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As an increasingly large number of employees challenge their terminations, employers often find themselves in a precarious position: retain substandard employees or risk a lawsuit grounded on allegations of wrongful discharge? This issue is almost never easily resolved.

Historically, employees were hired for an indefinite term and could be terminated by anemployer for any reason or no reason at all. Employers' absolute power to discharge was considered necessary to preserve the exercise of managerial discretion and the freedom of parties to contract in a nation experiencing rapid industrial growth. This terminable-at-will doctrine existed for nearly a century.

However, times have changed. Employees, particularly terminated ones, enjoy "rights"whereby they can sue employers for wrongful discharge under a panoply of relatively new and dynamic causes of action. This article, the first of a three-part series, will address the main theories under which a terminated employee can sue a former employer for wrongful discharge. The second and third articles will focus on measures an employer can take to significantly reduce the risk of liability from a discharge lawsuit.The terminable-at-will doctrine existed for nearly a century in the United States. Two major theories currently create exceptions to this common-law doctrine: public policy and contract.

Perhaps the most widely accepted of the wrongful discharge theories is the public policylimitation. This theory provides a cause of action when a discharge violated fundamental public policy or law. In other words, courts have held that an employer should not be allowed to discipline or discharge an employee for reasons that violate public policy. The terminated employee's case typically centers around the theory that the discharge was in retaliation for the employee's assertion of protected rights, performance of a statutory duty, or refusal to commit illegal or unethical acts.

Therefore, when a bank officer is fired for reporting a possible money laundering scheme to the banking commissioner or an employee is discharged for refusing to illegally "rig" a raffle, claim for wrongful discharge may be stated.Other grounds for wrongful discharge under the public policy exception to the terminable-at-will doctrine include "whistleblower activity" (i.e., discharge of employee for exposing or protesting employer's illegal or immoral activity) and discriminatory discharge. For example, a claim for wrongful discharge may be stated when an employer fires an employee after 14 years of service so that the employee would not become vested in the employer's pension plan, which would have occurred after 15 years of service.The contract exception to the terminable-at-will doctrine applies when the employer hasmade assurances of job security to the employee. Such assurances can be express contractual provisions, implied-in-fact provisions or an implied covenant of good faith and fair dealing. Express contractual assurances of job security arise when an employer explicitly agrees to hire an individual for a specific period of time.Implied-in-fact contracts include written personnel policies and employee handbooks, length of employment, industry standards and customs, oral assurances and employer conduct. Perhaps the employee handbook is the most commonly relied upon document by the terminated employee in establishing an implied-in-fact contract.

Breach of contract cases are based upon, and are designed to appeal to, the jury's sense offairness and justice. These cases are bolstered by any employer act or omission which can be constructed as "unfair" by the jury or any other finder of fact.

A terminated employee has every incentive to sue a former employer for wrongful discharge. First, termination is often a traumatic event for the employee. A lawsuit, even if unsuccessful, may be perceived by the employee as a way to "get even" with the employer. Second, a verdict may be huge. Compensatory and punitive damages may be included in the award. Employees almost always request jury trials, and when contrasted against a corporate employer with "deep pockets", a terminated employee, even when treated fairly, may be viewed by the jury as a victim.In light of the above incentives, the potential consequences of a mishandled wrongfultermination lawsuit are significant. Expenditure of substantial in-house administrative resources, attorneys' fees and funds for a verdict or settlement, when coupled with adverse publicity before, during and after a trial and the specter of possible reinstatement of the terminated employee are all unpalatable possibilities, and in many cases, inevitable consequences of a wrongful discharge claim.

Therefore, the employer must be able to recognize a wrongful discharge, the first step inavoiding and mitigating liability exposure resulting from wrongful discharge claims.