Texas Employers: Rest Assured--Your Employees Serve At Will (unless otherwise provided by written agreement, oral agreement, federal law, state law, public policy . . . .)
Karlene S. Dunn(1)
I. Introduction
II. Contractual Agreements Affecting the At Will Relationship
A. The Written Employment Contract
1. Provisions Modifying the Right to Discharge Employees Without Cause
2. Satisfaction Clauses and the Duty of Good Faith and Fair Dealing
3. "Illusory" Contracts with At Will Employees
B. The Employment Handbook
C. Other Writings
D. Oral Agreements--Contracts and Modifications
1. The Statute of Frauds
2. Oral Contracts Modifying the At Will Employment Relationship
III Statutory Limitations on the At Will Doctrine
A. Federal Statutes
B. State Statutes
IV. Judicial Limitations on the At Will Doctrine
A. Public Policy
B. Promissory Estoppel
C. Torts
1. Fraud
2. Negligent Misrepresentation
3. Intentional Infliction of Emotional Distress
4. Defamation
V. Conclusion
Texas Employers: Rest Assured--Your Employees Serve At Will (unless otherwise provided by written agreement, oral agreement, federal law, state law, public policy . . . .)
Karlene Dunn
Most Texas employers are familiar with the premise that their employees serve "at will"--subject to termination for "good cause, bad cause, or no cause at all."(2) However, the maze of exceptions that have developed to the at will employment doctrine in Texas has made it difficult for employers to understand when an employee's termination could actually subject them to liability for wrongful discharge. Much of this confusion is caused by the scattered nature of the exceptions to this doctrine.(3) For example, through traditional contract principles, an employer can inadvertently modify its right to terminate an employee with provisions in an employment handbook, or even in a conversation with an employee.(4) There are also a myriad of federal and state legislative protections against discharge.(5) To add to the confusion, the Texas Supreme Court has created a category of judicial exceptions to the doctrine for discharges that violate "public policy."(6) Finally, many traditional common law and tort actions may support or accompany a wrongful discharge suit in Texas.(7)
Thus, the purpose of this article is to provide Texas employers with an overview of these exceptions, as well as some practical insight into their scope and application. Specifically, each of the following sections identifies recognized exceptions to the at will doctrine, with some explanation of the their treatment by Texas courts. Section II chronicles contractual modifications to the doctrine, including those found in written contracts and oral agreements. Section III then identifies both Texas and Federal statutory limitations on an employer's right to terminate at will employees. Finally, Section IV discusses judicially created causes of action that can give rise to wrongful termination actions by at will employees.
II. Contractual Agreements Affecting the At Will Relationship
Perhaps one of the most misunderstood areas of employment law, from both the employer and employee prospective, involves basic contract principals. The at will doctrine is a default rule.(8) As such, it does not restrict an employer's or employee's absolute right to contract for specific terms of employment.(9) However, while most understand that an explicit employment contract can control an employment relationship, many employers do not understand that contractual obligations can arise under many other agreements, in the form of employment manuals, memorandum, or even oral assurances.(10) Conversely, employees may believe that they are assured some level of job security based on illusory promises or misunderstandings.(11) As a result, many discharged employees are left with a sense that they have been "wronged" or have been deprived of a proprietary right in their job. Likewise, many an employer has been stunned when the termination of an employee leads to service of a wrongful discharge suit.
To contractually modify the employer's ability to discharge an employee at will, there simply must be an agreement, either written or oral, that "specifically provide[s] and directly limit[s] the employer's right to terminate the employment contract at will."(12) Further, the agreement must limit the right to discharge "in a meaningful and special way."(13) To determine if such a contract exists, "it [is] only necessary to apply to the employment relationship the same basic contract rules . . . that are applied to other forms of legal relationships."(14)
Thus, while some employment contract litigation centers around traditional interpretation of express contracts, more often the issue is whether an employment contract existed at all--i.e. whether there is an agreement that modifies the relationship "in a meaningful and special way."(15) In essence, the question is whether the employer, acting through an authorized agent,(16) has made a binding commitment to employ the employee--for either a stated period of time or indefinitely--subject to specific conditions.(17) The most common of these are provisions providing for discharge only for good cause (or genuine dissatisfaction), or with notice, or only after adherence to certain procedures.(18)
The following sections explore the specific treatment of claims for breach of employment contracts by the Texas courts in a variety of situations. As a practical matter, these cases illustrate the problems that arise when employers make agreements or policy decisions without properly taking into account the legal consequences of their actions. The result of poor planning is often costly and time consuming for both the employee and employer--with neither parties' expectations being adequately met.
Sections II.A-C addresses only written agreements, which encompass express employment contracts, employment handbooks, and other writings such as letters, proposals, and memorandums. Section II.D discusses oral agreements and modifications, which includes both independent oral agreements and the effect of collateral oral agreements on written contracts. Finally, it addresses the applicability of the statute of frauds on the enforceability of independent and collateral oral promises.
A. The Written Employment Contract
At will employment terms can most easily be modified by an express written employment contract.(19) Clear employment agreements setting forth terms of employment are always honored by Texas courts so long as the proper contract formalities are met.(20) However, looking to Texas cases interpreting employment contracts reveals that express employment contracts can present two unique problem for employers. Specifically, if an employer is not careful, provisions in an employment contract can do either more or less than the employer intends. On one hand, an employer can unintentionally modify its at will relationship with an employee by committing to employ an employee for a certain term, thereby restricting its ability to discharge the employment without cause.(21) Conversely, an employer can do less than intended by creating an "illusory" agreement that does not modify the at will relationship at all, thus depriving itself of adequate consideration given to support a collateral promise from the employee it wishes to enforce.(22)
1. Provisions Modifying the Right to Discharge Employees Without Cause
One of the most common express provisions contained in an employment contract is a promise that an employee will only be terminated for "good cause." In an express written employment contract, this language is generally sufficient to alter an employer's right to terminate employment in a meaningful way.(23) However, employers should be aware that several situations exist where Texas courts have held that employment contracts which do not contain this "for cause" language nonetheless modifies an at will employment relationship.
First, an employment contract which specifies a "term of years" has consistently been held to alter the employer's right to terminate an employee in a "meaningful and special way."(24) Thus, if an employment contract provides specific dates of employment, the employee cannot be discharged during that term, absent a showing of good cause.(25) For example, in Evan's World Travel Inc. v. Adams, the Texarkana Court of Appeals held a provision providing a three-year "term of employment" sufficient to modify an at will relationship and restrict the employer's right to terminate the employee without cause during that period.(26) The court reached this conclusion despite arguably contrary language in the same contract providing that the employee could be terminated during the first ninety days of employment "without cause" and for the remainder of the term "for any reason, including, but not limited to" dishonest acts, death, or failure to perform required duties.(27)
Similarly--and probably more surprising to some employers--the mere recital of a base salary in an employment contract can be enough to modify an at will relationship.(28) While seemingly inconsistent with the at will presumption, Texas courts still generally adhere to the "English Rule" that employment "at a stated sum per week, month, or year, is a definite employment for the period named and may not be arbitrarily concluded."(29) Thus, the El Paso Court of Appeals in Demunbrun v. Gray held that contract language providing that an employee "SHALL BE SALARIED . . . AT AN ANNUAL BASE OF $50,000.00" was sufficient to create a fact question as to whether the contract created a one-year term that could only be terminated for cause.(30) In Ronnie Loper Chevrolet-Geo, Inc. v. Hagey, the Fourteenth District Court of Appeals in Houston likewise held that a provision providing for compensation of "$10,000 per month thru September (June prorated at $400 per day including Saturday)" sufficient to create a term of employment that restricted the employer's right to discharge the employee.(31)
Adherence to this English Rule by Texas courts has not been entirely consistent. For example, the San Antonio Court of Appeals, in Saucedo v. Rheem Manufacturing Co., held that an employment contract providing that an employee was to be "paid a base salary of $36,000 annually" was sufficient to create a one year term of employment within which the employer could not terminate the employee without just cause.(32) However, Justice Green wrote a strong dissent arguing that the English Rule was inconsistent with the supreme court's "insistence that such an agreement be specific."(33) On rehearing, the court reversed its prior position and held that the salary provision was insufficient because it was not specific enough to manifest the employer's intent to be bound to an agreement not to terminate the employee except under clearly specified circumstances.(34)
The reasoning in Saucedo is sound in that it recognizes that the English Rule is, in most cases, inconsistent with the parties' intentions. This is apparent from looking at the nature and content of the agreements under which these claims usually arise. Oftentimes salary terms are committed to writing where there is a multi-leveled compensation scheme for a position. This was the case in Ronnie Loper Chevrolet-Geo, Inc., where the agreement at issue recited a "base" annual compensation amount and then an "incentive plan" range, outlining the productivity requirements for incentive pay. (35) Logic dictates that it is advantageous, and probably necessary, for the employer and employee to commit these details to writing. Given this reality, it would seem apparent that an employer creating this type of writing would not intend to abrogate its right to terminate its employees for cause. But, this is exactly what application of the English Rule does.
However, while the reasoning in Saucedo may be persuasive, employers should not place too much reliance on it. Since it was decided, numerous courts have continued to follow the English Rule, illustrating the importance of employers having an understanding of Texas law when they enter into express written employment agreements.(36) Some guidance in drafting agreements can be gleaned from the analysis and results in cases where employees have argued that a term of years or stated salary modified their at will employment status.
