Wimberly & Lawson, Attorneys at Law - WimLa to apply the applicable statutory rules of construction, and to determine the existence or nonexistence of an ambiguity in a contract. As

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Wimberly & Lawson, Attorneys at LawGEORGIA EMPLOYMENT LAW3rd Edition- James W. Wimberly, Jr.

© 2000 The Harrison Company © 2005 Wimberly & Lawson P.C. All Rights Reserved

TABLE OF CONTENTS

CHAPTER 1: EMPLOYERS, EMPLOYEES, AGENTS, AND INDEPENDENT CONTRACTORS

A. Creation and nature of the employment relationship

1-1 The employment relationship1-2 The employment contract1-3 Independent contractors1-4 Joint employers and dual agency1-5 Interstate employment, choice of law

B. Duration and termination of the employment relationship

1-6 Term of employment1-7 Grounds for termination of the

relationship1-8 Discharge, resignation, and

constructive discharge1-9 Wrongful discharge in Georgia1-10 Tortious discharge and public policy

exceptions1-11 Separation pay, lost wages, accrued

benefits, and pension rights

CHAPTER 2: CONTRACTS OF EMPLOYMENTCHAPTER 3: EMPLOYEE COMPENSATION

AND BENEFITSCHAPTER 4: ORGANIZATION OF

EMPLOYEESCHAPTER 5: TERMS AND CONDITIONS OF

EMPLOYMENTCHAPTER 6: UNEMPLOYMENT

COMPENSATION IN GEORGIACHAPTER 7: DISCRIMINATION IN

EMPLOYMENTCHAPTER 8: DISPUTE RESOLUTIONCHAPTER 9: STATE REGULATIONCHAPTER 10: COMMON LAW TORTS

ASSOCIATED WITH EMPLOYMENT

CHAPTER 1: EMPLOYERS, EMPLOYEES, AGENTS AND INDEPENDENT CONTRACTORS

CREATION AND NATURE OF THE EMPLOYMENT RELATIONSHIP

1-1 THE EMPLOYMENT RELATIONSHIP

Most employment laws are based upon the existence of an employment relationship, as opposed to that of an independent

Written by the firm’s senior partner, this 450+ page treatise is considered the au-thoritative work on Georgia’s labor and employment laws and cases. New and updated for 2000, it includes not only those topics traditionally covered by an employment law treatise, such as compensation and benefits, organization of employees, and terms and conditions of employment, but also the developing areas of employees searches and surveillance, negligent hiring and retention, medical information, selection procedures, polygraph and truth verification, drug testing, AIDS confidentiality, and affirmative ac-tion in Georgia.

For the benefit of our website viewers, we have posted the first chapter (footnotes omit-ted) from this publication. You may link to the posted sections of the document by click-ing on the highlighted sections of the below table of contents. To order a full copy of this publication call 404-365-0900..

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contractor relationship. In addition, which type relationship is applicable can often have repercussions in the nonemployment context. To make matters even more confusing, sometimes an employment relationship is found under one statute, but not under another.

The Georgia Supreme Court has adopted an extremely broad definition of the employment relationship. Although each judicial analysis of `èmployment’’ depends upon the particular facts presented, some general guidelines are set out in decisional law. Noting that the dictionary definition of `èmployee’’ is `òne who is employed,’’ the court held in Georgia Iron & Coal Co. v. Ocean Accident & Guarantee Corp. that a convict was an `èmployee’’ since voluntariness of labor is not an element of the legal definition of the term.

There is some basis for confusion of the terms `èmployer,’’ `èmployee’’ and `èmployment’’ because a number of statutory definitions can be found which are not entirely consistent. Even so, however, an effort has been made to avoid such conflict. For example, it has been held that O.C.G.A. § 10-6-61 (GCA § 4-312) and § 51-2-2 (GCA § 105-108) ``must be construed together and harmonized’’; there should be no ``distinction between the relationships of principal and agent and that of master and servant, so as to make different rules of liability apply.’’ The Planters Cotton-Oil rule illustrates the interplay of several different statutes which, although not codified as ``master and servant’’ laws, nonetheless bear upon the employment relationship.

For purposes of workers’ compensation liability and the resulting immunity from liability in tort, the definition of `èmployer’’ may differ. In fact, there is a so-called statutory employer provision making a principal or intermediate contractor or a subcontractor liable, to the same extent as the immediate employer, for compensating any employee of a subcontractor injured while engaged upon the subject matter of the contract. This provision provides workers’ compensation benefits to an injured employee, notwithstanding the fact that no common law master-servant relationship or contract of employment exists between the injured employee and the person providing the benefits. It should therefore be assumed, for purposes of legal analysis, that the terms `èmployee,’’ ``servant’’ and `àgent,’’ when encountered in the employment context, are interchangeable as are the terms ``master,’’ `èmployer’’ and ``principal’’ in that context. The word ``servant’’ is not restricted to domestic servants; any employee is a ``servant’’ from the viewpoint of the law. Not all `àgents’’ are employees, however, nor are all ``principals’’ `èmployers’’ of their agents.

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A master or employer is `à principal who employs another to perform service in his affairs and who controls or has the right to control physical conduct of the other in performance of the service.’’ Therefore, an employment relationship exists where a contract gives, or the employer assumes, the right to control the time, manner and method of executing the work, as distinguished from the right merely to require certain definite results in conformity to the control. Note that it is the right to control, rather than the exercise of that right, which satisfies the test of employment; a failure to exercise control does not dissolve the employment relationship, for to allow the employer to escape responsibility by inaction or neglect could easily lead to results contrary to public policy. This element of control is, say the courts, the ``main consideration’’ in determining whether an employment relationship exists. An interest in results only does not indicate control; an interest in the details of how the work is performed creates an inference of control. Even so, the right to control must be complete, extending to all details of the work to be performed, in order to find that the employer-employee status has been created.

