A Word to the Wise

The employment-at-will doctrine is the bane of the plaintiffs' bar. Exceptions under New York law are rare and strictly construed against the employee. More than just a shield, the at-will doctrine has been a seeming impenetrable wall insulating employers from liability. Is there ever an instance where an employee can invoke the at-will doctrine for his or her benefit? Just ask Seth Brody.

Mr. Brody agreed to leave his employment with Priceline.com to join Skillgames. His new employer alleged that Brody committed himself to leaving Priceline and to “continued employment” with it. In exchange, Skillgames agreed to provide Brody with a non-recourse loan of $125,000 based on his representation that he would be forfeiting that amount in Priceline stock options by joining Skillgames. Brody executed a non-recourse promissory note that was secured solely by Skillgames stock. Brody also executed an employment contract providing that his employment was at-will.

However, things did not work out as planned. Brody did not in fact sever his ties with Priceline immediately but continued to work for it after hours. As a consequence, some additional Priceline stock vested. From Brody's perspective, the Skillgames job was not what he believed was promised and did not pan out. Within weeks of his joining Skillgames, a major investor withdrew its support, layoffs followed, and soon thereafter the company's controlling shareholder announced that the company would be dissolved. Brody shortly thereafter returned to Priceline.

Skillgames sued Brody, seeking repayment of the loan, raising claims of fraudulent inducement, promissory estoppel, breach of the covenant of good faith and fair dealing, and quantum meruit. Brody moved to dismiss, relying principally on the fact that he was an at-will employee. In doing so, Brody contended that he in fact forfeited $130,000 worth of unvested Priceline stock. The trial court granted the employer's motion to dismiss. The First Department reversed in part. Skillgames, LLC v. Brody, 203 WL 22743918 (1st Dep't 2003).

The First Department rejected Skillgames' claims of fraudulent inducement and promissory estoppel to the extent that they were premised on Brody's alleged commitment to continued employment. According to the court, “regardless of the terms of the employment agreement, defendant's status as an at-will employee — which was simply confirmed by the employment agreement — renders unreasonable Skillgames' claimed reliance on defendant's alleged representation (or promise) that he was 'committed to continued employment.'” The court then stated the obvious, namely, that an at-will employee is free to terminate his employment at any time in the same way that the employer could terminate that employment. “That is the essence of the doctrine of employment-at-will.” (The court did, however, allow the fraudulent inducement and promissory estoppel claims to proceed to the extent that they were based on Brody's alleged promise to resign his employment with Priceline immediately.)

The court also dismissed the quantum meruit claim, finding that an expectation of compensation was essential to such a claim and it would be unreasonable for Skillgames to expect continued employment by Brody who was expressly an employee-at-will. Finally, the court rejected Skillgames' claim for breach of the implied covenant of good faith and fair dealing. The court reasoned that Skillgames could not expect as a benefit of its bargain “that defendant would remain as a Skillgames employee forever in view of defendant's status as an at-will employee, a status Skillgames specifically wrote into the employment agreement.”

If Jackie Gleason were an employee's counsel, one could only imagine with what gusto he would deliver his trademark “How sweet it is!” in reaction to this decision.

That is not to say that the at-will doctrine has become an employee's benevolent uncle. It does support the axiom, however, that those who live by the sword may die by it as well. The fact that employment was at-will may, in the right case, be used as an equitable defense to such actions as post-employment enforcement of restrictive covenants or in defense of breach of duty of loyalty or fiduciary duty claims. “Your Honor, the employer here seeks to bar my client for 2 years from working in his chosen profession at the same time that it exercised its right to terminate his employment for no cause and at-will” is a sympathetic position to put before a judge deciding the equities of such a claim. And from the employer's perspective, the Brody case should stand as a reminder that the at-will doctrine is truly a two-way legal street that can both insulate it from legal liability and undercut its legal position where that position relies on a commitment of continued employment.

The employment-at-will doctrine is the bane of the plaintiffs' bar. Exceptions under New York law are rare and strictly construed against the employee. More than just a shield, the at-will doctrine has been a seeming impenetrable wall insulating employers from liability. Is there ever an instance where an employee can invoke the at-will doctrine for his or her benefit? Just ask Seth Brody.

Mr. Brody agreed to leave his employment with Priceline.com to join Skillgames. His new employer alleged that Brody committed himself to leaving Priceline and to “continued employment” with it. In exchange, Skillgames agreed to provide Brody with a non-recourse loan of $125,000 based on his representation that he would be forfeiting that amount in Priceline stock options by joining Skillgames. Brody executed a non-recourse promissory note that was secured solely by Skillgames stock. Brody also executed an employment contract providing that his employment was at-will.

However, things did not work out as planned. Brody did not in fact sever his ties with Priceline immediately but continued to work for it after hours. As a consequence, some additional Priceline stock vested. From Brody's perspective, the Skillgames job was not what he believed was promised and did not pan out. Within weeks of his joining Skillgames, a major investor withdrew its support, layoffs followed, and soon thereafter the company's controlling shareholder announced that the company would be dissolved. Brody shortly thereafter returned to Priceline.

Skillgames sued Brody, seeking repayment of the loan, raising claims of fraudulent inducement, promissory estoppel, breach of the covenant of good faith and fair dealing, and quantum meruit. Brody moved to dismiss, relying principally on the fact that he was an at-will employee. In doing so, Brody contended that he in fact forfeited $130,000 worth of unvested Priceline stock. The trial court granted the employer's motion to dismiss. The First Department reversed in part. Skillgames, LLC v. Brody, 203 WL 22743918 (1st Dep't 2003).

The First Department rejected Skillgames' claims of fraudulent inducement and promissory estoppel to the extent that they were premised on Brody's alleged commitment to continued employment. According to the court, “regardless of the terms of the employment agreement, defendant's status as an at-will employee — which was simply confirmed by the employment agreement — renders unreasonable Skillgames' claimed reliance on defendant's alleged representation (or promise) that he was 'committed to continued employment.'” The court then stated the obvious, namely, that an at-will employee is free to terminate his employment at any time in the same way that the employer could terminate that employment. “That is the essence of the doctrine of employment-at-will.” (The court did, however, allow the fraudulent inducement and promissory estoppel claims to proceed to the extent that they were based on Brody's alleged promise to resign his employment with Priceline immediately.)

The court also dismissed the quantum meruit claim, finding that an expectation of compensation was essential to such a claim and it would be unreasonable for Skillgames to expect continued employment by Brody who was expressly an employee-at-will. Finally, the court rejected Skillgames' claim for breach of the implied covenant of good faith and fair dealing. The court reasoned that Skillgames could not expect as a benefit of its bargain “that defendant would remain as a Skillgames employee forever in view of defendant's status as an at-will employee, a status Skillgames specifically wrote into the employment agreement.”

If Jackie Gleason were an employee's counsel, one could only imagine with what gusto he would deliver his trademark “How sweet it is!” in reaction to this decision.

That is not to say that the at-will doctrine has become an employee's benevolent uncle. It does support the axiom, however, that those who live by the sword may die by it as well. The fact that employment was at-will may, in the right case, be used as an equitable defense to such actions as post-employment enforcement of restrictive covenants or in defense of breach of duty of loyalty or fiduciary duty claims. “Your Honor, the employer here seeks to bar my client for 2 years from working in his chosen profession at the same time that it exercised its right to terminate his employment for no cause and at-will” is a sympathetic position to put before a judge deciding the equities of such a claim. And from the employer's perspective, the Brody case should stand as a reminder that the at-will doctrine is truly a two-way legal street that can both insulate it from legal liability and undercut its legal position where that position relies on a commitment of continued employment.