First, it has been at least implied by courts that express language reserving the at will status in an agreement can be sufficient to overcome the presumption that a stated term or salary creates an obligation to only terminate for cause.(37) For example, in Demunbrun, where the court recognized that the recital of an annual base salary created employment for a term, the court also noted that: "There is no language in the contract reserving the right of either party to terminate the contract at will despite the annual salary reference. Accordingly, [the recital of an annual salary] at the very least creates an issue of fact on the 'at-will' status" of the employee.(38) Thus, as a starting point, the simplest thing an employer can do for protection is to include explicit at will language in its agreements when it wants to rebut these presumptions.
However, the indication from courts is also that this intention to retain the at will status must be surprisingly clear. For example, in both Ronnie Loper and Dallas Hotel Co. v. Lackey, there were disclaimers in writings separate from the agreements at issue that specifically reserved the at will status of the relationship.(39) In Lackey, the employee signed an "employment card" that contained an at will employment clause.(40) Likewise, in Ronnie Loper, the employee signed an application form containing an at will disclaimer.(41) Despite these disclaimers, both courts rejected the argument that the employers had effectively preserved the at will relationship.(42) The Lackey court reasoned that where there are conflicting writings, the one that comprehends "the immediate language and terms selected by the parties themselves as setting forth their intention, [rather than] . . . the printed form" should control.(43) Thus, employers should be certain that any disclaimer is present in the same writing as any term of employment or salary information.
Finally, even if an employer intends for the recital of a term of employment or base salary to create an obligation to discharge only for cause during that period, it should be aware that it may obligate itself for a much longer period. According to the Saucedo court, if "at the expiration of a [term of employment] the employee continues to perform his services, the contract implied renews itself" for the same term.(44) Thus, for example, it seems that a written contract setting forth an employee's duties and providing that he or she will be paid $50,000 a year is conceivably enough to create an ongoing year-to-year obligation where the employee may only be terminated without cause at the expiration of each yearly interval. If this is not the intended result, an employer must expressly disclaim its desire to create an ongoing obligation or take affirmative steps to modify the agreement at the expiration of the initial term.
2. Satisfaction Clauses and the Duty of Good Faith and Fair Dealing
A similar issue that arises in employment contracts is the duty of good faith. Texas courts have repeatedly refused to imply a general duty of good faith and fair dealing to at will employment relationships.(45) However, "satisfaction" clauses in an express written employment contract can modify an at will relationship by imposing a duty to only "discharge the employee whenever the employer, acting in good faith, is actually and honestly dissatisfied with the work."(46) A satisfaction clause modifies the at will relationship by requiring that there be either "cause" for termination or a "bona fide dissatisfaction" with an employee's performance.(47)
Use of the word "satisfaction" in a written employment agreement appears to be all that is necessary to transform an at will agreement to a satisfaction contract.(48) For example, in Zep Manufacturing Co. v. Harthcock, the employment agreement in issue provided: "If the President of Zep, in his sole discretion, determines that Employee's performance of duties hereunder is unsatisfactory, Employee's employment hereunder may be terminated."(49) The Dallas Court of Appeals held this language sufficient to modify the at will relationship and impose a duty of good faith on the employer.(50) In Golden Rod Mills v. Green, a salary clause providing that an employee would be paid "$3,000 per year for 5 years . . . for satisfactory service as superintendent of a peanut plant" was likewise held to impose a duty on the employer to only discharge for "honest[] and good faith" dissatisfaction.(51)
Satisfaction contracts are less restrictive on an employer's right to terminate than for cause agreements.(52) Really, they only give rise to two obligations which employers should note. First, the employer's "dissatisfaction" giving rise to termination must be with the performance of the work contracted for, and not with some "collateral" performance or matter. This was illustrated in Noa Spears Co. v. Inbau, where an employee was discharged after the parties entered an agreement binding the employee "to perform the duties of his said employment as laboratory man . . . according to his ability and to the satisfaction" of his employer.(53) In addressing the employer's claim that it was dissatisfied with the employee's performance, the court rejected the evidence showing that the employee had been unfaithful to his wife and that he was overpaid.(54) Specifically, the court noted that the only duty the employee was to perform was that of a "laboratory man," and that it was "clear . . . [that] did not include the duty of domestic fidelity by appellee to his wife . . . [or the duty to] perform his duties as laboratory man for a less salary in order to satisfy appellant."(55) Thus, because the president of the employer's company testified that the employee "was a good workman [and] . . . did first class work," the court held that the employee was wrongfully discharged.(56) This point was emphasized by the Texas Supreme Court in Maxwell v. Cardinal Petroleum Corp., where an employee sued for wrongful discharge under a satisfaction contract and the sole justification given by the employer for his dissatisfaction was the employee's failure to increase the volume of business in his region.(57) The court remanded the case to determine if the satisfaction contract at issue required the employee to solicit new business for his employer.(58) The court reasoned that this could not be an honest and good faith reason for dissatisfaction if the contract did not impose a duty on the employee to solicit new business.(59)
The other obligation imposed by a satisfaction contract is that the employer's dissatisfaction with the employee's performance be genuine. This is not to say that an employer's reasons for dissatisfaction must be reasonable--just that "feigned dissatisfaction is not sufficient justification to avoid the continuation of a contract of employment."(60) The reasoning is that if the dissatisfaction is not genuine, cancellation of the agreement would be tainted with "fraud."(61) This subjective satisfaction of an employer is a question of fact, and the employee has the burden of showing that the employer acted in bad faith.(62) While this seems like a very high burden, Texas courts have been receptive to these claims and have sometimes accepted jury findings of bad faith by gauging the genuineness of the dissatisfaction by whether the performance "would induce action on the part of a reasonable person."(63)
For example, the plaintiff met this burden in Kree Institute of Electrolysis, Inc. v. Fageros, where an employee was discharged under an agreement providing that she could be terminated "in the event the services . . . shall prove to be unsatisfactory or detrimental to the business of the Employer, of which the Employer shall be the sole judge."(64) The employer failed to put forth evidence of unsatisfactory performance or detriment to its business.(65) The employee, on the other hand, put forth evidence indicating she was not told that her performance was unsatisfactory.(66) Rather, she was informed that the reason she was discharged was that the store where she worked was closing, and then, two weeks later, she discovered she was instead replaced.(67) The court held that, based on the record, it could "reasonably be inferred that [the employee] was terminated not because of any performance that was unsatisfactory or detrimental to the business, but to make a place for [a] more experienced electrologist."(68)
In contrast, in Coker v. Wesco Materials Corp., the Eastland Civil Court of Appeals affirmed the granting of summary judgment in favor of an employer defending its decision to discharge several employees under a satisfaction contract.(69) The employees had engaged in an undercover investigation which the court acknowledged called their "loyalty" into question.(70) The court rejected the employee's justifications for their actions, instead summarily concluding that the employer's dissatisfaction "concern[ed] the matter of appellants['] loyalty as employees of the corporation . . . [and that a]ny employer has the right to expect loyalty from its employees."(71)
The Coker court provided some helpful guidance in determining the factors that courts will look to in gauging an employer's good faith in making satisfaction decisions.(72) Depending on the type of position, the court recognized that several elements properly bear upon this determination.(73) "In some types of work the personal taste, feeling, sensibility and individual judgment of the employer is highly material. In other types of employment mechanical ability and utility in relation to which recognized standards are available is the principal consideration."(74) The court in Golden Rod Mills also emphasized this distinction and seemed to imply that more deference is really given to employers in the first situation, where "the matters are of such a personal character as not to need a jury to determine" the subjective motivation.(75) In contrast, the court noted that where an "employee contracts and obligates himself to perform in general terms satisfactory service . . . the employee is entitled to have the good faith of such act determined through the intervention of the courts."(76)
Other courts have additionally noted that the inquiry must be limited to the level of satisfaction at the time of discharge.(77) Thus, evidence showing prior satisfaction with work, such as merit raises and promotions, do not suffice to negate a current honest dissatisfaction.(78) In any case, it is clear that the employee must put forth some evidence showing that, in discharging the employee, the employer "act[ed] fraudulently, or so arbitrarily as to amount to fraud."(79)
In sum, employers should be aware that "satisfaction" language in an express written employment contract gives rise to a duty of subjective good faith in discharging an employee. This does not create an obligation to only discharge for good cause--or even a reasonable ground for discharge. It merely requires honest dissatisfaction with an employee's work. In addition, it appears that the Texas courts will give more deference to the employer's judgment about satisfaction when the employee's position requires more individual judgment and skill.(80) However, in other, more mechanical positions, courts are willing to look to objective standards and criteria to gauge the genuineness of an employer's dissatisfaction.(81) In either case, it is the employee's burden to negate the existence of good faith.(82)
3. "Illusory" Contracts with At Will Employees
In contrast with most situations discussed in this article, there are also circumstances where the employer wishes to assert that an express written contract modified its at will relationship with its employee--only to discover that the agreement has only created illusory obligations. Specifically, this arises when the employer seeks to later enforce a collateral restriction contained in the employment agreement, such as an anti-competition or arbitration clause.(83) Covenants not to compete are only enforceable if they are "ancillary to or part of an otherwise enforceable agreement."(84) Likewise, a promise to arbitrate is only enforceable if it is part of an agreement and made in exchange for consideration.(85) In these cases, even though the at will status of the relationship is not the direct subject of the litigation, the question of whether the employment contract modified the at will employment relationship is a primary issue because the employer must argue that there was an "otherwise enforceable agreement" to support the enforcement of collateral provisions.(86)
The risk to an employer of assuming that the mere existence of an employment contract modifies the employment relationship in a meaningful way was illustrated in Light v. Centel Cellular Co. of Texas.(87) In Light, the parties entered an employment contract licensing Light to sell cellular mobile communications products that included, among other things, a covenant not to compete provision.(88) The employment contract did not specify a term of employment or restrict either parties' right to terminate the relationship at will.(89) Light later resigned and then argued that the anti-competition provision was unenforceable because it was not "ancillary to or part of an otherwise enforceable agreement."(90)
The Texas Supreme Court, in holding the covenant not to compete unenforceable, provided an insightful discussion on the illusory nature of even express contracts entered into with at will employees.(91) Specifically, the court explained that "[a]ny promise made by either employer or employee that depends on an additional period of employment is illusory because it is conditioned upon something that is exclusively within the control of the promisor."(92) This type of promise "would be illusory because it fails to bind the promisor who always retains the option of discontinuing employment in lieu of performance."(93) By way of example, the court explained that the promise of a raise would be illusory because an employer could just fire the employee and then be under no obligation to perform.(94) As the court summarized: "There cannot be 'an [otherwise enforceable] agreement' which 'obligate[s]' a promisor 'at will.' Describing something as an at-will obligation is nonsensical."(95) While this might seem to state the obvious, employers and employees often enter just such agreements, without understanding that the obligations created are illusory because at will employment cannot furnish the consideration for reciprocal promises.(96)
This is not to say that there cannot be other promises--promises that do not address the at will status of the employment relationship--that can provide adequate consideration to support a non-compete or arbitration provision.(97) However, employers should be conscious, when drafting employment contracts, of the principles governing contractual modifications of the at will doctrine if this is what they intend to rely on to support other agreements.(98) Tenet Healthcare Ltd. v. Cooper is illustrative of the problem an employer can face with inadequate planning.(99) In Tenet, the employer sought to enforce an arbitration provision contained in its handbook by arguing that the handbook was an enforceable employment contract that had modified its at will relationship with the employee.(100) However, the employer had included a disclaimer in the handbook, expressly preserving the at will status of the employment relationship.(101) The court held that the disclaimer effectively negated any argument that the handbook created a valid contract.(102) In essence, the employer was diligent on the one hand in including the disclaimer, but then failed to effectuate an enforceable agreement to arbitrate, which could have been achieved by providing for some other type of consideration. Thus, if an employer intends to limit its ability to terminate an employee in a meaningful way, it should include language sufficiently clear to ensure that a court will not find the agreement illusory.(103) Otherwise, it should provide for another clear form of consideration to support any promises from its employees that it wishes to enforce.
