Employer Rights in the Regulated Employment Regime

By Wm. Joseph Austin, Jr.

Q.  I’m the Employer, what are my rights?

A.  You have the right to be sued.

This dictum comes from Peter Panken, a distinguished management lawyer and frequent presenter at Labor and Employment seminars.  Overstating the point to make a point, he reminds the employer to maintain the right mindset.  Be aware (get familiar with the basic legal principles or get good counsel) and be wary (take deliberate action; avoid making a hasty decision based on the emotion of the moment).

         Yes, North Carolina is still an “at will” and a “right to work” state, but the employment relationship in North Carolina, and in all fifty states for that matter, is fraught with regulation.  And everybody is an instant lawyer these days!  Due to the proliferation of electronic devices and online legal advice, “The Law” is nearly as accessible now as the publicly-displayed stone slabs that contained the Code of Hammurabi nearly four millennia ago, just not as simple.  (There were minimum wage laws even then, for example, Law # 256, “If any one hire a field laborer, he shall pay him eight gur of corn per year,” and Law # 258, “If any one hire an ox-driver, he shall pay him six gur of corn per year.”)

Still the modern law does hold employees to certain criteria, first and foremost, the obligation to discharge their duties with reasonable diligence, care, and attention.  McKnight v. Simpson’s Beauty Supply, 86 N.C. App. 451, 358 S.E.2d 107 (1987).  The employer has the right to establish and enforce the standards for performance so long as it is done in a non-discriminatory way consistent with the EEO laws and other workplace regulations.  The employer does not have to tolerate behavior which an exasperated management witness once described to the author as “piddling, partying, and putting time on the clock.”

Employees are also obliged to serve their employers “faithfully.”  McKnight v. Simpson’s Beauty Supply, 86 N.C. App. 453, 358 S.E.2d at 109.  This is also described as an employee duty of loyalty.  Dalton v. Camp, 353 N.C. 647, 548 S.E.2d 704 (2001).  Compare this text with what the United States Supreme Court had to say on the subject in the context of federal labor law, “There is no more elemental cause for discharge of an employee than disloyalty to his employer.”  NLRB v. Local Union No. 1229, IBEW, 364 U.S. 464, 472 (1953)(hereinafter Jefferson Standard).   

There are two levels of employee loyalty, one very generic and general, and the other fiduciary.  The fiduciary duty comes with agency relationships, that is, when the employee is authorized to bring the employer into contractual relations with third parties.  Robert E. Lee, North Carolina Law of Agency & Partnership §2, at 2 (5th ed. 1975)(hereinafter Prof. Lee).

Generally, although employment law is a species of agency law, Prof. Lee at 3, the rank and file employee is not considered to hold a fiduciary relationship with the employer.  In the most basic terms, this level of employment refers to those who work for another for wages or salary in consideration of the right to demand pay for their services, Lucas v. Li’l Gen. Stores, 289 N.C. 212, 219, 221 S.E.2d 257, 261 (1976), a slightly more sophisticated way of invoking the older notion of “a day’s pay for a day’s work.”  Prof. Lee has described the employee or servant’s nonfiduciary general duty at this level of employment as that of “obedience and good faith in respect to his acts of service.”  Id.

 A fiduciary duty, on the other hand, arises from special circumstances when the employee has been given more authority and discretion of a “contractual character.”  Prof. Lee at 2.  For example, in the case of Sara Lee Corp. v. Carter, 351 N.C. 27, 519 S.E.2d 308 (1999), the employee’s job duties were to get the employer’s PC’s serviced.  Instead of contracting with a third party to get the work done at a price favorable to his employer, the employee set up his own business, then supplied the employer with computer parts and service at inflated prices.  Entrusted with binding authority to enter into contracts in the employer’s name, the employee was self-dealing at excessive cost to the employer.  Cashing in on this conflict of interest was held to be a breach of fiduciary duty.  The employer was able to sue the employee and recover substantial damages. 

An agent may be an employee, but not all employees are agents.  Prof. Lee at 3.  Furthermore, an employee may be an agent for one branch of his program of work, but a mere “servant” for another.  Id.  The general rule remains that without the extra repository of employer trust plus the employee’s infidelity within the authorized zone of trust the rank-and-file employee’s breach of the duty of loyalty (“obedience and good faith”) does not give rise to the right to sue the employee.  It is a defense to an employee lawsuit for alleged wrongful discharge.  That is, employee disloyalty is only just cause for termination of the employment relationship.

In recent years another dimension of the disloyalty issue has played out in social media and in employer reaction to critical things employees will say on their own time, on their own devices, and on their own social media accounts.  Employees do from time to time turn to social media to vent about what happens at work.  The employer usually finds out in one of two ways.  An employer may proactively monitor public sites to make sure that its name and reputation are not disparaged.  Here again that kind of oversight is legal as long as it is conducted in a non-discriminatory manner, i.e., in conformity with the EEO laws.  The other way that the employer will find out about a problematic post is from a co-worker, often in the form of a screenshot laid on the supervisor’s desk by the co-worker who asks a pointed question, something like, “Are you going to put up with this [expletive deleted]?”

The National Labor Relations Board (NLRB) under the last administration was in the thick of this controversy.  It generally held that the employee has the right to post information about his or her wages, hours, and working conditions.  An after-hours post of this nature and a “like” or two by coworkers would get Section 7 protection under the National Labor Relations Act as permitted concerted activity.  Adverse action by the employer in that case could result in the charge of an unfair labor practice or ULP.

Not protected would be threats of violence, racial epithets, or intentional defamatory attacks on the company brand.  The SCOTUS opinion quoted above, Jefferson Standard, has been invoked in cases dealing with the last point, including high tech employee attacks on the employer’s reputational interest.  It is still good law even though it has a low tech ‘50’s vintage.  Employees of WBT television station in Charlotte were involved in a labor dispute with their employer, the owner of the station, Jefferson Standard Broadcasting Company (thus the Jefferson Standard appellation).  The employees disparaged the quality of WBT’s programming by distributing handbills that suggested WBT was making Charlotte look like a “second-class city.”  364 U.S. at 468.  Criticism of WBT’s programming, however, was not related to wages, hours of work, or any other terms of the employment relation.  The Court held that disparaging the employer’s product to leverage worker demands in a labor dispute was not a protected activity under the National Labor Relations Act.  This disloyalty exception to Section 7 rights is also referred to as the Jefferson Standard doctrine.

Unprotected speech does not get Teflon-coated when published in more high tech media.  The emerging best practice has been for the employer to promulgate a clear social media policy to let employees know that there are limits on what can be said even on their own time and on their own devices about their employer, co-workers, and the employer’s goods and services.  The employer does have the right, even the duty under Title VII for example, to protect other employees from illegal harassment, and the employer also has the right to protect itself from defamation, disclosure of trade secrets, and other intentional harm to its reputation.

It stands to reason that the Jefferson Standard disloyalty exception will hold up for some time to come.  So yes, the employer does have rights, but our earlier admonition is worth repeating, be aware and be wary.  Those rights, like the at-will rule, are useful if not pressed too far.