Wagenseller v. Scottsdale Memorial Hospital

Supreme Court of Arizona, En Banc
147 Ariz. 370, 710 P.2d 1025 (1985)

ELI5:

Rule of Law:

An employer may terminate an at-will employee for good cause or no cause, but not for a 'bad cause' that violates an important public policy as articulated in constitutional, statutory, or decisional law. Employer policy manuals may become implied-in-fact contract terms that limit the employer's right to discharge, creating a question of fact for a jury.

Facts:

Catherine Wagenseller was hired as a nurse at Scottsdale Memorial Hospital in 1975 and was an at-will employee.
Her supervisor was Kay Smith, with whom she maintained a good working relationship for over four years.
In May 1979, Wagenseller, Smith, and others from the medical community went on an eight-day camping and rafting trip.
During the trip, Smith and other members of the group engaged in heavy drinking, public urination, and public defecation.
The group also performed a parody of the song 'Moon River' which concluded with the performers 'mooning' the audience.
Wagenseller refused to participate in these activities, including the 'Moon River' skit, both on the trip and when it was later performed at the hospital.
After the trip, Wagenseller alleges that her relationship with Smith deteriorated and Smith began to harass and embarrass her at work.
On November 1, 1979, Wagenseller was terminated from her employment, despite a history of consistently favorable performance evaluations prior to the trip.

Procedural Posture:

Catherine Wagenseller brought suit against Scottsdale Memorial Hospital, its personnel administrators, and her supervisor, Kay Smith, in an Arizona trial court.
The trial court granted the defendants' motion for summary judgment, dismissing all of Wagenseller's causes of action.
Wagenseller, as appellant, appealed the judgment to the Arizona Court of Appeals.
The Court of Appeals affirmed the summary judgment for the Hospital but reversed and remanded the claim against supervisor Smith for tortious interference with contract.
Wagenseller then petitioned the Arizona Supreme Court for review.

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Issue:

Does the termination of an at-will employee for refusing to participate in an activity that might violate a criminal statute, such as indecent exposure, constitute a wrongful discharge in violation of public policy?

Opinions:

Majority - Feldman, Justice.

Yes. An employer may not fire an at-will employee for a cause that violates public policy. Termination of an employee for refusing to perform an act that might violate a criminal statute, such as the state's indecent exposure law, is a termination contrary to public policy and provides the basis for a wrongful discharge claim. The court adopted the public policy exception to the employment-at-will doctrine, holding that while an employer can fire an employee for good cause or no cause, they cannot fire for a 'bad cause' rooted in a violation of public policy found in constitutions, statutes, or judicial decisions. The court also held that statements in an employer's personnel manual can become implied-in-fact terms of the employment contract, and whether they did in this case is a question of fact for the jury. Lastly, while recognizing an implied covenant of good faith and fair dealing, the court held it does not create a duty to terminate only for good cause but does protect an employee from a discharge intended to prevent the receipt of benefits already earned.

Concurring-in-part-and-dissenting-in-part - Holohan, Chief Justice,

The opinion concurs in the result on most issues but dissents regarding the personnel manual. The Chief Justice agrees with the Court of Appeals' analysis that the personnel manual was not, as a matter of law, part of the employment contract. Therefore, he dissents from the majority's holding that this issue should be a question of fact for the jury.

Analysis:

This is a landmark decision in Arizona employment law that significantly curtailed the traditional employment-at-will doctrine. It formally adopted the public policy exception, creating a tort cause of action for employees terminated for reasons society deems unacceptable, such as refusing to commit a crime. The decision also reinforced that employer-issued handbooks are not mere guidelines but can create binding contractual obligations, exposing employers to greater liability for breach of contract claims. Finally, by adopting the Restatement's 'improper' interference test for supervisors, the case provided a more nuanced framework for analyzing third-party interference claims in the employment context.

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