reasonable. A finding of reasonableness is entirely case-specific and varies significantly depending on the jurisdiction. The New York Court of Appeals' formulation of "reasonableness" is illustrative of the standard: "Such covenants will be enforced only if reasonably limited temporally and geographically ... and then only to the extent necessary to protect the employer from unfair competition which stems from the employee's use or disclosure of trade secrets or confidential customer lists."9c
The following are guidelines to follow in order to achieve "reasonableness" when drafting restrictive covenants:
1. The activities restricted must be related to the protectable interest of the employee's prior responsibilities;
2. The covenant's duration should correspond to the trade secret's useful life;
3. The covenant should be limited to the geographical area in which the employer's goodwill extends;
4. The covenant should be limited to the employer's customers specifically, or perhaps only to the small group of customers with whom the employee actually dealt; and
5. The interest of the public must be evaluated because courts will not enforce a restrictive covenant which is harmful to the public good.
Additional factors that appear to affect courts' consideration of whether to enforce a restrictive covenant (albeit sometimes implicitly or in a less crucial respect) are:
1. the employee's ability or inability to find alternative employment and other hardships to the employee if the covenant is enforced;
2. the employee's reasonable understanding of the meaning of the agreement
at the time he or she signed the agreement;
3. the length of the employee's employment after signing the agreement (the more time that has expired, the more likely the covenant will be enforced, because it shows both adequate consideration for the covenant and adequate time for the employee to have been exposed to (and to have absorbed) trade secrets;
4. misrepresentations, concealment, thefts or bad faith by either party (including any pre-termination competitive activities by the employee, which constitute breaches of fiduciary duty);
5. the employee's bargaining power;
6. any negotiations before the covenant was signed;
7. the executive or professional nature of the employee's position (higher level employees tend to be more likely to receive trade secrets, to be “unique,” to be mobile, and to understand the contracts they have signed;
8. the employee’s knowledge and experience prior to beginning employment with the ex-employer (the more experience, the more likely it is that the employee’s knowledge is his own rather than the employer’s trade secret; on the other hand, more experience may indicate more mobility);
9. the ex-employer’s intent in enforcing the contract (focus on trade secrets rather than beating competition;
10. whether it is industry custom to sign and adhere to restrictive covenants;
11. whether the ex-employer has treated its employees consistently;
12. the ex-employer's inability to find a replacement employee (where uniqueness" is the justification for obtaining relief);
13. the established or long-term nature of the ex-employer's business;
14. the number of employees departing to the new employer; and
15. whether the employee continues to receive a salary from the former employer during the period that the covenant prohibits the employee from working.
It is recommended that all organizations have a comprehensive employee handbook that is provided to all employees from the first day of employment. The handbook should be the principle document describing the relationship of the employee and employer, and aid in avoiding inconsistent application of personnel practices. However, it is far better not to have a manual than to have one that is not consistently applied. The manual also serves as the main communication tool describing the benefits available to employees and their responsibilities. It is suggested that the handbook be issued in a loose-leaf binder with each page numbered and dated so that it may be updated easily.
Appendix E lists the topics that should be considered for inclusion in an employee handbook. Many of these topics are optional. However, there are a few provisions that are highly recommended for all employment manuals:
· Disclaimer: A statement that the handbook does not establish a contract and that employment is "at-will."
· Modifications: A statement that the practices and policies contained in the handbook can be amended, modified, or terminated at any time, but that any changes must be in writing signed by the executive director of the organization or another official so authorized. No statement by lower level representatives will amend the handbook.
· "Zipper clause:" A provision which provides that all employment-related policies, whether written or oral, that existed prior to the issuance of the handbook are superseded. This statement avoids litigation over whether a policy that existed prior to the handbook continues to exist. It also eliminates policies that have existed for many years of which present management may be unaware.
· Non-discrimination. Adopt a written policy stating that employment shall be based only on merit, qualifications, and competence; that all laws pertaining to fair employment practices will be complied with.
· Policy against harassment. Adopt a written policy to provide an environment that is free of unlawful harassment of any kind, and on any basis prohibited by law, including harassment on the basis of sex. See Chapter XII, and Appendix W.
A model introductory section of an employment manual which includes the above is contained in Appendix F.
