Proposed Restatement of Employment Law.

The Labor Law Group and Hastings College of Law just wrapped up a Conference on the Proposed Restatement of Employment Law. The Labor Law Group organized three working groups, one each on the three chapters of the proposed Restatement that are available in draft form. The working groups are Chapter 1, Existence of the Employment Relationship; Chapter 2, Employment Contracts Termination; Chapter 4, The Tort of Wrongful Discipline in Violation of Public Policy.

Two themes quickly emerged. First, substantively, there are parts of the proposed Restatement -- especially in the Comments -- that slant heavily toward employers, though there are parts of the proposed Restatement as well that are on the progressive side. Second, the scholarship behind the proposed Restatement is extraordinarily sloppy -- cases are mis-cited, facts are wrong, holdings are wrong, and cases do not support the propositions for which they are cited. For this reason alone, ALI should put a hold on the proposed Restatement until it can be cleaned up. The proposed Restatement, if passed in its present form, would be an embarrassment to the American Law Institute and would call into questions generally its commitment to accurate scholarship.

Thanks to Joe Grodin and Ken Dau-Schmidt for organizing the conference.

Richard Bales
Professor of Law
Associate Dean of Faculty Development
Salmon P. Chase College of Law, Northern Kentucky Univ.
E-Mail balesr@nku.edu

The Restatement as a whole purports to set forth a subset of the employment law rules and concepts that sound in common law tort and contract. Much has been said already about the scope and purpose of such a project. Scholars have questioned whether this material is ripe for restating, how a Restatement will affect development of the common law, what the underlying normative goals of the project are, and why the drafters have chosen to restate only particular areas of common law rather than the corpus of employment law jurisprudence.

Reviewing Chapter 2 in particular leads to a further set of questions about the goals of the draft with respect to contract law. While opinions differ about the purpose of a Restatement generally, one way to justify such a project is as a means of elucidating (or gently imposing) a unifying theory on what appears, as a result of the ad hoc and jurisdictionally specific nature of judicial decision-making, as a disjointed body of opinions. The law of employment contracts is arguably ripe for such an undertaking. In assessing parties’ rights and obligations, some courts, in some contexts, veer toward contract formalism, emphasizing issues of assent, consideration, and narrowly defined contract defenses. Other courts in the same contexts (or the same courts in different contexts) place greater emphasis on bargaining disparities, relational norms, and policy considerations, often bending contract rules to achieve larger goals. Thus, a Restatement of employment law could comprise a meaningful contribution to the field if it were to expose or suggest a governing theory of employment contracts.

This draft fails to achieve or even tackle that goal. A cursory examination of the Restatement’s proposed list of chapters reveals that the project reifies the fragmented nature of current law. Chapter 2 purports to cover the topic of termination; other contractual matters, such as covenants not to compete, agreements to arbitrate, and “compensation and other terms of employment” are spun off in different chapters. An effort to clarify or integrate employment contract law would take as its starting point contract concepts (formation, modification, remedies) rather than particular contract terms (dispute resolution procedures, grounds for termination, post-employment obligations). The latter subjects, including the notion of employment at will, would be treated as part and parcel of the question of how terms of employment relationships are set.

Instead, the draft’s organization reflects the balkanized approach to the use of contract principles exhibited in current employment jurisprudence. Not only does this preclude any possibility that the Restatement will unify existing law, it results in a document unable to account for how various contract terms and relational dynamics interact and influence one another . . . .
Thus, for instance, it is unlikely that the final version of this project will adequately grapple with the degree to which at-will termination enables the imposition of other adhesive terms of employment, such as covenants not to compete and agreements to arbitrate. At the same time, because the draft sanctions the current understanding of employment at will and the contractual “just cause” exceptions, other critical terms of termination (contractual issues such as severance, continuation of benefits, and notice of termination) are given short shrift.