Although the right of control is the most crucial component of the employment test, other indicia of that relationship include contract and compensation. A contract -- written, oral, implied in fact, or implied in law -- is a requirement for a finding of employment, and the relationship gives rise to a right to compensation, even though such compensation may not be in the form of money.

1-2 THE EMPLOYMENT CONTRACT

As stated in section 1-1, supra, the employment relationship is a contractual one. No physical document is required as evidence of such relationship; however, the contract may be written, oral, implied in fact, or implied in law. While more extensive discussion of this subject is found in Chapter 2, infra, the basic elements of an employment contract are a designation of the employee’s place of employment, the period for which he is employed, the nature of the services he is to render, and the compensation he is to receive. All these elements must be capable of establishment with sufficient definiteness to enable one to ascertain the intent of the parties; if any portion of the proposed terms of an employment contract is not settled or no mode is agreed upon by which it may be settled, there is no agreement. If the employment contract is written, it, like any other contract of adhesion, is to be liberally construed in favor of the party who did not draft it.

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Additionally, employment contracts are to be construed in such a way that impossibility of performance is to be avoided wherever possible.

Every valid contract of employment requires at least two parties, the employer and the employee. Other aspects of the employment contract correspond to general contract principles: ``To constitute a valid contract, there must be parties able to contract, a consideration moving to the contract, the assent of the parties to the terms of the contract, and a subject matter upon which the contract can operate.’’ The terms ``contract’’ and `àgreement’’ are interchangeable, so that every agreement or promise enforceable by law is a contract. And, as the Code further states, `À contract is an agreement between two or more parties for the doing or not doing of some specified thing.’’

It is normally for the trial court, not the jury, to interpret an employment contract, to apply the applicable statutory rules of construction, and to determine the existence or nonexistence of an ambiguity in a contract. As stated in Shannon v. Huntley’s Jiffy Stores:

[w]here no matter of fact is involved, the construction of a plain and definite contract, if needed, is a matter of law for the court; a contract is not ambiguous, even though difficult to construe, unless and until an application of the pertinent rules of interpretation leaves it uncertain as to which of two or more permissible meanings represents the true intention of the parties.

TEIf the trial court finds that the contract at issue remains ambiguous, even after application of the statutory rules of construction, the court may instruct the jury that the contract is ambiguous and that resolution of that ambiguity requires consideration of evidence outside the four corners of the contract.

1-3 INDEPENDENT CONTRACTORS

The right to direct and control the manner in which the work is performed determines the relationship of the parties. An employee is subject to the control of the master; an independent contractor is not subject to the control of the employer. While the test for independent contractor status has been stated in various ways, under Georgia law, the most common expression is that found in Blair v. Smith:

[T]he test to be applied in determining whether the relationship of the

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parties under a contract for the performance of labor is that of employer and servant, or that of employer and independent contractor, lies in whether the contract gives, or the employer assumes, the right to control the time, manner, and method of executing the work, as distinguished from the right merely to require certain definite results in conformity to the contract.

As previously stated, it is not necessary that the employer has in fact controlled and directed the employee in the work, but instead whether the employer has such a right; if that right of control exists, the relationship is that of master and servant rather than employer and independent contractor.

In Moss v. Central of Georgia Railroad Co., the court detailed the factors to be considered in determining whether one acting for another is an independent contractor or an employee: (1) the extent of the control which the employer may exercise; (2) whether the one employed is engaged in a distinct occupation; (3) whether the work to be performed is usually done under the direction of the employer or by a specialist without supervision; (4) the skill required in the occupation; (5) whether the employer supplies the tools and the place of work; (6) the length of time for which the employment lasts; (7) the method of payment; (8) whether the work is part of the employer’s regular business; (9) whether the parties believe they are creating an agency relationship; and (10) whether the employer is in business.

Nonetheless, if the agreement between the parties is embodied in a written document, it is presumed that the denomination of the individual employed as an independent contractor is true unless the evidence shows to the contrary. Indeed, there is some law to the effect that where it appears a specific contract is to do a certain piece of work according to specifications for a stipulated sum, it is inferable that the right of control was not retained and that in fact a contractual relationship existed. Of course, designation of one who is clearly an employee as an `ìndependent contractor’’ does not destroy the right of control which actually exists. Evidence of an assumption of the right of control, even in the face of contractual language to the contrary, will usually suffice to show that a master-servant relationship exists. But the mere fact that the employer continually checks the work to see that it is being done according to specifications is consistent with the relationship of employer and independent contractor and will not, standing alone, serve to destroy the inference of independent contractor status. Likewise, retention of the right to change plans or specifications does not render the person employed an `èmployee’’ so long as no control or right to control the time or manner of performance of the work is retained. Similarly, the

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right to dispense with the independent contractor’s services if, during the performance of the job, it appears that he either was incapable or unwilling to do the job according to the plan and specifications, is not inconsistent with the existence of the independent contractor relationship. The argument has also been rejected that the fact that the purported employer purchased liability and workers’ compensation insurance on the purported employees, standing alone, was sufficient to show an employer-servant rather than an employer and independent contractor relationship.

Because of the factual nature of the inquiry required, it is possible for the same individual to be both a servant and an independent contractor with respect to his employer. In such cases, the court does not determine the specific relationship in every phase of the employment activity, but only looks to the employment relationship existing at the time of the event or action in question. Failure of the employer to take some action which would render the contract enforceable does not make the relationship between the parties one of master and servant.

