Handbook Disclaimers Permit Dismissal of Pharmacist

MAY 01, 2005
Larry M. Simonsmeier, JD, RPh

Issue of the Case:

In this month's case, an Arizona court was asked whether a pharmacy breached an implied contract when it fired a pharmacist, allegedly in contradiction of its employee handbook.

Facts of the Case:

The plaintiff pharmacist was employed by the defendant pharmacy as the pharmacist-in-charge for about 3 years. As part of the hiring process, the plaintiff signed an employment application that stated it was "not a contract for employment?and was terminable at-will by either the employer or the pharmacist." The application went on to state that the plaintiff's employment could be terminated with or without cause and with or without notice at the option of either the company or him.

The pharmacy also gave the plaintiff a copy of its employee handbook that contained language indicating that employees could be terminated at the company's discretion and that the employee was free to resign at any time. The handbook also stated no guarantees of any certain disciplinary procedure. Other company documents, including the plaintiff's bonus plan, contained similar messages.

Throughout the plaintiff's employment, the pharmacy used "performance coaching" techniques to improve, correct, and modify employee behavior. The coaching policy included 4 steps: (1) coach and counsel, (2) verbal reminder, (3) written reminder, and (4) decision-making day. A decision-making day is when an employee takes the next scheduled day off to determine if he or she wants to continue to work for the company.

In the event that precipitated this lawsuit, the plaintiff got into a loud argument with the assistant store manager in front of customers over the amount of a coupon to give a customer who received a misfilled prescription. The next day, the company's district manager met with the plaintiff to present him with a written performance improvement plan and to "coach" him concerning the incident. The plaintiff refused to sign the document because it was prepared in advance of the meeting and he was too upset. The plaintiff was fired that afternoon.

Alleging that the company failed to follow the terms of the employee handbook, the plaintiff sued the pharmacy for breach of implied contract of employment, wrongful termination, and breach of good faith and fair dealing.

The Court's Ruling:

A jury returned a verdict in favor of the plaintiff and awarded him $257,958 in damages for the breach of contract claim. The verdict was overturned on appeal. The appellate court concluded that, as a matter of law, the plaintiff was an at-will employee and could be terminated at any time.

The Court's Reasoning:

Generally, an employment contract of indefinite duration is terminable at will. Parties in an employment relationship, however, are free to contractually define the parameters of the relationship based on the totality of their statements in job applications, personnel handbooks, memos, and other documents.

Not all employer policy statements, however, create contractual promises. An implied contract is formed when a reasonable person could conclude that both parties intended that the employer's (or the employee's) right to terminate at-will employment had been limited. Earlier cases ruled that disclaimers in employee handbooks, which clearly and conspicuously tell employees that the manual is not part of the employment contract and that their jobs are terminable at will, instill no reasonable expectations of job security and do not give employees any reason to rely on representations in the manual.

The plaintiff contended that a reasonable person could interpret the performance coaching process as a promise that an employee would not be terminated without a decisionmaking day. The defendant pharmacy countered that the repeated disclaimers in the employment application and the handbook were adequate to prevent any reasonable expectation that the plaintiff's employment was anything other than at will and that he could be terminated without cause.

The court found that the disclaimers in this case were clear and comprehensive to the point of redundancy. It stated that if the multiple disclaimers in these documents did not meet the clear and conspicuous requirement of earlier cases, it could not imagine any that would. In the court's mind, it was inconceivable that the pharmacy intended, or the plaintiff could have reasonably interpreted, the statements in the documents as an offer to limit its right to terminate at will employment. A contract to terminate only for cause must be based on more than an employee's subjective expectation.

Larry M. Simonsmeier is Emeritus Professor of Pharmacy Law at Washington State University College of Pharmacy.