In addition to express written employment contracts, many other writings can contractually modify the at will relationship. For example, one of the most frequently litigated areas of employment contracts is the employment handbook. Increasingly, discharged employees have sued claiming that their employment manuals constitute employment contracts which limit the employer's right to terminate at will. As one commentator has noted, this causes a dilemma for employers.(104) This is especially true in large companies operating under complicated internal structures and procedures, where employment manuals are desirable tools--both for the employer and employee.(105) Manuals provide an inexpensive forum for outlining various procedures and policies governing a wide variety of employment terms, such as hours, pay, benefits, probationary terms, promotions, vacation time, grievance procedures, discipline and discharge policies, to name just a few.(106) This is of obvious benefit to employees because it provides a level of certainty and insight into their employer's expectations.(107) Likewise, employers may benefit from increased employee morale resulting from the employee's knowledge that he or she is treated the same as other employees.(108)
If fact, many employers make the conscious choice to adopt policies altering the at will relationship with their employees and memorialize these choices in their manuals.(109) Policies providing that employees will be guaranteed a definite term of employment, or policies providing that employees will not be discharged without good cause or before certain grievance procedures are followed can attract better employees or provide existing employees with an incentive to remain with the employer.(110) Likewise, standardized pay, grievance, and disciplinary procedures applicable to all employees in a particular class can help protect large employers' from claims of discrimination and unfair treatment by reducing the opportunity for differing treatment of employees for impermissible reasons.(111)
However, oftentimes procedures outlined in employment manuals are not intended by the employer to modify its or the employee's right to terminate employment at will. Rather, the employer's intention is only to provide a statement of its existing procedures without an eye towards the completeness of the policies or giving thought to the possible legal obligations that might be created. Unfortunately though, if the manual is unclear, employees may interpret the provisions as promises that they will not be discharged under certain circumstances. In these situations, employers may be faced with a breach of contract suit over an agreement that they did not knowingly negotiate or enter. Hereinlies the benefit--to both employers and employees--of careful drafting of employment manuals with an understanding of their treatment by the Texas courts.
The Supreme Court of Texas has explicitly recognized that an employer "may modify the employment terms of the at-will status of its employees" through its employment manual.(112) Texas courts applying traditional contract principals to suits alleging breach of contract based on employment manuals have reached varying results depending on the contents of the manual.(113) However, a few clear principles have emerged and are discussed here.
First, general statements in a manual about working conditions, disciplinary procedures, or termination rights are not sufficient to alter the at will relationship.(114) As with any agreement, the manual must restrict the relationship in a "meaningful and special" way.(115) Employees often argue that manuals do this by: (1) providing employment for a specific term, during which an employee may only be terminated for cause,(116) (2) providing employment for an undefined term, during which an employee may only be terminated for cause,(117) or (3) providing employment for an undefined term that cannot be terminated without adherence to certain procedures.(118)
Despite these arguments, Texas courts have shown much greater reluctance to find language modifying the at will relationship in employment handbooks than they have in express employment agreements.(119) The general and oft quoted rule is that: "Employee handbooks, unaccompanied by an express agreement dealing with procedures for discharge of employees, do not create contractual rights regarding those procedures."(120) To modify the at will relationship, "the employer, acting through an agent authorized to bind it, [must] expressly agree[] that the handbook modifies the at-will employment relationship."(121) Applying these principals, courts usually reject breach of contract claims based on employment manuals.(122)
The cases where courts have recognized modification of the employment relationship through an employment manual involve clear modification.(123) The leading case often cited as an example is Vida v. El Paso Employees' Federal Credit Union, where the El Paso Court of Appeals reversed the granting of summary judgment against an employee who claimed that her employer's policy and procedure manual contractually limited its right to discharge her and that her termination was in violation of the manual's stated policies.(124) Specifically, she was discharged after filing a grievance complaining that another employee was promoted who she believed was unqualified.(125) The manual in dispute contained a clause providing that "[n]o employee shall be penalized for using the grievance procedure."(126) The court held that this provision sufficiently "limit[ed] the employer's termination rights in a narrow, clearly delineated way."(127)
Another frequently cited opinion is Aiello v. United Air Lines, Inc., where the Fifth Circuit found an employment manual created the obligation to only discharge for cause because it contained a provision that "employees would be discharged only for good cause, and provided an internal grievance procedure ending in a final decision by a company executive."(128) The court noted that the employee handbook was detailed and that the phrase "good cause" was used several places elsewhere in the manual.(129) It concluded that there was sufficient evidence to support the jury's finding of a "specific contract with binding disciplinary standards and disciplinary procedure."(130)
In contrast with these cases, wrongful discharge claims based upon provisions merely setting forth disciplinary or grievance procedures have been uniformly rejected.(131) For example, in Benoit v. Polysar Gulf Coast, Inc., an employee brought suit claiming his termination did not comply with the disciplinary procedures set forth in his employment manual.(132) The manual contained an attendance policy which stated: "Employees who establish irregular attendance will be subject to the following Corrective Action Program: 1st offense--Counseling[;] 2nd offense--Written reprimand[;] 3rd offense--3-day suspension[; and] 4th offense--Discharge."(133) The employee had been counseled several times after excessive absences and had received a written reprimand, but was then discharged without first receiving a 3-day suspension.(134) The Beaumont Court of Appeals rejected his claim, holding that the employment manual did "not amount to an agreement or contract in writing that would limit Polysar from terminating Benoit at will."(135)
Likewise, in McAlister v. Medina Electric Cooperative, Inc., the San Antonio Court of Appeals rejected a claim that an employee was discharged outside the procedures set forth in an employment manual.(136) The manual stated several causes for dismissal and provided that, "qualifications being equal," employees would be laid off in the order of seniority.(137) The court held that the at will relationship was not modified, noting that "the handbook states several reasons for dismissal, but it does not say these are the exclusive reasons or qualify the employer's common-law right to terminate an employee at will. A fair reading of the handbook is that it [only] highlights for the employee certain forbidden conduct."(138)
While Texas courts are reluctant to construe employment manuals as modifying at will relationships, employers should still be aware, when drafting manuals, of the factors which courts do look to in determining the possible rights and obligations that may arise from their content.
