"High Stakes --
Many personnel problems start with not appreciating how very regulated the employment relationship is" by Richard S. Rosenberg

Routine personnel matters have the potential to become high stakes personal injury litigation with disastrous financial consequences for the firm and its owners. Indeed, hardly a week goes by without a report of a substantial settlement or jury award involving claims of workplace discrimination, sex harassment or wrongful termination. Law firms certainly have had their share of these cases. How is it that a firm's greatest asset (its people) is also the source of its greatest exposure and what can be done to minimize this risk?

At the root of the problem is the failure to appreciate that the employment relationship is one of the most regulated business relationships of all. Also, firms today operate in an increasingly litigious environment. Court and government agency statistics bears this out. Add to this mix a plaintiff's bar which is constantly pushing the liability envelope. Workplace surveys consistently reveal that institutional loyalty is at an all time low, and that employees (and our brethren at the Bar) are far less reticent to bring such claims. Employees are a lot more educated on these matters as well. Information about employee rights is just a mouse click away, and much of this information has to be posted by the firm or handed to employees at orientation.

Keeping up with all of the changes in employment law can be a full-time job. Many firms relegate this important task to the office manager or whoever oversees the firm's personnel matters. As many firms have found out the hard way, allowing under-trained people to preside over personnel transactions is asking for trouble. Law firms need to employ the same sophisticated human resources management techniques which corporate America is using to manage this risk. The first step is to understand the firm's vulnerabilities. Then, the firm must set a course to alleviate them.

Contract Claims. A good deal of the employment litigation against law firms is contract based, where the employee asserts that the firm failed to live up to a promise made at the time of hire (or later) on about job assignments, advancement and the like. This is especially prevalent with lateral hires, contract associates, non-equity partners and those who come into the firm with non-traditional arrangements. One obvious way to protect against such problems is to put all significant employment arrangements in writing. To many, this will seem like an unnecessary or even undesirable formality, especially if the parties have known one another and have developed a certain level of trust. Don't fall victim to this argument. The termination of an employment relationship is a highly charged emotional event closely resembling a divorce. In the matrimonial setting, it's easy to understand the enormous advantages of a written pre-nuptual agreement spelling out an orderly transition in the event of a split up. A written employment agreement specifying how and when the employment relationship can be ended, and the financial consequences of doing so, can be equally advantageous.

Since the vast majority of all employment arrangements are made orally, most firms rely on California's "at-will" doctrine to afford the protection they need. The at-will rule at Labor Code Section 2922 gives the firm the absolute right to terminate an employee for any reason, without having to meet a particular legal standard. However, two major exceptions to this rule weaken it considerably. The at-will rule does not apply if the employee can prove that there is a contract that restricts the firm's right to terminate. Foley v. Interactive Data Corp., 47 Cal.3d 654, 665 & 676-77 (1988). Nor will it apply if the reason for termination violates a fundamental public policy, such as those embodied in the federal and state employment laws, or if the employee is a victim of retaliation or a whistle blower. Foley, 47 Cal.3d at 665.

It is dangerous to assume that no contract exists simply because no formal agreement was signed. Even without a writing, the law allows a court to closely scrutinize the words and conduct of the parties in search of a binding oral or implied contract. Scott v. Pacific Gas & Electric Co., 11 Cal.4th 454, 465-66 (1998). Virtually every communication with or about the employee is fair game in the employee's effort to piece together a deal. E-mails, snail mail, official personnel documents and relevant oral communications can all serve as pivotal contractual building blocks. An implied agreement also can be created from a favorable employment record. Foley, 47 Cal.3d at 680.

An especially dangerous fact pattern is where the employee left a well paying secure job to join the firm. The more the employee gave up in terms of secure employment, career path, and compensation, the stronger the implication that binding assurances must have been made to entice the employee to join the firm. Adding a relocation to the mix only makes things worse, especially where the employee's spouse left a good job and the family was uprooted. California law allows the employee to recover double personal injury damages where the employee can prove that a misrepresentation about the job caused the employee to relocate. Labor Code Section 970. A lawsuit for fraud in the inducement is possible in this scenario as well. Lazar v. Superior Court, 12 Cal.44th 631 (1996).

