At-will

You may know that South Carolina is an at-will employment state. But what does that really mean?

In an at-will employment state, work is presumed to be at-will unless otherwise defined by contract. In an at-will employment arrangement, both the employer and the employee have the right to end the arrangement without notice and for any reason, without incurring liability. (There are a few exceptions to this, mentioned below.)

The South Carolina Supreme Court recently accepted three certified questions asked by the US District Court for the District of South Carolina to clarify state law on at-will employment matters. Here are the three questions put to the SC Supreme Court in Hall v UBS Financial Services Inc, 2021 (find it here) with more discussion on each issue below.

1. Are terminable at-will employment relationships contractual in nature as a matter of law?
2. Does the implied covenant of good faith and fair dealing arise in the context of terminable-at-will employment relationships, and can an employer’s termination of an at-will employee constitute a breach of the relationship such that it may give rise to a claim by the former employee against the employer for breach of the implied covenant of good faith and fair dealing?
3. Can an employer’s termination of an at-will employee, which results from a third-party employee’s report to the employer, constitute a breach of the relationship such that it may give rise to a claim by the former employee against the third-party employee for tortious interference with a contractual relationship?

The SC Supreme Court discusses the law rather than the particular facts of the case, but here’s some quick background before we delve into the court’s legal reasoning behind its answers:

Curt O. Hall sued his former employer, UBS Financial Services Inc., and a former co-worker, Mary Lucy Reid, after he was fired by UBS. Hall was a manager of the Greenville branch of UBS, and in September 2017 he organized a happy hour that a number of employees, including Reid, attended. Reid said she was scared to go home because of issues with her boyfriend, and Hall offered to let her stay at his home for the night. At the end of the night, Reid’s friend drove Hall home after the three of them had gone to dinner, with Hall and Reid sitting in the backseat together. Before getting out of the car, Hall again asked Reid if she was okay, then gave her a “European-style consolatory cheek kiss” (in the words of the district court) before getting out of the car. He texted her later that same night repeating his offer to let her stay, which she ignored. Soon after, Reid reported the incident to the HR department, and HR questioned Hall about his version of events. He was fired a few weeks later.

Hall brought a claim against UBS for breach of implied covenant of good faith and fair dealing and a claim against Reid for tortious interference with contractual relations, among other claims.

Question 1. Are terminable-at-will employment relationships contractual in nature as a matter of law?

The Supreme Court of South Carolina says yes.

The answer lies in general contract law. The court quotes itself in Prescott v Farmers Tel. Coop., Inc., 1999, in which it said “[T]o prove the existence of a definite contract of employment, the employee must establish all of the elements of a contract. The elements are: 1. A specific offer, 2. Communication of the offer to the employee, and 3. Performance of the job duties in reliance on the offer. The court says in Hall, “We agree with the majority of jurisdictions that have addressed this issue, and we hold those elements are present in every at-will employment arrangement.”

However, the court cautions that answering yes doesn’t “light a path” to make valid breach of contract claims when an employee is terminated. “[O]ur recognition that at-will relationships are contractual does not alter the established rule allowing an employer to discharge an at-will employee for any reason without incurring liability. That is because under South Carolina law, the right to fire the employee at any time and for any reason is an integral term of the at-will contract.”

(Note that there are exceptions that can impose liability on the employer for terminating an employee, such as termination in violation of the terms of the employee handbook or in violation of public policy, but here the supreme court answers the district court’s questions on the assumption that there are no exceptions.)

Question 2 Part A. Does the implied covenant of good faith and fair dealing arise in the context of terminable-at-will employment relationships?

The Supreme Court of South Carolina says yes.

“There exists in every contract an implied covenant of good faith and fair dealing,” says the court quoting Adams v. G.J Creel & Sons, Inc., 1995.

The court admits that both the SC Supreme Court and the SC Court of Appeals have previously found on occasion that the covenant doesn’t arise in at-will employment relationships. However, having answered a definitive “yes” to the first question, rationales denying the existence of the covenant in at-will employment relationships are no longer valid. “The implied covenant of good faith and fair dealing exists in all at-will employment contracts,” says the court in Hall.

Question 2 Part B. Can an employer’s termination of an at-will employee give rise to a claim by the former employee against the employer for breach of the implied covenant of good faith and fair dealing?

The South Carolina Supreme Court says no.

This question implies that breach of the implied covenant of good faith and fair dealing could be the basis for a cause of action. The SC Court of Appeals has held that it is not a cause of action separate and distinct from a cause of action for breach of contract. As answered in Part A, because every contract includes this covenant, then if the covenant has been breached then so has the contract, and the cause of action would be breach of contract.

In a separate opinion from the majority, Justice Few further explains the issue well, stating that while contracts have the covenant implied, the law superimposes over that the express provision that the employer may terminate an employee “at any time, for any reason or for no reason at all” (quoting Prescott). “This includes a reason that may not be in good faith,” writes Justice Few. “Stated differently, the implied promise to act in good faith does not protect the employee from being fired – no matter the reason – because the law specifically provides that the contract of employment permits any firing, even if it is not in good faith” (emphasis added).

In the majority opinion, the court answers Question 2 in its entirety as follows: “The implied covenant of good faith and fair dealing exists in an at-will employment contract; however, the employer’s termination of the employee cannot form the basis of a claim that the employer breached the covenant of good faith and fair dealing.”

Question 3. Can an employer’s termination of an at-will employee, which results from a third-party employee’s report to the employer, give rise to a claim by the terminated employee against the third-party employee for tortious interference with a contractual relationship, even when the termination itself was not a breach of the at-will contract?

The SC Supreme Court says yes.

The question the court poses and answers here is different from the one posed by the district court as stated at the top. The court revised the question because, it explains, the viability of a tortious interference claim brought by a terminated employee doesn’t depend on whether the termination was a breach of the at-will contract, but whether the third-party employee, without justification, made a report to the employer which led to the termination.

From Eldeco, Inc. v Charleston Cty. Sch. Dist., 2007, the elements of a claim for tortious interference with contractual relations are: 1. The existence of a contract, 2. Knowledge of the contract, 3. Intentional procurement of its breach, 4. The absence of justification, and 5. Resulting damages.

The court states that the majority of jurisdictions addressing this issue find that there can be a cause of action against a third party for tortious interference, even if there is no underlying breach of contract. It concurs, recognizing the validity of such a claim, and holds that “the absence of an underlying breach by the terminating employer does not shield the third party from liability when she intentionally and unjustifiably procures the termination of an at-will employee.”

Help with Contracts, Employment Matters, and Business in South Carolina

For help with contracts, corporate governance documents, starting or selling a business, and insightful advice from a legal perspective, contact business attorney Gem McDowell of the Gem McDowell Law Group. Gem has over 30 years of experience working with individuals and businesses in South Carolina, and he and his team can help you grow your business and protect your assets. Call the Mt. Pleasant office at 843-284-1021 today to schedule a free consultation.