Accepting the drafters’ choices with respect to the scope and insularity of Chapter 2, the sections themselves betray a troubling ambivalence toward the use of contract law as a framework for determining terms of employment. Whether and to what extent employment is a contract, as opposed to a status-based relationship, is a (if not the) primordial question of employment law. Certainly termination at will is currently deemed a contract “default” rule, and courts have used the language of contract law to create at-will exceptions. However there is good reason to question whether any job security terms (whether produced by default, imposed by form contract, or arising by implication) are indeed “contractual” under the current intent-based understanding of that term. In addition, contract is itself a mutable concept. Just as the emphasis in employment law has over the course of history fluctuated between public regulation and private ordering, so has contract theory moved somewhat cyclically through periods emphasizing contract formalities verses more relational notions of party liability.
A project that wrestled with such issues, providing guidance as to whether terms should be dictated by contract and, if so, what theory of contract law ought to govern (objective, intent-based, relational, etc.) would be a welcome supplement to the existing caselaw authority. However, the current draft conspicuously avoids this thicket. It accepts the at will “default” based on its prevalence among American jurisdictions rather than identifying any normative underpinning for the rule, and it goes on to formulate the exceptions to at will using interchangeably the rhetoric of contract formalism and more ambiguous language reminiscent of relational contract theory. Thus section 2.02 offers what appear to be primarily contract grounds for varying the job security terms of an employment relationship (although it uses inconsistent terminology: “agreement,” “binding promises,” etc.). At the same time, the section interposes a “policy statement made by the employer” as an equally sound basis for deviating from at will. Section 2.04, the more in depth section on employer policy statements, only muddies the water further, providing in its comments that a policy-based “employment agreement” may arise “under traditional contract principles” or “under the promissory estoppel doctrine,” and further that “even where the elements of an enforceable agreement …are not present… policy statement may be binding on the employer until properly modified or revoked.” This type of statement ensures that the Restatement will fail its first and arguably most modest goal of clarifying the law. It also perpetuates the legal uncertainty that has arisen with respect to whether “real” contract law (as opposed to a policy-influenced, context-specific version of those doctrines) applies to employment relationships.

This problem is more than academic. Absent a clear theory of the relationship between contract and employment, the Restatement cannot serve as a comprehensive or even useful account of how the law treats recurring factual problems. At times, the draft’s efforts to account for desired outcomes using mainstream contract terminology results in examples that are stilted and lacking in realism. Thus, in its illustrations to section 2.03, in an apparent effort to incorporate the “acceptance by performance” doctrine of contract law, the draft postulates that an employee might move from California to Florida as a result of an employer’s promise of a permanent position without verbally accepting the offer of employment. Not only does this hypothetical strain credulity, it is unclear why such a theory of liability must be preserved as part and parcel of the restatement project. (Mainstream contract law, meanwhile, has explicitly distanced itself from hinging results on the manner in which acceptance is effected.)
In other places, the Restatement seems to aspire to a more proscriptive recasting of the law, but falls short of the mark. Thus, in section 2.05 regarding the modification of policy manuals, it rejects the “separate consideration” rule, declaring the notion of contract modification factually inapposite, and instead endorses the use of a reasonable notice rule. Setting aside the merits of the particular rule the drafters select (which is clearly anti-worker in its effect), this move illustrates the ways in which a Restatement project could meaningfully enhance the understanding of employment contract law in an area where jurisdictions are divided. Yet the draft fails to adequately theorize its choice of rule, offering only a bare allusion to “administrative agency estoppel.” (It might, for instance, have achieved the same result by leveraging the arguable more relevant principle of contractual good faith.) Neither does the draft work through its implications in this specific factual context (How much notice is reasonable? Can the employer contract out of notice in its disclaimer?) or beyond (Might a reasonable notice requirement be imputed to other contexts in which employers unilaterally alter terms of employment change, for instance, requiring an incumbent worker to sign a noncompete?).

Finally, and perhaps most importantly, without a framework for understanding the role of contract in employment law, the draft fails to provide adequate guidance on the overarching issue of how contract documents intersect with other sources of liability. This is most notable in its cursory treatment of written disclaimers of contract liability. The draft’s only reference to disclaimers is in the context of employee handbooks, in which it suggests that such language should be read in the context of the employer’s polices and practices to determine whether the handbook in question is binding. This observation fails to appreciate the ubiquitous nature of such provisions (they are found in everything from offer letters to expense forms) or to acknowledge the adhesive quality of the written language. In bears noting that the enforceability of boilerplate terms, particularly those that disclaim obligations otherwise owed to the weaker party, is a key concern of contract law generally that has been widely explored in contract scholarship. Yet the draft reflects no meaningful consideration of the larger, recurring question of how written provisions of any kind should affect workers rights that would arise otherwise by implication (or based on oral statements), or to what extent such documents can be used to impose obligations beyond the verbally (or contextually) agreed upon terms. This represents a significant, indeed unforgivable, gap in the scope of the project.

-Rachel Arnow-Richman-
Email: rarnow@law.du.edu

Prof. Arnow-Richman teaches and publishes in the areas of employment law and contracts. She serves on the Executive Committees of the American Association of Law Schools Sections on Labor and Employment Law and Contracts and Commercial Law.