First, from a traditional contract prospective, some courts find that the employer's right to unilaterally amend a manual negates any implied contractual obligation arising from its contents.(139) These courts generally reason that this right to amend shows that the manual serves "as nothing more than a general guideline."(140) However, this is not dispositive, as other courts ignore this factor altogether,(141) and at least one court has rejected this argument entirely, holding that the right to unilaterally alter a manual "did not prevent . . . [the] agreements [within] from becoming a binding contract."(142)
Another factor considered by courts is the existence of a disclaimer expressly reserving the employer's right to terminate at will.(143) Absent extraordinary circumstances, courts treat this as dispositive, rendering this the easiest and most effective way for employers to avoid inadvertently creating contractual obligations when promulgating policies and procedural guidelines.(144)
Finally, and probably most troublesome for employers, courts look for any evidence of an express representation, outside the employment manual, demonstrating the employer's intent to limit its ability to terminate without cause.(145) For example, in United Transportation Union v. Brown, the Texarkana Court of Appeals held that a supervisor's representation to an employee that she could only be disciplined or discharged within the procedures contained in an employment manual bound the employer to follow those procedures.(146) The court reached this result despite its acknowledgment that the manual itself could be unilaterally modified by the employer at any time.(147) Employers can do two things to protect themselves from this result. First, they should attempt to educate supervisors and agents on the purpose and intended effect of provisions in their manuals to discourage unintentional or erroneous misrepresentations. In addition, they should include express language in the manual setting forth who has the authority to contractually bind the employer. At least one court has relied on this type of express limitation as a factor in deciding that a handbook did not modify the at will relationship with an employee.(148)
While the express written employment contracts and employment handbooks discussed above are common subjects of dispute, a significant amount of employment litigation involves claims asserting that other forms of writings give rise to contractual obligations. In general, so long as contract formalities exist, any form of writing can amount to an employment contract. Because employers should be conscious of this, some examples are mentioned here.
Letters between employers and potential employees have been the subject of much litigation.(149) Generally, courts interpret claims based on letters utilizing the same contract principles as with other contracts, placing emphasis on the amount of detail embodied in the writing and the intent of the parties.(150) Several cases have held letters which memorialize terms of employment agreed upon by the parties to be contracts, when they were sufficiently detailed.(151) In W. Pat Crow Forgings, Inc. v. Casarez, an employee claimed that his at will employment status was modified by a letter from his supervisor, which stated:
Confirming our discussion on August 13, 1981, you accepted the position of Forge Shop Supervisor on June 22, 1981. We have the understanding that in the event you find the job unsuitable, or the Company finds your performance substandard, you have the right to revert back to a Hammer Operator."(152)
The court held that the letter was clear and detailed enough to modify the right of the employer to discharge or demote the employee.(153) The Texas Supreme Court in Maxwell v. Cardinal Petroleum Corp., likewise recognized a letter memorializing an agreement for employment was an enforceable employment contract.(154) The letter stated:
This letter will evidence the agreement of Cardinal Petroleum Corp. to employ you at a minimum salary of $24,000 per year, payable in equal monthly installments at the end of each month. Your employment will be effective December 1, 1967 and continue at the above salary for a period of five years from that date, providing that you are able and satisfactorily perform the necessary services.(155)
This letter was sufficiently detailed to ascertain the dates of employment, salary, and the employer's duty to only terminate for unsatisfactory performance.(156)
In contrast, mere offers of employment or letters memorializing incomplete agreements are not sufficient to modify the at will relationship. For example, in Rios v. Texas Commerce Bancshares, Inc., the court rejected an employee's argument that a letter from his employer created a binding contract where the letter clearly indicated that it was confirming an offer and recited a salary and benefits, but did not specify a beginning date or state a specific time period upon which the salary was based.(157) The court also relied, in part, on the fact that the letter did not embody many of the terms of the agreement that the employee alleged were previously reached by the parties.(158)
Courts have treated memorandums and proposals in much the same way. In Ronnie Loper Chevrolet-Geo, Inc. v. Hagley, the court found a proposal which resulted from negotiations between the employer and employee that contained the employee's start date, details about his job description, details about his benefits, and a recitation of an annual salary to be sufficient to modify the at will relationship.(159) The court held that the recitation of an annual salary created a term of employment that restricted the employer's right to terminate the employee for a year without cause.(160) In contrast, the court in Dobson v. Metro Label Corp., rejected the argument that a memorandum memorializing some terms of a negotiated agreement was enough to modify the at will relationship.(161) At issue was a dated memorandum stating: "Offer today for General Manager @ $60,000 base salary per year with no bonus arrangement initially."(162) The court held that this writing alone, without outside testimony as to the agreement, was not sufficient to modify the at will relationship.(163)
While these cases interpreting letters and memorandum do not really differ from the analysis applied to express contracts or employment manuals, employers should just be aware that these other writings can give rise to the same types of contractual obligations. Memorializing the results of negotiations on paper can be useful, but it can lead to unintended consequences if the parties do not contemplate the legal effect, especially when the full terms of the agreement might not be included.
D. Oral Agreements--Contracts and Modifications
Probably the most confusing and thus most litigated area of employment contracts are oral agreements.(164) As a preliminary matter, it should be noted that the Supreme Court of Texas has never squarely recognized an oral agreement as modifying an at will relationship. In Goodyear Tire & Rubber Co. v. Portilla, the court granted writ to answer the question of "whether oral statements assuring job security could constitute some evidence of a modification of at-will employment to a contract requiring 'good cause' for termination."(165) The court then stated: "After reviewing the record, we have concluded it is unnecessary to reach this broad legal issue."(166) Instead, the court accepted the jury finding that the employer had "waived" its right to discharge the employee.(167) Significantly, the court went on to reintegrate that it "express[ed] no opinion on whether oral modification is sufficient" to alter the at will relationship.(168) Likewise, it clarified that its "citation to cases holding oral modifications sufficient should only be taken as approval of their holdings and language that specific modification is allowed, without reaching the 'oral or written' issue."(169)
In 1998, the court sidestepped directly addressing this issue again in Montgomery County Hospital District v. Brown, where it held that an employer's oral assurances that an employee "whose work is satisfactory will not be terminated without good cause" was not specific enough to modify an at will employment relationship.(170) The decision focused on the uncertainty of the employer's assurances, explaining that the general statements made in this case "simply do not justify the conclusion that the speaker intends by them to make a binding contract of employment."(171) However, the court did not specifically exclude the possibility that an oral contract could be formed, instead holding that "an employer's oral statements do not modify an employee's at-will status absent a definite, stated intention to the contrary."(172) Unfortunately, the court did not provide any guidance as to what it would consider a "definite, stated intention to the contrary."(173) Thus, the lower courts have been left to address oral contract claims based on the traditional principals which govern other employer agreements. Because of the great number of cases, overlapping issues, and complexity of the law, the results do not always seem entirely consistent. Further, because most of the cases interpreting oral agreements were decided before Brown, the effect of the court's admonishment that agreements must be specific remains to be seen.
Employment disputes surrounding oral agreements usually arise in three contexts. The first is where an employee or employer asserts that their employment relationship is governed by an express oral agreement modifying the at will relationship.(174) The second is where there is a written agreement, but the employee or employer asserts that an oral agreement is the basis of the writing--i.e. the writing just memorializes or supplements the terms of the (often more complete) oral agreement.(175) Finally, the third is where there is a written agreement, but the employee or employer asserts that an oral promise either modifies or amends the writing.(176) Thus, there is significant overlap in the case law interpreting written and oral contracts.(177)
In each of these contexts, courts must apply traditional contract principals to determine if there is an agreement, either oral, in writing, or a combination of both, that modifies the at will relationship in a "meaningful way." In addition, the effect of the statute of frauds, which requires "any agreement not to be performed within one year" to be in writing, must be determined.(178)
This section begins by explaining the applicability of the statute of frauds to oral employment agreements and modifications. It then discusses the different contexts in which oral promises can modify the at will doctrine, with specific examples of treatment of these claims by the Texas courts.
Oftentimes courts or commentators will state that an employment contract must be in writing and signed by both parties to be valid.(179) This "requirement" stems from the statute of frauds.(180) However, the statute of frauds does not really govern the "validity" of agreements. Rather, it governs their "enforceability" by providing that certain promises and agreements "are not enforceable unless the promise or agreement, or a memorandum of it, is (1) in writing; and (2) signed by the person to be charged with the promise or agreement or by someone lawfully authorized to sign for him."(181) One category of agreements covered by this statute is "an agreement which is not to be performed within one year from the date of making the agreement."(182)
Thus, when an employee argues that his or her at will relationship is modified by an oral agreement, oftentimes the employer asserts that, even if there is a valid oral agreement, its enforcement is precluded by the statute of frauds. Accordingly, when faced with a claim based on an alleged oral agreement, courts must undertake a two-step process.(183) First, the court must apply traditional contract principles to determine if a valid agreement exists.(184) This is followed by a separate inquiry to determine if the statute is applicable as an affirmative defense to enforcement.(185) Here, the real question is when an agreement is "to be performed within one year."(186)
With an employment contract for a definite term,(187) the applicability of the statute of frauds is usually simple to ascertain.(188) If the term extends beyond one year from the date of the agreement, the statute of frauds applies and the agreement must be in writing and comply with the statutory formalities or it is unenforceable.(189) This is generally true even when there are contingencies, such as death, that could theoretically terminate or excuse performance under the contract within one year.(190) Really, the issue here is the parties' intentions in entering the agreement.(191) The question is whether the parties intended any contingency to satisfy performance under the contract or whether the hypothetical occurrence of that condition would just serve to excuse further performance by terminating the contract.(192)
The applicability of the statute of frauds to indefinite period contracts requires more analysis. A contract is considered to be for an "indefinite" period if the term of the contract is "unascertainable at the time of making of contract."(193) When the term is considered indefinite because it provides for an act that could "conceivably be performed within one year" the statute of frauds "does not apply, however improbable performance within one year may be."(194) Thus, in cases where there is not an express or implied term of employment, the courts must look to the parties' intention at the time the contract was made in order to gauge what they actually contemplated. Consequently, the types of contracts falling within the statute of frauds are not necessarily categorical.(195)
The following section discusses the different situations where oral agreements and assurances are claimed as the basis for modification of the at will employment doctrine and the treatment of these claims by Texas courts. Specifically, it explains the level of specificity the courts have required in order to find a valid oral agreement and then the courts' application of the statute of frauds to these different situations.
