Fox v. MCI Communications Corp.

• Decision Date: 04 February 1997
• Docket Number: No. 950280,950280
• Citation: 931 P.2d 857
• Parties: 134 Lab.Cas. P 58,300, 12 IER Cases 769, 310 Utah Adv. Rep. 3 Bozena C. FOX, Plaintiff, v. MCI COMMUNICATIONS CORP. and MCI Telecommunications Corp., Delaware corporations, Defendants.
• Court: Utah Supreme Court

Page 857

931 P.2d 857

134 Lab.Cas. P 58,300, 12 IER Cases 769,

310 Utah Adv. Rep. 3

Bozena C. FOX, Plaintiff, v. MCI COMMUNICATIONS CORP. and MCI Telecommunications Corp., Delaware corporations, Defendants.

No. 950280.

Supreme Court of Utah.

Feb. 4, 1997.

Jerome H. Mooney, Alan E. Barber, Salt Lake City, for plaintiff.

Janet Hugie Smith, Lisa Yerkovich, Salt Lake City, and William L. Kasley, Karen Helen Peteros, San Francisco, CA, for defendants.

STEWART, Associate Chief Justice:

Bozena C. Fox filed suit in the United States District Court for the District of Utah against her former employer MCI Telecommunications Corporation ("MCIT") for wrongful termination of her employment. This case is here pursuant to Rule 41 of the Utah Rules of Appellate Procedure to decide an issue of law that was certified to this Court by the District Court.

Between 1987 and 1992, Fox worked as a sales representative for MCIT in its Salt Lake City office. In 1992, Fox observed that other employees were engaging in a practice known as churning--making existing customer accounts appear new on the corporate records so that they could meet sales quotas and earn higher commissions. MCIT's sales commission policies and employee agreements prohibited such practices. Fox did not engage in these practices. Fox alleges that the prohibited practices and the failure of MCIT's management to correct them could constitute computer-assisted fraud in violation of Utah Code Ann. § 76-6-703 and § 76-6-705 or acts of fraud or embezzlement under § 76-6-403, § 76-6-405, and § 76-2-204 (corporate responsibility).

When Fox reported the practices to MCIT's management, she was told to "mind her own business" and to ignore the account churning. Nevertheless, Fox thereafter reported the practices to MCIT's Internal Audit Unit, which visited Fox and confirmed that the practices were occurring in the Salt Lake City office. Less than one week after MCIT's Internal Audit Unit concluded its investigation, the company terminated her employment. Fox alleges that MCIT terminated her employment in retaliation for reporting the alleged account churning to MCIT's management and Internal Audit Unit. For the purpose of answering the question certified to us, we take that allegation to be true.

Fox's complaint against MCIT asserted that MCIT's termination of her employment was wrongful because the company's reason for discharging her violated Utah public policy, i.e., her discharge was in retaliation for disclosing to corporate officials the illegal conduct of her co-workers that could injure the interests of the public and MCIT's stockholders.

MCIT moved to dismiss Fox's wrongful termination claim on the ground that her factual allegations, even if true, did not violate a clear and substantial Utah public policy and therefore her termination was lawful. The district court granted the motion without prejudice, and Fox filed a second amended complaint alleging the same claim for relief. MCIT again moved to dismiss for failure to state a claim. In response, United States District Court Judge Bruce S. Jenkins certified the following question to this Court:

Does the termination of a private sector employee in retaliation for the good faith reporting to company management of the alleged violation by one or more co-workers of Utah Code Ann. §§ 76-6-403, 76-6-404, 76-6-703, or 76-6-705 (1995), implicate "a clear and substantial public policy" of the State of Utah?

I. ANSWER

The answer is no: the termination of a private sector employee in retaliation for the good faith reporting to company management of alleged violations by co-workers of Utah Code Ann. §§ 76-6-403, 76-6-405, 76-6-703, or 76-6-705 (1995), ¹ does not implicate a clear and substantial public policy of the state of Utah.