It is also recommended that non-profit organizations adopt ethics policies that are applicable to all employees, supervisors, volunteers, directors, and others associated with the organization. The reputation of an agency is a most valuable asset, and a good reputation is maintained by having everyone representing the organization act with the highest standards of ethical conduct and fair dealing. The written policy should make it clear that violations will result in disciplinary action, up to and including dismissal; everyone is expected to disclose to management anything which might be in violation of the policy; and retaliation against anyone who brings suspected violations to management's attention will not be tolerated. A procedure to address concerns anonymously should be provided.
A sample ethics policy is contained in Appendix G. Among the topics to be included are:
· All activities are to be conducted in compliance with the letter and spirit of all laws and regulations.
· Conflicts of interest must be avoided and, where present, fully disclosed.
· Giving and receiving gifts of more than nominal value is prohibited, except where authorized by management.
· Support of any kind for a political candidate is prohibited.10
· The personal conduct of all must be to strive for a healthy, safe, and positive environment, free from threats, violence, drugs, harassment and discrimination based on any factor unrelated to the organization's purpose.
· Unauthorized disclosure of private employee information or other confidential information will not be tolerated.
· All must protect and control the agency's assets, and not use the agency's property for personal purposes unless authorized in advance.11
· All must record and report information accurately.
· Open communications are encouraged; all are required to disclosed to management anything which may be in violation of the ethics policy, and retaliation against anyone who in good faith brings a suspected violation to management's attention will not be tolerated.
4 In some cases, individuals who perform services for an organization under a contract, whether written or oral, and under circumstances where the organization has the right to determine the results of the work performed, but not the means and methods of accomplishing the results, may be "independent contractors" and not employees. Independent contractors, and the dangers inherent in misclassifying an individual as an independent contractor rather than an employee, are discussed more fully in Chapter IV.
5 See Appendix K.
6 See Appendix L.
7 See Rooney v. Tyson,91 N.Y.2d 685, 697 N.E.2d 571, 674 N.Y.S.2d 616 (1998). Characterizing a suit for termination as based on “fraudulent inducement” will not be sustained when an employee is terminated under a contract stating that employment is “at will.” Smalley v. Dreyfus Corp., 10 N.Y.3d 55, 853 N.Y.S.2d 270 (2008).
8a Section 195 of the New York Labor Law was amended on July 28, 2009 and affects employees hired on or after October 26, 2009.
9a See Horn v. New York Times, 100 N.Y.2d 85, 790 N.E.2d 753, 760 N.Y.S.2d 378 (2003). Indeed, in Horn, New York’s high court confirmed its intent not to “create a common-law tort of wrongful or abusive discharge,” and to adhere to its tradition of non-interference with employment relationships.
9b See Wieder v. Skala, 80 N.Y.2d 628, 609 N.E.2d 105, 593 N.Y.S.2d 752 (1992). In Wieder, the court found that because both the attorney and law firm shared a common duty to uphold the same professional ethical obligations, this became an implied term in their employment agreement, and the attorney could not be terminated for reporting such violations. In Horn v. New York Times, supra, 100 N.Y.2d 85, however, the court declined to extend the “Wieder exception” to an in-house physician who alleged she was terminated for refusing to provide the employer with confidential employee medical information in violation of state law and the ethical rules of the medical association of which she belonged, since the employer was not bound by the same ethical rules. See also McConchie v. Wal-Mart Stores, Inc., 985 F. Supp. 273 (N.D.N.Y. 1997) (narrow exception to at-will doctrine did not apply to pharmacist fired for prescribing drugs in contravention of supervisor’s orders).
9c Columbia Ribbon & Carbon Mfg. Co. v. A-l-A Corp., 42 N.Y.2d 496, 499, 398 N.Y.S.2d 1004, 1006 (1977).
10 Organizations exempt from taxation under IRC Section 501(c)(3) are absolutely prohibited from indirectly or directly supporting or opposing any candidate for political office, including providing employees paid time off or providing space for a candidate's materials. Although such organizations may engage in lobbying under certain circumstances, such as lobbying the executive branch of government or engaging in "grass roots" lobbying for legislation, appropriate forms must be filed. However, in no event may any substantial part of an organization's activities be used to influence legislation. There are very complex legal issues, so if your organization intends to engage in political activity of any type, you should consult with counsel first.
11 If the organization has confidential information on computers, an Internet web site, or gives employees access to the Internet, it should adopt an Office Equipment and Computer Workstation Security and Use Guideline. See Appendix H.