2. Oral Contracts Modifying the At Will Employment Relationship
An express oral employment agreement may modify the at will relationship, so long as the terms are express and specific enough to manifest an express intention to modify the relationship.(196) Texas courts have expressed a willingness to recognize clear promises restricting an employer's right to discharge employees, so long as they do not violate the statute of frauds.(197) Claims for oral contracts usually take the form of (1) promises to employ for a either a definite or indefinite term, during which the employee can only be discharged for cause,(198) (2) promises to employ for an indefinite term, during which an employer can only discharge for good faith dissatisfaction,(199) (3) promises to employ for the employee's lifetime,(200) (4) promises to employ until retirement age,(201) and (5) promises not to discharge for specific acts.(202)
Claims based on oral promises to discharge only for cause take two forms. Either the employee asserts that the employer has promised employment for a certain term or sum (thereby invoking the presumption that the employee cannot be discharged during that period without cause)(203) or the employee asserts that the employer made express assurances that the employee could not be discharged without cause for an indefinite term.(204)
It seems clearly established that Texas courts will recognize the validity of an oral agreement to hire for a "term."(205) For example, in Molnar v. Engles, Inc., the San Antonio Court of Appeals reversed a summary judgment on the grounds that there was some evidence to support the employee's claim of an "oral employment contract . . . for one year."(206) Likewise, in Hoffrichter v. Brookhaven Country Club Corp, the Dallas Court of Appeals reversed a directed verdict against employee who "alleged an oral contract" for a three month period.(207) When interpreting these oral agreements, courts simply apply the same analysis as with written agreements to determine if the oral agreement was specific enough to show that the parties had agreed to employment for a definite term.(208)
However, enforcement of a valid oral agreement for a definite term may be barred by the statute of frauds.(209) If the oral contract cannot be performed within a year of contract formation it cannot be enforced because the statute requires it to be in writing.(210) For example, in Dobson v. Metro Label Corp., the Dallas Court of Appeals held that the statute of frauds barred enforcement of a one-year employment contract because it could not "be performed within one year from the date it was made."(211) This was because the oral agreement was made on July 14, 1987 for employment that was to begin on August 3, 1987 and end on August 2, 1988. August 2 was more than one year after July 14th, the date the contract was made.(212)
Texas courts have also correctly rejected the argument that definite term oral contracts fall outside the statute of frauds because there are contingencies that could end the contractual relationship within a year.(213) For example, in Collins v. Allied Pharmacy Management, Inc., several employees argued that an alleged oral contract for a term of three years did not fall within the statute of frauds because "they could be terminated for cause, making the agreement performable within a year."(214) The court held that the statute of frauds applied, explained that the mere possibility of termination within a year did not mean that the contract could be performed within a year.(215)
As with oral contracts for a definite term, it appears Texas courts will recognize the validity of indefinite term oral "for cause" agreements, so long as there is a "definite, stated" intent to modify the at will relationship by the employer.(216) As mentioned above, the Texas Supreme Court, in Montgomery County Hospital District v. Brown, seemed to recognize the validity of such agreements, while admonishing that they must be "clear and specific."(217) There, the court held that an employer's assurances to its employee that she "would be able to keep [her] job . . . as long as [she] was doing [her] job and that [she] would not be fired unless there was a good reason or good cause to fire [her]" was insufficient to modify the at will relationship because there was no agreement on what "good cause" encompassed.(218) Interestingly, the court did not overrule any prior cases interpreting for cause oral agreements--instead only disapproving of three "satisfaction" cases where the court "did not consider whether the statements made were definite enough to constitute an enforceable contract."(219) If anything, this case appears to interpose a new requirement that there be an agreement between the parties as to the meaning and scope of "cause." At least one court has interpreted it this way, holding that an oral promise that an employee "would only be fired for good cause" did not modify the at will relationship because "there [was] no evidence in the record of an agreement on what 'good cause' encompasses."(220) However, despite this language in Brown, employers should be cautious relying upon this new "requirement" until there is more guidance from the court on what it means. Requiring an express agreement, in addition to the one to terminate only for cause, that sets out exactly what "cause" is, would have the drastic effect of overruling almost every case in Texas history interpreting all (at least oral) for cause agreements, including those based on terms of years and the English Rule. The opinion just does not seem to indicate that the court intended this drastic result. More likely, the court would approve of other evidence indicating that the parties had some common understanding of the meaning of cause.
Oral "satisfaction contracts" have traditionally been treated much the same way as for cause agreements, with courts finding oral promises to employ employees for so long as their work is "satisfactory" sufficient to modify the at will relationship by creating an obligation to only terminate for genuine dissatisfaction.(221) However, as with for cause agreements, the Texas Supreme Court has cast uncertainty in this area with its decision in Brown, where it stated that "[g]eneral comments that an employee will not be discharged as long as his work is satisfactory do not in themselves manifest" an intent to be "bound not to terminate the employee except under clearly specified circumstances."(222) The court then disapproved of three lower court cases(223) upholding the validity of oral satisfaction contracts "[t]o the extent [they could be read] . . . to reach a result contrary to our holding here," because they "did not consider whether the statements made were definite enough to constitute an enforceable contract."(224) The Amarillo Court of Appeals, in Welch v. Doss Aviation, Inc., relied on Brown when holding that statements to an employee that he was "hired for life, as long as I performed my duties in a satisfactory manner" and that "the Employee Handbook contained all the employee's [sic] rights and limitations, and to follow it with strict adherence" were not sufficient to modify the at will doctrine.(225) Other courts will likely follow and hold that the use of the word "satisfaction" in an oral agreement is not enough, absent other evidence of intent, to modify the at will relationship. Here again, the question remains exactly what types of oral satisfaction agreements will show an employer's "definite intent to be bound not to terminate . . . except under clearly specified circumstances."(226)
One thing the Brown court did make clear is that these types of indefinite term for cause and satisfaction agreements generally do not fall within the statute of frauds because an "employment contract for an indefinite term is considered performable in one year."(227) The court indicated that there would have to be some other evidence that the parties' intended the relationship to last for a definite term that exceeded a year, or the statute would never be applicable to these types of agreements.(228) Courts are free to use "any reasonably clear method of ascertaining the intended length of performance . . . at the time of contracting."(229) Thus, determining the applicability of the statute of frauds to oral satisfaction contracts will almost always require a case by case inquiry as to intent. Employers seeking to assert the statute of frauds as a defense should make sure the record contains adequate evidence of this intent when it exists.
Another common area of litigation based on oral employment contracts is for promises to employ for the employee's lifetime or until the employee's retirement.(230) Courts seem willing to recognize the validity of these contracts, and instead focus their analysis on whether the statute of frauds precludes enforcement, reaching different results depending on the facts of the particular case.(231) Generally, a promise of lifetime employment falls squarely within the category of contracts "performable" within one year, because, by the very nature of these agreements, the obligation to perform is tied directly to the death of one of the parties, which can always occur within one year of making a contract.(232) Thus, death is not a contingency that may terminate the contract--rather, the death of the employee would necessarily complete the employer's performance under the contract. Consequently, some courts simply hold that a lifetime oral employment agreement is outside the statute of frauds. This is the approach taken in Young v. Ward, where the Waco Court of Appeals held that an oral agreement to pay an employee $2,000 per month for the rest of the employee's life was not barred by the statute of frauds.(233) The court, after conducting an exhaustive analysis of case law interpreting the statute of frauds, concluded that the contract was "one of an indefinite duration . . . [that] could have been fully performed within one year of its making" because the employee "could have died anytime after he ceased working for" his employer.(234) The court correctly recognized that death within a year would amount to performance, not termination, because the employee's "death was intended by the parties to be the defining event which would determine when the agreement was fully performed."(235)
In contrast, several other courts have looked to the parties' intent and "the nature of the performance expected" in lifetime agreements and concluded that they were barred by the statute.(236) For example, in Royle v. Tyler Pipe Industries, Inc., the Tyler court of appeals applied these factors to conclude that "when an oral contract for lifetime employment is made, the understanding and intention of the parties is for the term of such a contract to last beyond one year."(237) Whether this is correct under a proper reading of the statute or not, many courts follow this same reasoning to hold that parties' expectations in a lifetime employment agreement are that the performance will not take place within a year and thus are unenforceable.(238)
Oral contracts promising employment until retirement likewise usually fall within the statute, mainly because the retirement date is usually ascertainable.(239) For example, the Texas Supreme Court in Schroeder v. Texas Iron Works, Inc. held a promise to be unenforceable because the employee's own testimony established that he did not intend to retire for another eight to ten years.(240) Most courts, when looking to the parties' intent, reach this same result and hold that the statute of frauds governs promises of employment until retirement.(241)
Finally, employees have met with success arguing that oral agreements to not discharge an employee for a specific act are enforceable.(242) These actions are usually successful because there is not uncertainty about the specificity of the agreement. For example, in Miksch v. Exxon Corp., an Exxon employee was discharged because her husband operated a Chevron station, which violated Exxon's conflicts policy.(243) She sued for wrongful discharged, based upon oral assurances she had received indicating that her husband's operation of the other shop "would not be a problem at all."(244) The court explained that this case was distinguishable from Brown, where the court was concerned with the specificity of agreements, because the employer's statement here did not "contain ambiguous terminology or require one to speculate as to the parameters of the parties' purported agreement."(245) These types of agreements are likewise outside the statute of frauds because an agreement not to discharge for a particular act can always be performed within one year.(246)
As illustrated by the preceding sections, Texas courts recognize contractual modifications to the at will employment doctrine in a variety of scenarios. While there appears to be a trend by the courts to look more to the parties' intentions and require clearer manifestation of an intent to modify the doctrine from the employer, employers should be aware of and heed the above guiding principles when drafting contracts and handbooks--and even when training managers--to prevent misunderstandings by employees that can be both detrimental to company morale and costly to defend.