A few specific examples may serve to illustrate the difference between the master-servant relationship and that of employer and independent contractor: A truck owner, who contracted to haul gravel to a company’s place of business and who employed a truck driver and directed how and in what manner the gravel would be delivered to the company, was an independent contractor, where the company would only tell the truck owner how much gravel was to be hauled and where it was to be unloaded. Where the owner of an automobile delivers it to a mechanic for the purpose of repair and surrenders the entire control of it to the mechanic, the mechanic is an independent contractor. District sales managers who were allowed to deal with other manufacturers’ products and who could act and engage employees as they saw fit, were independent contractors even though they were carried on the manufacturer’s payroll as `èmployees,’’ since the only requirements of the relationship were that the district sales managers produce a satisfactory volume and maintain good reputations. A general contractor for an apartment construction project contracted with a subcontractor to install a commercial septic tank for a specified sum. While the subcontract was being performed, the general contractor directed the subcontractor as to what portions were to be completed first and required him to procure additional equipment and men to complete the job in a timely fashion. Materials were purchased by and in the name of the general contractor and charged to his account, although paid for by the subcontractor. The subcontractor was held to be an employee of the general contractor on the basis that the exercise of control by the

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general contractor was sufficient.

It can therefore be seen that requiring definite results does not connote an employer-employee relationship, but the right to or an assumption of control over the time, manner, and method of executing the work evidences a master-servant status. It has therefore been said that an independent contractor renders service that represents the will of his employer only as to the result of the work and not as to the means by which the work is accomplished.

Although the foregoing discussion sets out the type of analysis which is performed by the courts, it should be obvious that each determination hinges upon the peculiar facts of each case. Therefore, if more than one inference may fairly be drawn from the evidence, the issue is a jury question.

1-4 JOINT EMPLOYERS AND DUAL AGENCY

Under certain circumstances, the courts have recognized that one may be a servant of two masters and subject to the demands of both or either. The joint employment relationship has been applied under federal law in a wide variety of contexts. A pure joint employment relationship is, however, not as prevalent as is the situation involved in the ``borrowed servant’’ doctrine. Under the borrowed servant doctrine a servant may be the general servant of one employer and a special servant of a person to whom he is loaned for a particular mission. To determine that one is a loaned servant, it must be found that the special master has complete control and direction over the servant for the occasion, the general master must have no such control, and the special master must have the exclusive right to discharge the servant, put another in his place, or put him to other work. However, this assessment of relative rights must be conducted in the context of the service for which the servant is loaned. Any of the elements of the borrowed servant test apply solely to rights and controls as to the particular matter or occasion involved. In other words, the test is whether the special master has complete control and direction of the servant for the occasion for which he is retained. These principles are, of course, entirely consistent with the ``right of control’’ analysis discussed above; it is the action or omission which is the subject matter of the dispute or analysis which is the starting point for a determination of which party is ultimately responsible for the act or omission.

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1-5 INTERSTATE EMPLOYMENT, CHOICE OF LAW

After deciding to take a case, one of the first decisions a plaintiff’s counsel must make is the court in which to sue. Among other factors, a plaintiff’s counsel might consider the substantive and procedural law to be applied, the reputation of the court or judge, the relative fairness and sophistication of juries, the average size of awards, the reach of the subpoenas and other discovery procedures, case back logs, and other such factors. While the overwhelming number of state claims are filed in state court, under many circumstances, a federal forum is available. A federal forum might be available under the doctrines of diversity jurisdiction in which the plaintiff may sue the employer in federal court if the employer is not a citizen of the same state as the employee, or supplemental jurisdiction in which a state claim is appended to a federal claim.

In asserting the claim, plaintiff’s counsel should be aware that federal preemption doctrines, under which certain state law claims may be preempted by appropriate federal remedies, are available. This issue is discussed in another section.

The choice of state law in a case can be quite critical as exemplified by the case of Thomason v. Mitsubishi Electric Sales America, Inc. In this case, the plaintiff, who worked for a Delaware corporation with headquarters in California, was fired from his position as regional sales manager for Atlanta, allegedly because of dissatisfaction with his performance. He first brought suit in a federal district court in Georgia seeking damages for anti-trust violations under the Sherman and Clayton Acts, and for wrongful discharge and breach of contract. The employer sought dismissal for various grounds including the failure to state a claim under Georgia law and lack of personal jurisdiction over certain California defendants. The plaintiff then voluntarily dismissed his complaint without prejudice and filed suit in a federal district court in California alleging similar claims, but also adding a breach of the covenant of good faith and fair dealing, and intentional infliction of emotional distress. The defendants moved to transfer the action to Georgia based on improper venue pursuant to 28 U. S. C. § 1406(a) or under the doctrine of forum non conveniens pursuant to 28 U. S. C. § 1404(a). The California district court granted the defendants’ motion to transfer the case to the Northern District of Georgia under 28 U. S. C. § 1404(a), and the defendants promptly filed a motion to dismiss plaintiff’s claims of wrongful discharge, breach of the covenant of good faith and fair dealing, and intentional infliction of emotional distress. The defendants claimed that under California choice of law rules,

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Georgia law governed the claims. Because Georgia law refuses to recognize tort or contract claims for wrongful termination, the defendants contended that many of the plaintiff’s claims must be dismissed.

The issue of which state law was applicable was a critical one inasmuch as if California law applied, the plaintiff stated a cause of action, whereas under Georgia law, ``[a]n indefinite hiring may be terminated at will by either party.’’

