In this article, an attempt is made to compare the economic cost of adopting the Model Employment Termination Act with the economic cost of retaining the existing system. Under the existing common law system, it is estimated that employees bring 10,000 wrongful discharge cases per year. Employees prevail at trial in 340 of these, at an average cost to the employer of $366,000. The average award for the cases is $98,000. Attorney's fees average $124,000 per case, adding another $1.24 billion in costs. Thus the total payments by employers under the current system is approximately $2.2 billion. If the new model act were adopted, we estimate that the total number of wrongful-discharge cases would increase to 126,000 per year. Employees would prevail in 83,000 of these. The average award, however, would decrease to $16,000. Attorney's fees would decrease to $3000 per case. Total payments by employers would be $1.89 billion. Thus the cost to employers under the new act would be less than at present.
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References
1.
See also Jack Stieber and Robert Rodgers, “Discharge for Cause: History and Development in the United States,” this issue of The Annals of the American Academy of Political and Social Science.
2.
2. Stieber and Murray, “Protection against Unjust Discharge,” p. 323.
3.
3. See Stieber and Rodgers, “Discharge for Cause”; Jack Stieber, “Recent Developments in Employment-at-Will,”Labor Law Journal, 36(8):558 (1985).
4.
4. Lewis L. Maltby, “The Decline of Employment at Will—A Quantitative Analysis,”Labor Law Journal, p. 52 (Jan. 1990).
5.
5. James Dertouzos, E. Holland, and P. Ebener, The Legal and Economic Consequences of Wrongful Termination, RAND Corporation Publication Series (Santa Monica, CA: RAND, 1988).
6.
citing “It's Getting Harder to Pass Out Pink Slips,”Business Week, 28 Mar. 1988, p. 68.
7.
7. B. Mahoney, L. Sipes, and J. Ito, “Implementing Delay Reduction and Delay Prevention Programs in Urban Trial Courts: Preliminary Findings,”Current Research (National Center for State Courts), vol. 8 (1985). Since there is no indication that wrongful-discharge cases differ from other civil cases in terms of the time they take to resolve, I used these data to make the estimate.
8.
8. This estimate is obviously dependent on Westin's figure for the total number of wrongful-discharge cases. Although Westin's estimate has been generally accepted by those on both sides of the issue, its derivation is unclear.
9.
9. Shepard, Heylman, and Duston, Without Just Cause, p. 7.
10.
10. Telephone interview with statisticians at the Administrative Office of the United States Courts Statistics Division, Analysis and Reports Branch, 23 Nov. 1993.
11.
11. Dertouzos, Holland, and Ebener, Legal and Economic Consequences, p. vii.
12.
12. Ibid., p. x.
13.
13. Ibid., p. viii. Dertouzos et al. state that after appeal, initial awards, and post-trial settlements, verdicts are, on average, reduced by half.
14.
14. D. Jung and R. Harkness, “Life after Foley: The Bottom Line,”Labor Lawyer, 5:669 (1989).
15.
15. Shepard, Heylman, and Duston, Without Just Cause, p. 7. (Schmeltzer et al.'s study was conducted for Shepard, Heylman, and Duston's Without Just Cause.)
16.
16. Dertouzos, Holland, and Ebener, Legal and Economic Consequences, p. x.
17.
17. Ibid., p. vii.
18.
18. Ibid.
19.
19. Ibid., p. viii. According to Dertouzos et al., the average plaintiff lawyer's contingency fee is 40 percent and the average employer payment, after subtracting attorney's fees, is $30,000. Hence, the average fee, not subtracting attorney's fees, is $50,000. It should be noted that even $50,000 is a conservative estimate given that additional expenses are not accounted for in Dertouzos et al.'s analysis.
20.
20. Ibid., p. x.
21.
21. Ibid., p. viii.
22.
22. In order to maintain a consistent comparison of costs, the increase in the size of awards is projected only to 1992, the latest date for which the Bureau of Labor Statistics has the data used to project the costs under META in part 2 of this article.
23.
23. Dertouzos, Holland, and Ebener, Legal and Economic Consequences, p. x.
24.
24. Shepard, Heylman, and Duston, Without Just Cause, p. 20.
25.
25. Our conclusion that adoption of META would decrease employer cost may strike many in the management community as counterintuitive. As a general rule, therefore, when faced with a choice of assumptions, we chose the one that minimized the costs under the current system or that maximized the costs under META.
26.
26. [IERM] 9A Lab. Rel. Rep. (BNA) 505:51-52.