III Statutory Limitations on the At Will Doctrine
In addition to the freedom that employers and employees have to contract around the at will doctrine, there are a number of legislatively created restrictions on a private employer's right to discharge its employees at will. This article does not attempt to identify all of these restrictions nor analyze any of them exhaustively. (As discussion on some of these individual statutes could fill treatises!) Rather, this section identifies some of the more relevant statutes that might affect employers in Texas, with a brief synopsis of the statutes content, to provide an overview and make employers aware of the rather random and scattered sources of legislative restrictions.
Many federal statutes are applicable to private employers and specifically limit their ability to terminate their employees at will. Employers are probably most familiar with Title VII of the Civil Rights Act of 1964, which prohibits certain discriminatory practices in employment.(247) Specifically, it prohibits discrimination based on "race, color, religion, sex or national origin."(248) Discriminatory practices under this section include refusing to hire, discharging, or "otherwise discriminating in compensation, terms, conditions, or privileges of employment."(249) Most employers are probably not aware that "discrimination" also includes limiting, segregating, or classifying employees or applicants for employment in a way that deprives, or would tend to deprive, the individual of "employment opportunities or otherwise adversely affect his status as an employee."(250) Finally, employers are prohibited from retaliating against an employee or applicant for opposing, reporting, or assisting in an investigation of violations of this prohibition against discriminatory practices.(251) The Age Discrimination Act extends these same protections to discrimination based on age(252) and the Americans with Disabilities Act likewise extends protection against discrimination based on disabilities.(253)
Other federal statutes prohibit employers from taking retaliatory actions in response to employees exercising various legal rights. These include statutory prohibitions on discrimination against employees for their military service,(254) partaking in jury duty,(255) participating in an Employee Retirement Income Security Program,(256) or membership or participation in a labor union.(257) The Family & Medical Leave Act also now grants protection to employees from adverse employment actions based on absenteeism when the leave is taken because the employee is ill or is needed to care for certain family members.(258)
There are also several Texas state statutes limiting an employer's right to terminate its employees at will. Many of these cover the same subject matter as the federal statutes.(259) For example, the Texas Commission on Human Rights Act,(260) mirrors Title VII and the federal Age Discrimination Act. Likewise, Texas law also protects employees from discrimination based on their participation in state military service,(261) serving on a jury,(262) and participation or membership in a union.(263)
In addition to these overlapping areas, Texas has several other statutes placing obligations on employers and prohibiting retaliation against employees for the exercise of certain acts. For example, Texas employers are required to allow employees to leave work to vote(264) or attend a political convention as a delegate.(265) In addition, it is a third degree felony for an employer to "subject or threaten[] to subject the voter to a loss or reduction of wages or another benefit of employment" in retaliation for voting a certain way or refusing to reveal how the voter voted.(266)
Other Texas statutes target specific occupations. For example, health care providers may not be required to participate, directly or indirectly, in an abortion procedure.(267) Physicians cannot be retaliated against for reporting other physicians who pose a threat to public welfare.(268) Nurses likewise cannot be retaliated against for reporting other nurses that pose risks to patients.(269) All hospital employees are protected against retaliation for reporting illegal acts to their supervisors.(270) Agricultural workers have the right to receive information about chemicals they work with and cannot be retaliated against for exercising this right, or for participating in an investigation of compliance or violations of regulations.(271) Nursing home employees cannot be retaliated against for reporting violations of the law.(272) Lastly, an employee cannot be coerced into dealing with certain persons, or be coerced into making purchases from a particular person or store by his employer.(273)
Finally, other unrelated protections include shielding employees from retaliation for filing a worker's compensation claim in good faith(274) and prohibiting mandatory HIV or AIDS testing except in very narrow circumstances.(275) Even the Family Code contains a provision prohibiting discrimination against someone subject to a child support withholding order.(276) Also worthy of mention here, although it deals specifically with public employees and is thus outside the scope of this article, is the Whistleblower Statute, which prohibits "adverse personnel action against, a public employee who in good faith reports a violation of law" by his public employer or another public employee to the proper law enforcement authorities.(277)
If nothing else, this hodgepodge of statutory protections should strike employers as curiously random. This is because these exceptions have largely evolved over time as a result of specific and narrow policy choices by the Legislature.(278) A more natural and orderly evolution of exceptions to the at will doctrine might be the result if the Texas Supreme Court were charged with (or charged itself with) the duty to evaluate the need for exceptions as cases came before it.(279) However, with only two exceptions, the Texas Supreme Court has left the Legislature to the task of making these policy decisions as it sees fit.(280) As Justice Doggett observed in his concurrence in Winters v. Houston Chronicle Publishing Co., this practice of deference can sometimes lead to disturbing results as the Legislature does not always respond to the courts' and public urging, or at least not in a timely way.(281)
Thus, employers should just be aware that there is a body of rather random, constantly evolving, legislative restrictions on the at will doctrine. Compliance with many of these statutes should be intuitive, as they only prohibit retaliatory conduct. However, particular close attention should be paid to provisions such as the Family & Medical Leave Act that actually place affirmative obligations on the employer.
IV. Judicial Limitations on the At Will Doctrine
In addition to the legislative modifications to the at will doctrine discussed above, there is a body of judicially created exceptions of which employers should be aware. This section identifies and explains the "public policy" exception created by the supreme court and the more common tort causes of actions that can affect an employer's right to discharge its employees at will.
In 1985, the Supreme Court of Texas created an exception to the at will employment doctrine. In Sabine Pilot Service, Inc. v. Hauck, the court held that "public policy, as expressed in the laws of this state and the United States which carry criminal penalties, requires a very narrow exception to the employment-at-will doctrine announced in East Line & R.R.R. Co. v. Scott."(282) This decision represented the first judicially created exception to the at will doctrine in its history.(283) And, to date, it remains the only one.
The plaintiff in Sabine was a deckhand.(284) One of his duties was to "pump the bilges of the boat on which he worked" into the water.(285) He alleged that he discovered that this was an illegal act, refused to perform it, and was discharged.(286) The only issue before the supreme court was whether a termination for failure to commit an illegal act stated a cause of action.(287) In holding that the employee stated a cause of action, the court carefully noted that the new "narrow exception covers only the discharge of an employee for the sole reason that the employee refused to perform an illegal act."(288)
One court of appeals has interpreted this decision to protect an employee who alleged that her termination was based upon her inquiry as to whether an act she was instructed to perform by her supervisors was legal.(289) In Johnston v. Del Mar Distributing, an employee was told to ship a semi-automatic weapon to a grocery store in a box labeled "fishing gear."(290) She contacted the Bureau of Alcohol Tobacco and Firearms to determine if shipping the gun in this manner was legal.(291) When her employer found out about the call, she was fired.(292) Her employer argued that Sabine Pilot was not applicable because the act she was asked to do was not illegal.(293) The Corpus Christi Court of Appeals rejected this argument, holding that "it is implicit that in order to refuse to do an illegal act, an employee must either know or suspect that the requested act is illegal."(294) However, the Fourteenth Court of Appeals in Houston strongly questioned this extension, characterizing it as outside of well-established Texas precedent and the supreme court's holding in Sabine.(295)
Other attempts to expand this "illegal activity" public policy exception have been rejected by courts.(296) For example, in Casas v. Wornick Co., an employee argued that she was fired because she "possessed information which could implicate [her employer] in criminal misconduct."(297) The court stated that even "if we take this information as true, Casas still has not stated a cause of action under Sabine Pilot."(298) Thus, it appears that the lower courts are inclined to heed the supreme court's admonishment in Sabine Pilot and restrict its application to situations where "the sole reason" for termination is the refusal to "perform an illegal act."(299)
There has been one other occasion where the Texas Supreme Court sought to create an exception to the at will doctrine on public policy grounds.(300) In McClendon v. Ingersoll-Rand Co., the court was faced with an employee who was terminated after nine years and eight months of service with his employer.(301) The employee alleged that the sole reason for his termination was that his employer wanted to avoid his pension vesting at the end of ten years of service.(302) The court held that "public policy favors the protection of integrity in pension plans and requires in this case an exception . . . [that] allows recovery when the plaintiff proves that the principal reason for his termination was the employer's desire to avoid contributing to or paying benefits" under the plan.(303) However, the United States Supreme Court reversed the decision, holding that the employee's claim was preempted by the Employee Retirement Income Security Act of 1974.(304) This case is still viewed as significant, though, as it shows a willingness by the court to create limited exceptions "when public policy interests are implicated."(305)
There is an area where the court has frequently been urged, but declined, to extend the public policy exception--"whistleblower" protection for private employees. In Winters v. Houston Chronicle Publishing Co.(306) and then again in Austin v. Healthtrust, Inc.-The Hospital Co.,(307) the supreme court rejected the opportunity to create a private employer whistleblower cause of action. The court's 1990 decision in Winters had created much speculation because, while the court rejected the employee's wrongful termination claim based on retaliation for reporting illegal activity, at the same time it foreshadowed a possible later change with the additional statement that it "decline[d to extend the exception] at this time on these facts."(308) However, in 1998, the court revisited the issue in Austin, stating that since "the Legislature has been so proactive in promulgating statutes that prohibit retaliation against whistleblowers in many areas of the private sector, we decline to recognize a common-law cause of action."(309)
