The Employment Effects of a “Good Cause” Discharge Standard in Montana

Abstract

With passage of a 1987 statute, Montana became the only state to adopt a “good cause” standard for discharge of employees with contracts of unspecified duration. The new statute was a legislative response to a series of Montana Supreme Court cases, starting in 1980, that gave otherwise at-will employees a broad right to sue for wrongful discharge. Estimating a policy intervention model using monthly time-series data on Montana employment, the authors find that the seminal Montana wrongful discharge case reduced annual employment growth in Montana by 0.46 percentage points, and that the “good cause” statute restored the original growth rate. While the firing costs literature would suggest that employment should fall following implementation of a heightened discharge standard, the contrary result in Montana is likely due to important procedural and other limitations imposed by the new statute on discharged employees' legal recourse.