27.
27. These states include Arizona, Colorado, Connecticut, Illinois, Indiana, Kentucky, Louisiana, Maine, Minnesota, Mississippi, Missouri, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Oklahoma, Oregon, Rhode Island, South Carolina, South Dakota, Tennessee, Virginia, West Virginia, Wisconsin, and Wyoming.
28.
28. Pacific Mut. Life Ins. v. Haslip, 499 U.S. 1, 113 L. Ed. 2d 1, 111 S. Ct. 1032 (1991).
29.
29. Model Employment Termination Act (Chicago: National Conference of Commissioners on Uniform State Laws, 1991).
30.
30. Ibid., p. 26. The Model Employment Termination Act (META) does not require employees to pay any portion of the arbitration costs. However, comments to subsection (e) of section 5 suggest that states may consider having employees pay for a portion of arbitration no greater than one to two weeks of pay. In the interest of conservatism, the present article assumes one week rather than two.
31.
31. The Association of Trial Lawyers of America's comments on META (Aug. 1989). The comments can be obtained by contacting the association's office at 1050 31st Street, Washington, DC 20007.
32.
32. A major difficulty confronts anyone undertaking such an analysis in that the available data vary enormously in accuracy and completeness. Further, the system being modeled is so complex that no equation captures it perfectly. The resulting projection, therefore, is only an informed estimate.
33.
33. Stanley Fisher, “The Model Employment Termination Act (META)” (Address delivered at “Labor Issues 1992: Rebuilding America,” 1992 conference of the National Conference of State Legislatures, San Diego, CA, 20-23 Nov. 1991).
34.
ibid., n. 28.
35.
35. Author's informal survey of plaintiff's attorneys.
36.
36. 45 U.S.C. 151 (1934).
37.
Under the British system, a higher proportion—10 percent—of employees lodge a claim but a lower proportion—0.14 percent—proceed to actual arbitration tribunal. See Linda Dickens, “Comparative Systems of Unjust Dismissal: The British Case,” this issue of The Annals of the American Academy of Political and Social Science.
38.
38. Perritt, Employee Dismissal Law, p. 272. Perritt projected the total based on the number of complaints during the years 1969-88, 1976-88, and 1984-88. We rejected the 1969-88 projection as too heavily influenced by the early years involving few complaints. The most recent time period is 1984-88; this is uncomfortably short for projection purposes, but the data might be the most reasonable basis for projection. The 1984-88 period, however, has the highest rate of complaints. The data do not show a clear upward trend, so this higher rate may well be misleading. In the interests of conservatism, however, we used the 1984-88 projections whenever using Perritt's data.
39.
39. Ibid., p. 271.
40.
40. Ibid., p. 272. The ratio of projected cases for Perritt's three categories differs slightly from the ratios of percentage of complaints because Perritt uses slightly different time periods for the two exercises.
41.
41. According to the BLS, 22,441,000 people became unemployed at some point during 1992. News (BLS), 20 Oct. 1993. Analysis of BLS's monthly reports shows that approximately 50 percent of those unemployed at any given time are job losers. Ibid., 1989-90. This indicates that there were about 11,220,000 job losers in 1992. We know from the BLS study of displaced workers from 1987 to 1991 that about 3.1 million people per year lose their jobs because of plant closures, slack work, or abolition of their position. BLS, “Displaced Workers 1987-91,”Bulletin, no. 2427 (July 1993). We also know that about 10 percent of all employees, and presumably the same percentage of job losers, are self-employed. The same is true of seasonal workers. These individuals lost their jobs, but they were not fired. This indicates that the number of people actually fired was 11.2 million job losers less 3.1 million displaced workers less 1.1 million self-employed workers less 1.1 million seasonal workers, which equals 5.9 million, or 53 percent of the total. The difference between this figure of 5.9 million and Stieber's figure of 1.4 million terminations (Stieber and Murray, “Protection against Unjust Discharge”) can be accounted for partly by a difference in methodology and partly by timing. Stieber's estimate refers to the relatively prosperous time of the early 1980s; my estimate refers to the relatively depressed late 1980s and early 1990s.
42.
42. Pub. L. No. 95-454, 92 Stat. 1111 (1978) (condified in scattered sections of Titles 5, 10, 15, 28, 39, and 42 U.S.C. (1988)).
43.
43. Telephone interview with the Office of Workplace Statistics at the Office of Personnel Management conducted by Christopher Taylor, June 1991.
44.