The Georgia federal district court, in determining the proper state law, applied the principles established for diversity cases under which a federal court applies the state law of the courts in the state were it is located. Because the case was transferred to a more convenient forum, however, the court deemed itself obligated to apply the state law that would have applied absent the change in venue. The court therefore determined the applicable law under California choice of law rules, utilizing a ``governmental interest’’ approach to choice of law problems. The court found that Georgia’s interest would be most impaired by failure to impose its law, particularly since Georgia law governed the employer’s conduct within the State of Georgia. The court concluded that a failure to apply Georgia law concerning wrongful termination would therefore produce an unprincipled exception to Georgia’s ability to govern the affairs of foreign corporations operating within the state.

As the Thomason case illustrates, the choice of law of a state can determine the outcome of a wrongful discharge claim. Similarly, the choice of law can have critical consequences in cases involving covenants not to compete. Georgia courts have refused to enforce the noncompetition law of foreign states in Georgia, as applicable to conduct in Georgia, even if the law of a foreign jurisdiction was chosen by the parties for a contract to govern their contractual rights. The courts have indicated that the ``blue pencil’’ theory of the foreign state, as applied to restrictive covenants ancillary to employment contracts, contravenes Georgia policy and would not be applied by Georgia courts. However, in the absence of contrary public policy, Georgia courts will normally enforce a contractual choice of law provision, and the parties by contract may stipulate that the laws of another jurisdiction will govern the transaction. Similarly, forum selection clauses in contracts will be enforced unless enforcement is unreasonable under the circumstances.

In general, in contractual matters, the conflict rule of ``lex loci contractus’’ or the law of a state where the contract is entered into, governs the rights of the parties, at least as to the interpretation of the contract. There is also

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authority in Georgia that the determinative location is not where the contract is entered into or executed, but where the last act essential to its completion is located or where the contract is delivered as consummating the agreement. However, when a contract is made in one state and is to be performed in another state, the law of the latter state will govern as to the validity, nature, obligation and construction of the contract. If the parties contemplated, at the time of the making of the contract, that the contract would principally have effect in another state, that latter state’s law will apply.

DURATION AND TERMINATION OF THE EMPLOYMENT RELATIONSHIP

1-6 TERM OF EMPLOYMENT

`Ìf a contract of employment provides that wages are payable at a stipulated period, the presumption shall arise that the hiring is for such period, provided that, if anything else in the contract indicates that the hiring was for a longer term, the mere reservation of wages for a lesser time will not control. An indefinite hiring may be terminated at will by either party.’’

This statute really expresses two different legal principles. The first is that a weekly pay period in Georgia creates the legal presumption that the implied contract of the employment relationship runs from week to week, absent some evidence to the contrary. The second is the traditional common law definition of `èmployment at-will’’:

[I]n the absence of a controlling contract, permanent employment, employment for life, or employment until retirement is employment for an indefinite period, terminable at the will of either party, which gives rise to no cause of action against the employer for wrongful termination.

To put it another way, the at-will employee may be discharged ``with or without cause and regardless of . . . motives.’’ This principle, also accepted by federal courts applying Georgia law, does not allow for so-called ``public policy’’ exceptions.

In fact, the only significant exception to the `èmployment at-will’’ doctrine in this state applies where there is a contract, either express or implied, which would convert the relationship to one which falls within the first clause of O.C.G.A. § 34-7-1 (GCA § 66-101).

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The Georgia courts have strictly construed exceptions to the `èmployment at-will’’ principle, requiring that any alleged contract specify a period of employment. That is, even if an employer’s policy is considered as a contract, it is terminable at will unless it specifies a period of employment. Furthermore, the reference to the position’s annual salary is not sufficient to create a contract for one year. However, even if a person’s employment is not for any definite term, if an employer has agreed with an employee to provide notice of termination, the employer’s failure to give the requisite notice upon the election to terminate the employment may constitute an actionable breach of contract.

1-7 GROUNDS FOR TERMINATION OF THE RELATIONSHIP

As discussed above, absent some form of unlawful discrimination, an at-will employee may be fired for any reason. Moreover, contractual limitations on the right to discharge employees are generally construed strictly by the Georgia courts. For example, an employment contract for ``so long as satisfactory to the employer’’ may be terminated immediately when the employer, in his sole judgment, deems the services provided to be unsatisfactory. Similarly, under a contract of employment to continue at least three years if the employee proved ``competent and satisfactory,’’ the employee is subject to be discharged if the employer is dissatisfied, regardless of whether there are reasonable and sufficient grounds for such dissatisfaction. On the other hand, where a contract of employment exists stating that it shall run for a definite time period on condition that the employee’s conduct and services are satisfactory, making the employer ``the sole judge in reserving the right to terminate this contract upon thirty days’ notice at any time,’’ the employer is not authorized to terminate the contract merely because his financial interests made such an action necessary. Where the employment contract sets forth grounds for termination of the employee, there is authority that the employee need only substantially comply with such terms. With regard to notice requirements in an employment agreement, courts will consider the reasonable construction of the requirements and the notice provision’s purpose; distinguishing between provisions requiring notice of termination and those requiring notice of breach and giving the employee an opportunity to cure.

Some cases favor the position of the employee, in that the ``contractual right to discharge an employee without notice must be exercised in a legal way and without violating the personal rights enjoyed by every individual.’’

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In a 1990 decision, the contract between the parties provided that the employer might terminate the contract where, in its opinion, the employee did not meet its standards of professional ability, but contained an additional provision limiting the employer’s right to cancel the contract by assurance that due process had been granted to the employee. The court found that such contractual language did not obligate a private institution to provide the full panoply of due process protection which would be applicable to tax-supported institutions, but did require the employer to avoid subjecting the employee to arbitrary and capricious treatment and to afford the employee those procedures specifically provided by the contract.

