Understand Wrongful Discharge Law: US vs Other Countries

When we talk about wrongful discharge or firing, it’s helpful to think of three types of situations. The first one is where the company has Good Cause to fire an employee. These cases are generally not controversial, if you have Good Cause then generally, around the world, you can discharge an employee. The second situation, on the righthand side, is where there is a firing for Illegal Cause. And this is also a fairly straightforward area. If the cause violates the law, no matter what country you’re in, then the discharge is illegal and the employee has a right to damages or other remedies.

The toughest situation is where there is firing without cause and that’s where we’re going to focus for the next few minutes. Let’s start by taking a look at this scenario. Let’s say that you’re a manager at a bank. And you learn that your bank is not complying with consumer credit law. You attempt to convince your superiors to comply with the law, without success. And so you decide to disclose incriminating files to the bank auditors. The bank then fires you. And the question is, can you recover damages from the bank, and why? So please think about that for a second, hit pause, write down your answer, and then we’ll continue.

I’m going to return to the answer in a few minutes, but first of all let’s talk about the law a bit. The answer might depend on where you are located in the world. In the United States, there’s a rule called the Employment at Will Doctrine. And under that rule, you can be fired at will. You can be fired any time without cause. That’s the general rule. Whereas outside the United States, countries use a variety of approaches that often include a duty to give notice to an employee before firing and possibly to provide compensation to the employee in case of firing. Some countries might have one of these requirements. Some countries might have both. For example, here’s a sampling.

In Japan there’s a requirement that the employer gives 30 day notice or provides pay instead of notice. In India there’s a requirement of one to three months notice depending on how large the company is. In Mexico there’s no requirement of notice, but, there’s a requirement that the company have a clause for firing. And if there’s no clause, then the company has to make payment instead. One question, which system would you rather work in? Would you rather work in the United States where you can be fired anytime without cause, or would you rather work for a company outside the United States where the law requires the company to give notice and possibly to provide compensation?

I began thinking about this a few years ago, when I was Associate Dean for Executive Education at the Ross School of Business. And I decided that we should start a center in Paris, which we did. And so I flew to Paris in order to hire employees for this new center. And before hiring employees, I met with a French lawyer who explained the French system of hiring. And as she explained it, she said that I could hire an employee under what I believe she called a CDI or under a CDD. And one approach, the CDI, I would be hiring a permanent employee, whereas a CDD hiring would be on a temporary basis.

And she explained to me that I definitely should hire temporary employees because permanent employees are very difficult to discharge in France. Well what’s the consequence of that? If lawyers are giving this advice to employers, generally in France, the consequence is that it’s going to be very difficult for you as an employee, to find a permanent job. Here’s an article from Financial Times that discusses this. This article distinguishes employees between insiders and outsiders. If you’re an insider you’ve got a permanent job, you’re secure. But if you’re an outsider it’s very difficult to find a job.

For example, this article quoted a small business owner, who noted that a small business owners will hire someone permanently only if they have a gun pointed at them. And this is the way a 28-year old journalist described the situation. Basically, what she’s saying is if you’re an outsider, everything is more complicated. When you don’t have that long term position, especially in Paris, if you want an apartment, you have to lie on your application. Everybody does it. So, it gets a little complicated in terms of which system would you prefer being in. Some people think that permanent job creation is a problem in countries where there is not an employment-at-will rule. So, we’ve got this basic distinction between the U.S.

employment-at-will, and the approach outside the U.S. where notice and compensation are required. However even in the United States, there are exceptions to the employment at will doctrine that do provide some protection to employees and we’ll look at those exceptions next.