II. LIMITATIONS ON TERMINATION OF EMPLOYEES UNDER AT-WILL EMPLOYMENT CONTRACTS

The general rule is that an employment relationship for an indefinite time gives rise to a contractual arrangement that allows both the employer and the employee to terminate the employment for any reason and allows the employer to do so without extending any procedural safeguards to an employee, except as required by law. See Bihlmaier v. Carson, 603 P.2d 790, 792 (Utah 1979); see also Brehany v. Nordstrom, Inc., 812 P.2d 49, 53 (Utah 1991); Berube v. Fashion Centre, Ltd., 771 P.2d 1033, 1044 (Utah 1989). The general rule is not, however, a rule of contract construction; it is only a presumption that an employment relationship "which has no specified term of duration is an at-will relationship," Berube, 771 P.2d at 1044, but that presumption is subject to a number of limitations. An at-will employee may overcome that presumption by demonstrating that (1) there is an implied or express agreement that the employment may be terminated only for cause or upon satisfaction of another agreed-upon condition; (2) a statute or regulation restricts the right of an employer to terminate an employee under certain conditions; ² or (3) the termination of employment constitutes a violation of a clear and substantial public policy. ³ Retherford v. AT & T Communications, 844 P.2d 949, 958- 59 (Utah 1992); Heslop v. Bank of Utah, 839 P.2d 828, 836-38 (Utah 1992); Peterson v. Browning, 832 P.2d 1280, 1281-82 (Utah 1992); Hodges v. Gibson Prods. Co., 811 P.2d 151, 165 (Utah 1991).

A wrongful termination case based on a violation of an express or implied term of the employment agreement rests on a duty that an employer voluntarily undertakes as a consequence of the employment agreement itself, whether express or implied. A wrongful termination case based on contravention of public policy is founded on a tort duty that exists irrespective of the parties' agreement. Peterson, 832 P.2d at 1284-85; see also, e.g., Hodges, 811 P.2d at 165; Foley v. Interactive Data, 47 Cal.3d 654, 254 Cal.Rptr. 211, 765 P.2d 373, 377 (1988) (en banc).

The term "public policy" is so broad in the abstract that it eludes a reasonably precise definition for legal purposes. Berube v. Fashion Centre, Ltd., 771 P.2d 1033, 1042 (Utah 1989). Furthermore, not every employment termination that has the effect of violating some public policy is actionable. A public policy whose contravention is achieved by an employment termination must be "clear and substantial" to be actionable. Retherford, 844 P.2d at 966 n. 9; Heslop, 839 P.2d at 837; Berube, 771 P.2d at 1042. While the term "clear and substantial" adds little by way of specific guidance, a more precise definition of the term must await the time when this Court has had sufficient experience with a number of cases so that we can deduce from our experience more precise standards that give specific content to the term "public policy."

We have acknowledged that the enforcement of a state's criminal code constitutes a clear and substantial public policy. Hodges, 811 P.2d at 166; see also Belline v. K-Mart Corp., 940 F.2d 184, 187 (7th Cir.1991). In Hodges, this Court observed: ⁴

Most criminal statutory prohibitions provide narrow and clear-cut definitions of a specific public policy designed to protect both society at large and specific individuals from antisocial acts. The law ought not to allow those prohibitions to be circumvented by employers who seek to secure an objective prohibited by the criminal law while avoiding a technical violation of the law because of the means used. When the means used to accomplish a prohibited end, that is, the discharge of an employee, runs counter to public policy, an action for wrongful discharge is an appropriate way to protect both the public interest and the employee from an employer's oppressive use of power.

811 P.2d at 166.

Hodges held that a discharged employee had an action for wrongful termination where the employee was fired for refusing to comply with extortionate demands by the employer and the employer made false accusations of criminal conduct by the employee to a prosecutor. Peterson, 832 P.2d 1280, followed Hodges and held that an employer who fired an employee for refusing to provide false information on tax and customs forms could be held liable for wrongful termination. Although the employee's conduct would apparently have been illegal under federal law and the law of Missouri but not under Utah law, the Court nevertheless held:

Persons who are terminated from their employment because they refuse to engage in illegal activities that implicate clear and substantial Utah public policy considerations should be protected regardless of whether the applicable law is that of Utah, the federal government, or another state. The effect on the employee of having to choose between keeping his job or following the law that governs him is the same regardless of the origin of the law. Accordingly, we hold that an attempt to coerce an employee to violate the state tax law and federal customs statute at issue contravenes the clear and substantial public policies of the state of Utah. Thus, a discharge resulting from an employee's refusal to violate such laws is actionable under the public policy limitation.

832 P.2d at 1283 (footnotes omitted).

Other courts have recognized an employee's tort action for wrongful termination resulting from the employee's refusal to engage in criminal conduct at the direction of the employer. See, e.g., Tameny v. Atlantic Richfield Co., 27 Cal.3d 167, 164 Cal.Rptr. 839, 610 P.2d 1330 (1980) (employee refused to engage in acts prohibited by antitrust laws); Petermann v. International Bhd. of Teamsters, 174 Cal.App.2d 184, 344 P.2d 25 (1959) (employee, a union business agent, discharged because he refused to testify falsely to a state legislative committee).

The public policies embedded in the criminal laws have long been deemed of such importance that the law also encourages persons to report criminal activity to public authorities. ⁵ Accordingly, an employee has also been held to have a cause of action for wrongful termination...