Absent language in the contract which specifically negates inherent rights of management, there are a number of well-recognized circumstances which justify termination of the employment relationship. These include death of the master (where there is no ongoing business which is continued by some other person or entity), abandonment of employment by the employee, secretly engaging in business which renders him a competitor and rival of his employer, having one’s wages garnished an excessive number of times, mistakes in job performance, filing a bankruptcy petition, failure to obey orders, use of abusive language, acting in such a manner as to drive off customers, intoxication or intemperance, insubordination, using the employer’s time for the employee’s own purposes, failure to observe and follow the rules, regulations and instructions of the employer, failure to follow positive instructions from the employer, or conviction of a crime.

But where breach of contract is at issue, the employer must exercise good faith in connection with the discharge. For example, if the employer claims dissatisfaction with the employee’s services, it must appear that those services are in fact unsatisfactory. Competency, unless otherwise expressed, imports only ``reasonable skill,’’ so that failure to perform in an absolutely skillful manner furnishes no ground for discharge. A slight mistake, working no injury to the employer, is not a breach of contract. Refusal to perform services not provided for in the contract of employment will not justify a discharge. It is not a breach of contract to refuse to have one’s salary cut, nor is the contract breached if one has been employed to sell goods on credit, as well as for cash, but is later restricted to receiving cash orders only and refuses at that point to render further services.

The concept of ``good cause’’ for termination has been an elusive one to define. During 1991, the National Conference of Commissioners of Uniform State Laws drafted a model Employment Termination Act. The underlying

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compromise in the model Act is a tradeoff that grants ``good cause’’ discharge protection to covered employees in return for a sharp limitation on available remedies, including generally the elimination of all common law claims. The model Act provides that an employer may not terminate an at-will employee without just cause if the employee has been with the employer for at least one year, the termination is against public policy, or the termination is in retaliation for employees’ whistleblowing activities. ``Good cause’’ for a termination is defined to mean:

(i) A reasonable basis related to an individual employee for termination of the employee’s employment in view of relevant factors and circumstances, which may include the employee’s duties, responsibilities, conduct (on the job or otherwise), job performance and employment record; or

(ii) the exercise of business judgment and good faith by the employer, including setting its economic or institutional goals and determining methods to achieve those goals, organizing or reorganizing operations, discontinuing, consolidating, or divesting operations or positions or parts of operations or positions, determining the size of its workforce and the nature of the positions filled by its workforce, and determining and changing standards of performance for positions.

Although there is no statutory definition of ``good cause’’ in Georgia, the model Act’s definition of ``good cause’’ illustrates the difficulty of defining or applying the concept. The model Act permits agreements between employers and employees to set performance standards, and failure to meet these standards is good cause for termination. The standards are effective only if they have been consistently enforced, and have not been applied to a particular employee in a disparate manner without justification.

The duties between employee and employer depend upon the contract between them, but many of the above-discussed duties are not enumerated in the normal contract. Instead, these additional duties are deemed by the courts to be included in every contract of employment by implication, unless there is specific language to the contrary. Rights of the employee upon discharge are determined by the contract, by principles of equity, or by such evidence of past practice as may support the implication of contractual rights. Occasionally, cases are brought by the employer against the employee, alleging lost profits or other damages resulting from the employee’s alleged breach of the employment contract

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1-8 DISCHARGE, RESIGNATION AND CONSTRUCTIVE DISCHARGE

There are, of course, many ways to discharge an employee other than simply saying, ``You’re fired!’’ A material breach of the contract of employment by the employer constitutes a discharge, at least where the employee remains willing to perform his obligations under the contract, but is prevented from doing so by some act of the employer. In an age discrimination case, a federal court sitting in Georgia stated that a discharge from employment `òccurs where there are any acts or words which show a clear intention on the part of the employer to dispense with the services of the employee and which are the equivalent to a declaration that the services will no longer be accepted.’’ Under federal law, the fact that an employee has resigned does not mean that there has been no discharge, since the doctrine of constructive discharge recognizes that an employer may make working conditions so intolerable that the employee has no choice but to quit. While few Georgia cases have discussed constructive discharge, the general rule is that an employee’s resignation -- even if under pressure at the employer’s request -- does not amount to a discharge. But since, as previously discussed, the employer may breach the employment contract and thereby terminate it, the absence of a constructive discharge doctrine under Georgia law may not be as significant as it might otherwise appear. There is at least one case addressing the issue of whether the employee anticipatorily repudiated his employment contract with his employer.

1-9 WRONGFUL DISCHARGE IN GEORGIA

Due to the existence of the employment at-will doctrine discussed in section 1-6, supra, there is no such thing in this state as an action in tort for wrongful discharge. The only two ways that an employee may sue his employer for discharge (absent, of course, some claim of unlawful discrimination) are to sue for breach of contract or to bring an action in equity for the reasonable value of the services provided (quantum meruit). As the earliest discussions of this subject by the Georgia Supreme Court have stated, where a party contracts to work for a term of a year, and is discharged by his employer before the end of the term, he has three remedies, any one of which he may pursue at his election. He may, the moment the contract is broken, bring a special action to recover the damages arising from the breach; or he may treat the contract as rescinded and immediately sue on the quantum meruit for the work actually performed; or he may wait until the termination of the

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period for which he was hired and claim as damages the wages agreed to be paid by the contract.