It is difficult to predict how the supreme court will treat future claims premised on "public policy" interests because this is a source of tension between the Legislature and judiciary.(310) For example, as previously noted, the United States and Texas Legislatures have created statutory exceptions to the at will doctrine based on the notion that an employee should not have to choose between employment and violation of a stated "public policy."(311) The court in Austin placed great emphasis on the piecemeal retaliation and whistleblowing legislation that had been passed in Texas "[p]rior to Winters and in the eight years that followed."(312) In declining to create a new cause of action, the court explained that its "review of legislative action in the employment-at-will area leads us to conclude that it would be unwise for this Court to expand the common law because to do so would essentially eclipse more narrowly-crafted statutory whistleblower causes of action."(313) Thus, in the whistleblowing context, the court seems very cognizant of and deferential to the legislative decision to create statutes that protect specific classes of employees and provide "divergent remedies and varying procedural requirements" rather than a "one-size-fits-all" exception.(314)
There are many other sources of public policy that can be raised in a wrongful discharge suit.(315) In other jurisdictions, public policy causes of action have been recognized for retaliation for the exercise of a constitutional right,(316) refusal to violate a statute,(317) pursuing statutory rights,(318) performing an important public obligation,(319) private employee whistleblowing,(320) and complying with a code of ethics. (321) Also recognized are suits for outrageous discharges(322) and discharges contrary to public interest(323) or those inconsistent with a legislative scheme.(324) Based on the supreme court's historically conservative approach, it does not seem likely that it will venture into these other areas in creating common law exceptions to the at will doctrine based on public policy, absent compelling facts and a complete lack of action by the Legislature. The lower courts share this reluctance.(325) Thus, despite the courts' power to create exceptions in the area of public policy, employers' efforts are best spent ensuring compliance with the body of "public policy" legislation that has emerged in recent years rather than looking to the common law developments.(326)
Another judicially created concept frequently pleaded in wrongful discharge suits by discharged at will employees is "promissory estoppel."(327) Section 90(1) of the Restatement (Second) of Contracts provides: "A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise."(328) From this, the Supreme Court of Texas has articulated the requisites as "(1) a promise, (2) foreseeability of reliance thereon by the promisor, and (3) substantial reliance by the promisee to his detriment."(329)
Increasingly, this reliance-based doctrine is applied in employment disputes, although the courts have used different terminology to express the concept, such as "estoppel,"(330) "equitable estoppel"(331) and "detrimental reliance."(332) The Texas Supreme Court has recognized and applied the "equities" served by this doctrine for over a hundred years.(333) However, while the doctrine in theory is firmly rooted, the proper application and its scope in the employment context is not entirely clear.
There are two employment situations in which promissory estoppel is raised: (1) promises to employ, and (2) promises not to discharge.(334) Because the at will presumption does not attach until an employee is hired, this second situation is technically the only one with the potential to modify the at will doctrine.(335) However, because both situations are of importance to Texas employers, cases involving both situations are discussed here.
Where the confusion lies is in the application of this doctrine. Historically, because it arose from the "defensive doctrine of equitable estoppel," the use of promissory estoppel seemed to be restricted to defensive use. (i.e. it could only be asserted as an affirmative defense to estop the denial of a contractual duty).(336) In fact, the supreme court has characterized promissory estoppel as a "defensive" plea that "does not create a contract where none existed before."(337) Rather, the court explained, the doctrine "estops a promisor from denying the enforceability of the promise."(338) This language has been interpreted by some lower courts as restricting employees' use of the doctrine to a "defensive plea in confession and avoidance."(339) In contrast, there is a trend with some courts to recognize promissory estoppel as an independent cause of action, providing employees with an additional recognized ground for wrongful termination suits.(340) This split has yet to be resolved by the supreme court.
As a defensive doctrine, promissory estoppel is most often raised in cases where the employee asserts that an oral contract modifying the at will employment doctrine exists and, in response, the employer asserts that the claim is barred by the statute of frauds.(341) However, in Texas, the doctrine of promissory estoppel does not actually offer much protection to employees in this situation.(342) This is because the Texas Supreme Court has limited use of the doctrine to counter the statute of frauds to where there is an additional promise by the employer to reduce the employment contract to writing that is never fulfilled.(343) In other words, promissory estoppel cannot overcome a statute of frauds defense to the enforcement of the underlying promise--only to an additional agreement to reduce the agreement to writing.(344)
For example, in Collins v. Allied Pharmacy Management, Inc., several employees sued their employer for breach of contract.(345) The employer argued that the employees' claims were barred by the statute of frauds because the alleged "contracts," in the form of letters and stock agreements, did not specifically set forth the term of employment.(346) The court agreed, holding the writings were insufficient to satisfy the statute of frauds.(347) The employees then argued that the employer was "estopped from exercising their employment at will rights and from claiming the statute of frauds as a defense to their breach of contract claim."(348) The court rejected this argument, noting that "[w]hen seeking to estop the assertion of an otherwise valid statute of frauds defense, the promise relied upon must be to sign a written agreement which complies with the statute, or there must be substantial reliance upon a misrepresentation that the statute has been satisfied."(349) Because there was no evidence that the employer had made promises to further commit the agreements to writing, promissory estoppel could not bar the use of the statute of frauds defense.(350) This same result has been consistently reached by other Texas courts addressing the applicability of promissory estoppel to cases where the statute of frauds is pleaded as an affirmative defense by employers.(351)
Some courts limit the use of promissory estoppel to this defensive posture, refusing to recognize it as an independent affirmative cause of action.(352) Under this view, the employers' risk is narrow. The doctrine can only be asserted if there is an alleged oral contract modifying the at will employment doctrine, and (1) the agreement can be performed within one year, or (2) the promise to be enforced is an additional promise by the employer to reduce the employment contract to writing that is never fulfilled.(353) The Collins court limited the use of the doctrine in just this way, rejecting the view of other courts that promissory estoppel can be used as an independent cause of action.(354) Specifically, the court noted that promissory estoppel "is a shield, not a sword" and thus can only be used as "a defensive plea in confession in avoidance."(355) There is real practical significance to this approach for employer's involved in a wrongful discharge suit. Namely, in courts that limit the doctrine's use, the employer does not have the burden of negating promissory estoppel on a motion for summary judgment once the applicability of the statute of frauds has been established.(356)
In contrast, other Texas courts have recognized promissory estoppel as a separate cause of action that can be affirmatively asserted without implicating the statute of frauds.(357) Often, employees will plead this as an alternative to a breach of contract claim.(358) Perhaps the most far-reaching and most cited example of this affirmative use is Roberts v. Geosource Drilling Services, Inc..(359) In Roberts, a prospective at will employee sued Geosource, claiming he had quit his job in reliance on oral promises and a written contract promising him employment with Geosource.(360) Specifically, he alleged that Geosource enticed him to quit his job and then decided to hire someone else.(361) The court denied Geosource's motion for summary judgment, placing the burden of negating promissory estoppel on the employer.(362) Likewise, in Central Texas Micrographics v. Leal, a jury awarded an employee damages for breach of an oral contract to pay certain bonuses.(363) The court held that there was sufficient evidence to support an award of damages under promissory estoppel "as an alternative theory."(364) Even though this approach has been strongly criticized by some courts, employers should be aware that the acceptance of promissory estoppel as an independent cause of action is increasing.(365) Thus, when it is raised in a wrongful discharge suit, employers should always argue that the doctrine is only defensive and raise facts negating its application as a cause of action.(366)
An examination of Texas cases shows that, once promissory estoppel is pled (either offensively or defensively), an employee still has significant hurtles to overcome. At this point, it is the employee's burden to prove three elements: (1) that a promise was made, (2) that the employee's reliance on the promise was foreseeable, and (3) that there was substantial detrimental reliance by the employee.(367) All three of these elements can cause proof problems for an employee.
Showing that a "promise was made" is most difficult where promissory estoppel is limited to defensive use to overcome the statute of frauds. As previously noted, regardless of the existence of proof of the underlying promise the employee seeks to enforce, Texas courts require proof of either "a misrepresentation" by the employer to the effect that the statute of frauds has been complied with, or "an additional promise to reduce the first promise to writing . . . before promissory estoppel may apply."(368) As a practical matter, most of these cases are disposed of summarily because the employee simply lacks evidence of this type of promise.(369) In addition, even when the employee submits this type of proof, courts require surprisingly explicit evidence of the employer's intent. For example, in Gilmartin v. KVTV-Channel 13, the court rejected an employee's defensive use of this doctrine where the employer promised an employee that "a writing was not necessary and that a commitment to more than one year was 'doable.'"(370) Even though arguably the assertion that "a writing was not necessary" is a representation that the statute of frauds has been complied with, the court held that this was not a specific enough promise to "permit an estoppel cause[] of action."(371)
In contrast, courts generally accept employees' allegations "that a promise was made" without discussion in cases permitting the affirmative use of promissory estoppel as a cause of action, so long as the promise is reasonably clear.(372) Here, an employee must just provide evidence of the underlying promise on which the suit is premised--there is no requirement that an additional agreement be shown, as required with defensive use.(373) Consequently, in these cases the focus is generally on whether the employee has shown foreseeable and reasonable reliance on the promise.