Most exposure to unintended contracts is preventable. The first thing the firm should do is bring in a labor law expert to teach the firm's partners and other people managers about the types of communications which unwittingly convert at-will employment to one which can be ended only with good cause. These people also need training about how every day behavior and common personnel actions create legally enforceable "contractual" expectations.

Next, be sure the firm's at-will policy is in writing and that employees acknowledge their awareness of the policy in writing as well. At-will disclaimers also should clearly state that no one in the firm may alter the firm's at-will policy unless it is in a writing signed by a designated individual. State-of-the-art at-will disclaimers go a long way toward protecting the firm from managerial communication gaffes. Many firms routinely require employees to periodically reaffirm at-will status. Conspicuously placed at-will policy statements should appear in the employee handbook (this alone is a good reason to have one), on the employment application form, and in every employment offer letter. Also, consider putting the at-will policy in retirement plan descriptions so participants are not implicitly guaranteed employment until retirement age.

Public Policy. Under no circumstance can a firm's at-will policy save a termination which violates the law. For example, it is never legal to terminate an employee on account of age, race, or some other basis protected by law. Nor can a firm rely solely on the at-will rule to terminate an employee out on extended medical leave or the employee who reveals that she is pregnant and will need several months maternity leave.

The at-will rule won't be of any help either where an employee is fired for refusing to engage in an illegal act or for refusing to cover up the illegal or unethical act of another. Gartt v. Sentry Ins., 1 Cal.4th 1083, 1090 (1992). For example, news reports have surfaced recently about firms with questionable billing practices and other ethical lapses. It is very risky to ask employees to participate in such behavior. Wrongful termination law is very protective of employees in this situation. They can refuse and take refuge in a so-called "public policy" wrongful termination suit, if fired. Or, they can quit and sue for the full array of personal injury damages, including punitive damages, claiming a so-called constructive termination i.e. the working conditions were intolerable. Typically, the firm's business tactics and strategies become the centerpiece of the trial. This often has even more disastrous consequences than the underlying termination claim.

It is risky for the firm to rely solely on its people managers' intuition when carrying out personnel transactions because so many of the employment laws are counter intuitive. The only truly effective way to prevent these situations from occurring is to offer them training on how every day decisions are impacted by federal and state law. At the same time, the firm should consider implementing a policy which encourages the firm's employees to report troublesome matters through a hotline or some other confidential reporting mechanism. Many firms have been ambushed by a former employee's claim of illegal conduct which never would have been tolerated by senior management. These can be very expensive surprises.

Sex Harassment. Statistics reveal that more of these cases are filed in California than elsewhere, and that the majority of the filings with the state's job bias agency are sex harassment claims. The law requires the firm to take effective (provable) action to prevent sex harassment from occurring in the first place. Cal. Gov't Code Section 12940(i); Weeks v. Baker & McKenzie, 63 Cal.App.4th 1128, 1146 (1998). The current state of the law holds the firm strictly liable for the acts of its supervisory employees, even if the firm didn't know of or sanction the behavior. Cal.Gov't Code Section 12940(h)(i); Kelly-Zurian v. Wohl Shoe Co., 22 Cal.App.4th 397, 415-416 (1994). Further, all employees and new hires must be given a state mandated pamphlet which tells employees about sex harassment and how to sue for it when it occurs. As a preventive measure, every people manager in the firm ought to be given the same information and trained on where the lines are, both in terms of the law and firm policy. Employees should receive training as well on precisely what to do about such behavior if they encounter it and how such matters will be handled. Ambiguity on the part of the firm in this area can mean trouble later on.

Despite pervasive advances in virtually every aspect of law firm administration, it remains the case that decisions in the employment arena are often carried out by people who are ill-equipped to do so. A preventive program which includes state of the art policy development, management training, and an effective internal problem solving program will go a long way toward creating a positive labor relations environment and reducing the firm's exposure to these cases.

Richard S. Rosenberg is a partner in Ballard, Rosenberg &Golper in Universal City.