The only duty placed upon an employer with respect to the employment relationship (other than those duties arising out of special statutes such as anti-discrimination legislation) arises solely by reason of the employment contract, whether express or implied. However, there is authority in Georgia for the proposition that an employee handbook or a posted personnel policy may be treated as a ``contract’’ for purposes of suit by employees. Indeed, there is authority in Georgia that an internal policy and procedures manual may be binding on the company, even if the employee does not enter into his employment based on any promises contained in the manual. One of the more far-reaching Georgia rulings is the 1992 decision of the Georgia Court of Appeals in Fulton DeKalb Hospital Authority v. Metzger. In Metzger, two successive employee handbooks specifically addressed the extent to which the employer would pay the difference for injured employees between workers’ compensation benefits and the employee’s normal wages. The second handbook attempted to eliminate the employer’s responsibility for any such difference, and also contained various disclaimers, including one that the handbook did not constitute a contract and that the employer reserved the right to modify its policies. The court found that the handbook did not specify a definite period of employment and bestow upon the employee the status of permanent lifetime employment, but nevertheless could be considered a contract with respect to the employment benefits provided in the handbook. The court pointed out that the plaintiff was not suing in regard to his employment status, but only for certain employee benefits. The court concluded that the employer was bound by the disability policy in the first handbook which existed at the time the employee accepted employment with the employer, as the employee did not consent to any reduction of his contractual benefits. The court went on to state, in its revised opinion denying the employer’s motion for reconsideration, that the employer had paid full benefits after the handbook was revised, demonstrating that the employer itself did not intend to be governed by the revised handbook.

The Metzger case thus demonstrates the distinction the Georgia courts draw between employee benefits and employment itself. While there are numerous Georgia cases finding a contract or quasi-contract and requiring the payment of benefits to employees, there are no Georgia cases which have held that an employee handbook which states that discharges will be for good cause only, or which provides a grievance procedure or `òpen door’’ policy, would support any breach of contract claim if those provisions were not adhered to.

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Other than the history of Georgia’s at-will employment doctrine, as supported by both statutory authority and case law, it is submitted that there is no conceptual reason as to why the contractual analyses between employment and employment benefits should be different. Although not articulated in the cases, Georgia courts appear to be strictly applying the requirements of the elements of an enforceable employment contract in order to establish a wrongful discharge claim, while at the same time being fairly lenient in upholding a claim for employment benefits.

The ruling of the Metzger court dealing with the revision of the handbook is also quite significant. If the court is suggesting that an employee must specifically consent to any reduction of his contractual benefits set forth in the handbook or policy in existence at the time of his hire, the ruling would be contrary to that in most states which hold that the issuance of a revised policy or handbook modifies the terms of the preceding policy or handbook, at least as long as the employer states that the terms are being modified. Georgia courts have likewise held that an employee impliedly accepts a revised policy offered by the employer by remaining in employment, thus supporting the view that express consent by the employee may not be necessary in Georgia. It is thus more likely that the result of the Metzger case was based on the fact that the employer therein followed the provisions of the first handbook, thus indicating that it did not intend to be governed by its own revised handbook. This would be consistent with other Georgia cases suggesting that an employer can modify its policies by past practice.

Due to such decisions, some employers have chosen to include in employee handbooks or in signed releases required of employees in connection with the application process, an express recognition that employment may be terminated at any time. An example of such language is found in a Michigan case in which the court approved as a contractual `àt-will’’ statement the following:

In consideration of my employment, I agree to conform to the rules and regulations of Sears, Roebuck and Co., and my employment and compensation can be terminated, with or without cause, and with or without notice, at any time, at the option of either the Company or myself. I understand that no store manager or representative of Sears, Roebuck and Co., other than the president or vice president of the Company, has any authority to enter into any agreement for employment for any specified period of time, or to make any agreement contrary to the foregoing.

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Use of ``disclaimers’’ such as the above have generally been upheld by the courts. Thus, because of the evolving legal doctrines, generally placing restrictions on management’s right to terminate or change employment policies at will, and the willingness of courts to enforce disclaimers preserving the at-will status of the employment relationship, more and more employers are adding such disclaimers to their pre-employment applications and personnel policies. Any such disclaimers must be carefully drafted, not only to carefully reserve management rights, but also to avoid unnecessarily offending employees. That is, some employees might be offended by being required to sign a statement that they can be fired at any time and for any reason. Therefore, it is suggested that there be adequate notice of the disclaimers, that they indicate that the employment policies do not constitute a contract, that they state the at-will employment relationship, as well as reserving the employer’s rights to modify policies in the future with or without notice. Other employer policies should not contradict the disclaimers, and the disclaimers should set forth a method limiting their revision in the future, such as indicating that the disclaimer can only be modified by written documents signed by the president of the company. Generally, disclaimers should be worded as tactful as possible to avoid alienating employees, such as by pointing out that employees have the right to terminate their employment at any time for any reason, and the employer reserves the same right.

A suit for breach of contract is a suit for damages, while an action in quantum meruit seeks recovery of the value of services on equitable principles. In a suit for breach of contract, the basic rule is that ``[d]amages recoverable for a breach of contract are such as arise naturally and according to the usual course of things from such breach and such as the parties contemplated, when the contract was made, as the probable result of its breach.’’ If there have been no actual damages but the contract has nonetheless been breached, the plaintiff can recover nominal damages which will carry the costs unless the defendant, before trial, tenders to the plaintiff as much as or more than he finally recovers, in which case no costs can be recovered after the tender. Any necessary expense incurred by one of the parties in complying with the contract may be recovered as damages, although costs of litigation (attorneys’ fees and expenses) are not recoverable in a breach of contract action unless it is shown that the defendant has acted in bad faith, has been stubbornly litigious, or has caused the plaintiff unnecessary trouble and expense. Although there are some narrow exceptions, Georgia law states flatly that ``[u]nless otherwise provided by law, exemplary damages shall never be allowed in cases arising on contracts.’’ Permissible items of recovery are prejudgment interest, lost profits which

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may be definitely ascertained, and any other damages which were within the contemplation of the parties at the time of breach. As the Court of Appeals has said:

In an action for wrongful discharge from employment, the measure of damages is the full loss which the discharged employee sustained by reason of the breach of the contract of employment. A diminution is to be allowed, however, for any profit which he might, by the exercise of due diligence, have received by reason of his having been relieved from the duties of his employment. The burden of proof that such profit was made, or by reasonable diligence could have been made, is upon the defendant.