Generally, courts analyze the "foreseeability" and "reasonable reliance" elements of promissory estoppel together, oftentimes skipping the foreseeability discussion if they do not find evidence of detrimental reliance.(374) However, looking to cases where the courts have found adequate proof of "foreseeability of reliance" shows that this element is generally satisfied when the employer has taken affirmative steps to induce action by the employee. For example, in Vida v. El Paso Employees' Federal Credit Union, an employee sued for breach of contract and promissory estoppel after being terminated for utilizing an internal grievance procedure, where her employer's handbook contained a provision stating that "[n]o employee shall be penalized for using the grievance procedure."(375) The court held that she alleged sufficient facts to support promissory estoppel as an alternative theory to breach of contract because the employer included this language in its handbook, "not merely foreseeing that its workers would rely upon it, but with the specific intent of encouraging use of this process rather than other external measures."(376) Likewise, in Central Texas Micrographics v. Leal, the court found evidence that the employee's reliance on an employer's promise of a bonus foreseeable, where the employer asked an employee to accept an employment contract at a lower salary than the employee would have otherwise earned, while promising to share the proceeds from the litigation on which the employee was working.(377) Here again, the employee's reliance was more than just foreseeable--the employer had taken affirmative action to induce the employee to accept a reduced salary.(378)
In both Vida and Leal, the courts held that the third element of promissory estoppel was also met--that the employees detrimentally relied upon the employers' promises.(379) However, many promissory estoppel cases fail when an employee cannot show detrimental reliance on the employer's promise.(380) These holdings are usually predicated on one of two things--lack of evidence that the employee actually relied,(381) or lack of a definite enough promise for any reliance to be reasonable.(382) Both of these basis are illustrated in Ryan v. Superior Oil Co., where thirty-nine terminated employees sued for breach of contract and promissory estoppel to recover accrued, but unpaid, vacation time.(383) The employees were subject to a "voluntary policy of compensating terminated employees for vacation time they had accrued but not used, so long as they were not terminated because of dishonesty."(384) They were actually terminated under a severance agreement, where they each received severance pay (exceeding their accrued vacation pay), in exchange for an signed agreement that the "settlement payments will constitute full and final satisfaction of Superior's compensation, benefit and other employment obligations to you."(385) The court noted that one employee was promised that he would still receive his vacation pay, with "details to be worked out later," but still concluded that "[n]one of the appellants can in good faith contend they would have refused the benefits of the severance package in order to receive less money for vacation time they had accrued but not used."(386) In other words, there was no evidence that they had relied on the promise of vacation pay, and, even if they had, it was not reasonable.
On a final note, one thing the Texas courts seem to be in agreement on is that it is never reasonable to rely on a promise of at will employment to establish a promissory estoppel claim.(387) Without a careful reading, the holding in Roberts v. Geosource Drilling Services, Inc. can cause confusion in this area.(388) In Roberts, the court allowed a perspective at will employee to proceed on his claim under promissory estoppel where the employer repudiated an employment offer after the employee had quit his current job in reliance on the defendant's offer.(389) The court stated that it was "no answer that the parties' written contract was for an employment-at-will, where the employer foreseeably and intentionally induce[d] the prospective employee to materially change his position to his expense and detriment."(390) However, other courts have either disagreed with Roberts altogether(391) or distinguished it by noting that the promise was a written one for future employment.(392) In other words the employer's promise which was breached just created a duty to employ, but not for a fixed duration.(393) When current at will employees are at issue, courts seem to agree that "[a] promise to provide employment which is subject to termination at any time or for any reason does not provide any assurances about the employer's future conduct, and does not provide a basis for detrimental reliance as a matter a law."(394)
In sum, employers should recognize that there is uncertainly in Texas over the use of promissory estoppel in employment disputes. The doctrine can modify the at will doctrine by subjecting an employer to liability based on promises made to employees upon which they rely to their detriment.(395) It is unclear whether the doctrine is properly restricted to use as an affirmative defense to bar an employer's reliance on the statute of frauds, or whether it is viable as an independent cause of action.(396) Until this is resolved by the Texas Supreme Court, employers involved in litigation should take care to always present facts to negate the elements of promissory estoppel.
Finally, there are several judicially created tort actions which restrict an employer's right to terminate an employee at will. Occasionally, tort actions alone are brought by employees who allege specific wrongful conduct by their employer. More often, several tort actions are brought along with a breach of contract or promissory estoppel action--a throw in the kitchen sink approach. The most commonly asserted actions are fraud, negligent misrepresentation, intentional infliction of emotional distress, and defamation. This section describes each of these actions with a brief discussion of relevant Texas case law.
Fraud is a common allegation in a wrongful discharge suit. The Texas Supreme Court has recognized the elements of fraud as (1) a false, material representation, (2) that was either known to be false when made or made without knowledge of its truth, (3) that was intended to be acted upon, (4) that was relied upon, and (5) that caused injury.(397) Courts generally reject fraud claims that are just an attempt to enforce an otherwise unenforceable alleged contractual obligation.(398) Specifically, courts will not allow an employee to circumvent the statute of frauds or the doctrine of at will employment by recasting a contract cause of action into a tort action.(399) However, fraud actions have been recognized and have been successful in employment suits where there are independent circumstances, aside from an alleged employment contract, that meet the elements set forth above.(400)
Traditionally, Texas courts have begun their inquiry into fraud actions by determining if the employee is actually asserting an action in contract or in tort.(401) This is because, regardless of the terms the claim is framed in, the "nature" of the action is what determines the allowable damages and applicability of certain defenses.(402) To distinguish between tort and contract actions, the supreme court, in DeLanney, directed courts to look to two things.(403) The first is the nature of the duty allegedly breached.(404) Contract duties arise under an agreement and tort duties arise under law.(405) Thus, if an employee seeks damages only for failure to abide by a contractual promise, "the claim sound[s] only in contract."(406) Second, the court examines "the nature of the plaintiff's loss."(407) Specifically, if the injury suffered "is only the economic loss to the subject of a contract itself the action sounds in contract alone."(408)
Applying these concepts, some lower courts have found employment fraud claims barred by the statute of frauds(409) or the employment at will doctrine(410) without ever reaching the merits of the claim. For example, in Leach v. Conoco, Inc., a husband and wife sued the husband's employer for promissory estoppel and fraud, alleging breach of an oral representation that the husband's transfer overseas would last at least four years.(411) They sought damages equivalent to the money they would have saved had the assignment lasted the full four years.(412) The court first noted that "[w]hen a plaintiff, in his claim asserting fraud, attempts to rely upon an allegedly fraudulent oral promise to enforce his principal employment contract, the statute of frauds is a defense to his fraud claims."(413) It then went on to analyze the nature of the claims and injury, concluding that the plaintiffs were really seeking "the benefit of [the husband's] bargain" under the alleged employment contract, rendering it unenforceable by the statute of frauds.(414) The court further noted that the husband "was an at-will employee since he did not allege an enforceable promise . . . that limited [his employer's] right" to discharge him at any time.(415) It explained that this provided an additional bar to the fraud claim because "[a]n 'at will' employee is barred from bringing a cause of action for fraud against his employer based upon the employer's decision to discharge the employee."(416)
However, the Texas Supreme Court in 1998 created some confusion in this area by holding that a "fraudulent inducement" claim can be brought in tort "irrespective of whether the fraudulent representations are later subsumed in a contract or whether the plaintiff only suffers an economic loss related to the subject matter of the contract."(417) In Formosa Plastics Corp. v. Presidio Engineers and Contractors, Inc., a contractor sued a project owner claiming that it was fraudulently induced into entering a low bid by misrepresentations in a bid package.(418) The project owner argued that the contractor's fraud claim was barred because the losses sought were "purely economic losses related to performance and the subject matter of the contract."(419) The court rejected this argument, holding that tort damages are available in fraud cases because "Texas law has long imposed a duty to abstain from inducing another to enter into a contract through the use of fraudulent misrepresentations."(420) Its decision was predicated on the recognition that there is an "independent legal duty, separate from the existence of the contract itself, [that] precludes the use of fraud to induce a binding agreement."(421)
What is left unclear by Formosa is whether a different analysis now applies that would allow employees to seek the "benefit of the bargain" of an alleged employment contract that would otherwise be barred by the statute of frauds by pleading it in tort. Here, although not stated specifically by the court, the difference between "fraudulent inducement" and "fraud" might be meaningful.(422) Technically, there is not really a difference. As one court explained: "Fraudulent inducement is a type of fraud claim that shares the same elements as a simple fraud claim."(423) In fact, in Formosa the court used the terms interchangeably, discussing the independent duty that precludes fraudulently inducing another to enter into a contract, and then eventually holding the contractor had a "viable fraud claim."(424) However, a close reading of the case shows that the court's focus was really in the additional "inducement" effect of the misrepresentations that caused the contractor to enter into the contract.(425) The court seemed to be more concerned with not foreclosing tort recovery for fraudulent inducement where the misrepresentations happen to additionally form some basis of the contract.(426) In other words, it is not clear that a suit for fraud, where the only complaint was fraudulent performance under the contract (with no fraudulent inducement to enter the contract), would be affected by the Formosa decision.(427) Unfortunately, lower courts' treatment of fraud claims following Formosa do not offer much guidance in resolving this confusion.
For example, in James v. Facciolla, the Texarkana Court of Appeals noted that Formosa is "applicable only to fraudulent inducement claims[,]" apparently recognizing fraud a