44. Freedom of Information Act request to the U.S. Merit Systems Protection Board, July 1990.
45.
45. See Clyde Summers, “Labor Law as the Century Turns: A Changing of the Guard,”Nebraska Law Review, 67:7 (1988).
46.
46. Perritt, Employee Dismissal Law, p. 269.
47.
47. Courtney Gifford, Directory of U.S. Labor Organizations (Washington, DC: Bureau of National Affairs, 1992). The Transportation Communications International Union (membership 130,000), the Brotherhood of Maintenance of Way Employees (55,000), and the Brotherhood of Railroad Signalmen (10,000) are predominantly composed of railroad workers. Approximately 5000 members of the Transport Workers of America are also railroad workers. Smaller numbers of railroad workers are represented by 12 additional unions.
48.
48. Ibid. The American Federation of Government Employees represents 200,000 federal employees, and the National Federation of Federal Employees represents 150,000 more. Additional federal employees are represented by several other unions.
49.
49. Ibid., n. 28.
50.
50. Barbara L. Schlei and Paul Grossman, Employment Discrimination Law, 2d ed. (Washington, DC: Bureau of National Affairs, 1983).
51.
51. Perritt, Employee Dismissal Law, p. 272.
52.
52. American Arbitration Association, Procedural and Substantive Aspects of Labor-Management (New York: American Arbitration Association, 1954), pp. 23-24.
53.
53. Telephone interview with Clyde Summers, Fordham Professor of Law at the University of Pennsylvania, Mar. 1991.
54.
54. Dertouzos, Holland, and Ebener, Legal and Economic Consequences, p. vii.
55.
55. Shepard, Heylman, and Duston, Without Just Cause, p. 19.
56.
56. This represents the average of Dertouzos et al.'s and Schmeltzer et al.'s findings. British and Canadian cases tend to support a lower figure. For example, in the Canadian federal statutory system, Wagar reports that employees were successful in 61 percent of the cases concerning wrongful-discharge claims. Terry H. Wagar, “Comparative Systems of Wrongful Dismissal: The Canadian Case,” this issue of The Annals of the American Academy of Political and Social Science. In Britain's statutory employment protection system, Dickens reports for 1992-93 that in only “half” of the 34,000 cases registered with an industrial tribunal, “the dismissed employee received some remedy through conciliation or by award of the tribunal.” Dickens, “Comparative Systems of Unjust Dismissal.”
57.
57. Dertouzos, Holland, and Ebener, Legal and Economic Consequences, p. vii.
58.
58. Model Employment Termination Act, § 7(d).
59.
59. Ibid., §§ 7(b) - (c).
60.
60. Employment and Earnings (U.S., Department of Labor, BLS), p. 79 (Jan. 1993).
61.
61. U.S., Department of Labor, Bureau of Labor Statistics, Employment Cost Indexes and Levels, 1993, pp. 1975-1993.
62.
62. U.S., Department of Labor, Bureau of Labor Statistics, Work Experience of the Population in 1992, USDL 93-444, 1993. There is some methodological imprecision in using this number. It reflects only the duration of unemployment within a single year. Thus it understates the duration of unemployment for those whose loss of work extends beyond this limited time frame. However, there is an offsetting factor in that this measure includes the total duration of all periods of unemployment in a given year. For those who become unemployed more than once during a year, this figure overstates the length of a single period of unemployment. Unpublished figures from BLS measuring the total duration of unemployment for those who have become reemployed indicate that these factors are almost exactly offsetting. Thus, using the figure of 14.2 weeks to represent the average duration of unemployment is accurate.
63.
63. BLS statistics show that those unemployed longer than six months range from a low of 5 percent to a high of 22 percent. See Employment and Earnings, pp. 30-31 (Jan. 1993).
64.
64. Model Employment Termination Act, § 7(b)3.
65.
65. Ibid.
66.
66. Model Employment Termination Act, comments to § 7(b)(3).
67.
67. Indeed, according to Dickens, this has been borne out in the British case, where for 1992-93 the median award is 8 weeks' pay, equivalent to $4000. Dickens, “Comparative Systems of Unjust Dismissal.”
68.
68. Informal survey of plaintiff's attorneys.
69.
69. Theodore J. St. Antoine, “Employment-at-Will—Is the Model Act the Answer?”Stetson Law Review, 23(1):195 (Fall 1993), n. 89. Per diem, an arbitrator typically charges $600. The average discharge hearing lasts 1.0 to 1.5 days, and writing the award typically takes 0.5 to 2.0 days.