The requirement that damages be mitigated is also reflected in the statute: ``Where by a breach of contract a party is injured, he is bound to lessen the damages as far as is practicable by the use of ordinary care and diligence.’’ The law also provides: ``Remote or consequential damages are not recoverable unless they can be traced solely to the breach of the contract or unless they are capable of exact computation, such as the profits which are the immediate fruit of the contract, and are independent of any collateral enterprise entered into in contemplation of the contract.’’

Certain items of recovery have been disallowed in breach of employment contract cases. These include traveling expenses which are otherwise covered in a stipulated monthly payment, loss occasioned by selling one’s business while still negotiating with a new employer for a possible position, loss of rights under group insurance issued subsequent to the contract of employment, damages for loss of seniority rights and for being ``blacklisted,’’ damages from selling personal property and canceling two contracts to perform specific tasks in preparation for assumption of duties under the employment contract, the value of the use of a personal automobile and of an apartment, and any amount which was or could have been earned at other employment during the contract term. As an example of the specificity and certainty required in the calculation of damages, the Court of Appeals has found that testimony by a physician that, at the time a respiratory therapist entered into a written contract with a nursing home to provide therapy under the direction of the physician, there were 14 patients for whom the physician was prescribing treatment and that at the time of trial in the therapist’s action for breach of contract, there were still 14 patients requiring treatment, coupled with evidence as to the therapist’s gross weekly earnings for services performed and expenses of doing business, was sufficient to prove damages for breach of contract within the degree of certainty required

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by law.

Where the suit is brought on a quantum meruit theory, it has been said that the measure of damages, where the employee is circumvented from performing his contract by the wrongful act of the employer, is the value of the contract to the employee. This is not, however, recovery in quantum meruit, but is instead the recovery of the value of the contract to the party who did not breach that contract. Quantum meruit is based upon an implied promise on the part of the defendant to pay the plaintiff as much as he reasonably deserved to have for his labor. Thus, in quantum meruit, the test is not the value of the services or contract to the employee who performs them, but is instead the reasonable value of those services in the markelace -- i.e., that amount which, in equity, the employer should be required to pay. This subject is more fully discussed in Chapter 3, infra.

If the contract requires that disputes concerning the terms or conditions of employment be submitted to arbitration, no recourse to court is allowed, and the arbitrator’s decision is final and binding as to issues which were or could have been presented.

Another theory which has not been addressed thus far in Georgia is the argument that an employee’s termination constitutes part of an anti-competitive scheme in violation of anti-trust laws.

An action for wrongful discharge is one for breach of contract, which means that the four-year limitations period for oral contracts applies in the absence of a written agreement.

1-10 TORTIOUS DISCHARGE AND PUBLIC POLICY EXCEPTIONS

As stated earlier, an employer may discharge an at-will employee with or without cause and regardless of motive in Georgia. However, many other states have created public policy exceptions to at-will employment. The courts in these states have accepted wrongful discharge claims predicated on the notion that a discharge may be repugnant to public policy in a broad sense rather than a policy grounded in specific statutory mandate or prohibition. For example, in one state an employer is unable to fire an employee because the employee reports the commission of a crime to the police. In Georgia, the courts have refused to acknowledge any public policy exceptions not created by the legislature.

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The Georgia courts have refused to create public policy exceptions in three broad categories: discharge for refusal to commit or condone an illegal act, discharge for disclosing the employer’s illegal activities (``whistleblowing’’), and discharge for exercise of a lawful right. The Georgia Court of Appeals explained their resistance to creating public policy exceptions in Goodroe v. Georgia Power Co. The court stated, ``There is no room for [a public policy] exception in Georgia as [the at-will] rule is statutory and the statute, [O.C.G.A. § 34-7-1 (GCA § 66-101)], does not encompass [public policy] exception[s].’’

In Borden v. Johnson, a case involving an allegation that an employee was terminated because of her pregnancy, the court discussed the public policy issue as follows:

The courts of this state have consistently held that they will not usurp the legislative function and under the rubric that they are the propounders of ``public policy’’, undertaken to create exceptions to the legal proposition that there can be no recovery in tort for the alleged ``wrongful’’ termination of the employment of an at-will employee. That the courts of other jurisdictions may have done so is of no consequence because `ìn Georgia . . . , this rule is statutory . . . .’’ Accordingly, ``Georgia courts have refused to acknowledge any exceptions not encompassed by O.C.G.A. § 34-7-1 [GCA § 66-101], and, in the absence of any expressed statutory provision for such a civil remedy . . . , we decline . . . to create judicially such a remedy’’.

The court went on to state that there clearly does exist certain viable ``public policy’’ exceptions in Georgia to the proposition that the employment of an at-will employee can be terminated for any reason whatsoever or for no reason at all. However, the court noted that each of these ``public policy’’ exceptions was created by the legislature, not by the courts, and went on to enumerate those exceptions as follows:

See O.C.G.A § 18-4-7 [GCA § 46-303] (which prohibits the discharge of any employee because his earnings had been subjected to garnishment for any one indebtedness); O.C.G.A. § 34-1-2 [GCA § 54-1102] (which criminalizes the discharge of employees on the basis of age); O.C.G.A. § 34-1-3 [GCA § 54-1103] (which authorizes an employee who is discharged for attending a judicial proceeding in response to a court order or process to recover damages and attorneys’ fees); O.C.G.A. § 34-6A-1 et seq. [GCA § 66-501 et seq.] (which authorizes an employee who was allegedly discharged as the result of a handicap to initiate a civil action).

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Even though an at-will employee has no viable state remedy in the form of a tort action for ``wrongful’’ discharge, unless the General Assembly has created a specific exception to O.C.G.A. § 37-7-1 (GCA § 88-401), plaintiff’s counsel should consult all applicable federal statutes to review whether there is a federal statutory remedy. Thus, there are federal statutory prohibitions for discharge based on race, color, religion, sex, national origin or for filing charges or giving testimony under Title VII of the Civil Rights Act of 1964, prohibiting discharge based on age of persons 40 and over or for exercising statutory rights, prohibiting discharge for union activity, protected concerted activity, protected strikes or for filing charges or giving testimony, prohibiting federal contractors and financial assistance recipients from discriminating against qualified handicapped persons, prohibiting discharge except for cause for one year upon return from military service, prohibiting discharge of employees for exercising rights under benefit plans or for filing a complaint or giving testimony, prohibiting discharge for filing a complaint or giving testimony under the federal wage-hour laws, prohibiting discharge for filing a complaint or giving testimony under the federal health and safety laws, prohibiting discharge for garnishment of wages for any one indebtedness, prohibiting discharge of federal employees except for cause, prohibiting discharge for service on grand or petit jury, prohibiting discrimination against qualified persons with disabilities, and prohibiting discrimination against an individual who is or has been a debtor or bankrupt under bankruptcy laws or associated with such.

A related tortious discharge theory sometimes used by plaintiffs is that of fraud in connection with termination. However, the courts have indicated that where either party may terminate an employment contract at will, one who merely exercises his legal rights in doing so is not thereby chargeable with fraud, even if there is a related claim of alleged oral misrepresentations concerning the terms of employment.

1-11 SEPARATION PAY, LOST WAGES, ACCRUED BENEFITS AND PENSION RIGHTS

Whether or not fringe benefits or the value of such benefits is payable to an employee upon termination is a matter for contractual determination. Therefore, where the employment contract provides that employment can be terminated upon payment to the employee of a sum equal to one-half a month’s salary, further providing that commissions due the employee based on cash receipts for the preceding month would be paid upon termination

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according to the same formula, a termination of the contract by the employer with payment of the stipulated amounts fully compensates the employee and does not constitute a breach of the contract for which the employee can prevent the employer from enforcing the restrictive covenants in the contract. It is also interesting to note the interrelationship of the Georgia rules prohibiting restraints of trade in connection with noncompetition agreements, and provisions of benefit plans conditioning the receipt of such benefits on noncompetition. There is authority for the proposition that an overbroad restrictive covenant can nevertheless be enforced so as to provide for the loss of rights or privileges if the employee violates the covenant, as long as the covenant does not actually preclude the employee from engaging in the prohibited activity, although a Supreme Court ruling disapproved of a number of prior cases.

As noted in section 1-6, supra, O.C.G.A. § 34-7-1 (GCA § 66-101) states that ``wages are payable at a stipulated period [raising] the presumption . . . that the hiring is for such period, [but] if anything else in the contract indicates that the hiring was for a longer term, the mere reservation of wages for a lesser time will not control. An indefinite hiring may be terminated at will by either party.’’ Thus, while separation pay may be provided by the employer, no provision of Georgia law requires that separation pay be afforded. Consequently, compensation of employees upon termination is, just as is the case with other fringe benefits, a matter of contract.

Perhaps the most common area of dispute following termination is that of commissions for sales for employees, a subject discussed in Chapter 3, infra. Other common areas of disputes include vacation pay, profit sharing and bonuses. Cases often turn on whether the employee met the requirements of a specific condition of eligibility to receive the benefit. Conditions or eligibility requirements to receive the benefits are generally enforced by Georgia courts. Thus, if an employer’s policy provides that an employee must work a set period of time to be eligible for a benefit, such as one year, and if the employee is terminated prior to filling that condition, the terms of the policy are enforced and the employee is not eligible for the benefit. Even benefit eligibility provisions seemingly providing for forfeiture of employee benefits upon termination have been enforced by the Georgia courts. The cases have struggled with the issue of whether benefits payable to `èmployees’’ end on termination, with the result sometimes based upon an interpretation of whether the benefits are deemed ``short-term’’ benefits divested upon separation from the company, as opposed to ``long-term’’ benefits which were vested rights payable regardless of the employee’s

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employment status. A severance pay agreement may also be enforceable by the courts, at least provided that it is not construed to be unenforceable as a penalty.

The law provides for payment of the wages of deceased employees to the surviving spouse, minor children, or other beneficiary designated in writing by the employee. There is no longer a cap on the amount of accrued but unpaid wages or other sums owing a deceased employee. Such funds to the amount of $2500 are exempt from any and all process of garnishment, and such payment operates as a release from all further claims to such money.

© 2000 The Harrison Company

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Wimberly & Lawson, Attorneys at Law - WimLa to apply the applicable statutory rules of construction, and to determine the existence or nonexistence of an ambiguity in a contract. As