Incentives created by Grouse ruling : LUSENET : Lessig's Contracts : One Thread

If I'm not mistaken, the Court's ruling in Grouse meant that the company is being punished for making a bad promise, i.e. promising him a chance at employment but then not giving him that chance. And we concluded that if the company had hired him as promised, it would then have the right to fire him at any time thereafter because of the "employment at will" contract. I am a bit curious as to why the court didn't address the ex ante incentives that the rule might create for companies in the future to just let the promisee work for a day and then fire him, rather than telling him he wouldn't be hired. It seems a company could effectuate the same purpose and cause identical harms to the promisee, but not be held liable in Court. I just have trouble seeing the practical benefit of a rule that appears so easy to end run around. Any ideas that might settle this for me would be appreciated.

Thanks, Trish

-- Anonymous, October 28, 1998


I think that, practically speaking, it would take a lot of foresight and malice for a company to go through with hiring the guy and then immediately fire him as an evil plot to keep out of court and still give him the run-around. The ex ante incentive is not take advantage of the 5-second firing, but to tell him right off the bat: "we'd like to offer you the job, but don't do anything crazy until we give you the final word." That's probably the more realistic incentive I'd imagine...

-- Anonymous, October 29, 1998

Is it clear that the company wouldn't be liable for the employee's reliance if it fires him right after he went to work? The court says, "[U]nder appropriate circumstances we believe section 90 would apply even after employment has begun." Does anyone have any ideas on what kind of circumstances the judges meant? Would these circumstances be more limited than b/f Grouse had started working?

Thanks, Tawen

-- Anonymous, October 29, 1998

I agree with Tawen that the Court has provided a very confusing precedent by alluding to the fact that once employment has commenced the employer could still be held liable for damages. In light of what Professor Lessig said about "firing at will" the Court's statement seems to make very little sense. Perhaps the Court is trying to say that it could hold a company liable if after the individual has been employed for a short period the company lets him/her go because the proper hiring procedures weren't followed to begin with, but doesn't that create a perverse incentive for the company to lie and make up a performance or personality excuse for the firing? If the company can fire at will, then is a hiring related reason the only type of firing that falls under reckless promising and therefore would result in damages? How could the individual prove that was the only reason they were fired?

-- Anonymous, November 01, 1998

The court says "the appellant had the right to assume he would be given a good faith opportunity to perform his duties to the satisfaction of respondent" (p.363, bottom right). So it seems the the "employment at will" contract is interpreted to mean "empoyment at will in good faith." Therefore, firing someone 5 minutes after hiring them would constitute "bad faith", and would allow the fired person to sue under Section 90, I think.

-- Anonymous, November 01, 1998

I have kind of a basic question, which I think had been discussed in class before but which I didn't really understand:

Is it possible to win a reliance case in which the plaintiff knew the content of the contract (which expressly forbids reliance) but relied anyway because of the way things are "usually" done?

For example, I don't know if anyone read the little print on the promissory note for the Harvard Loan, but it says somewhere on there that Harvard has the option of demanding the payment of the entire loan plus interest without notice once we graduate from Harvard University. So according to the contract I shouldn't rely on the idea that I have 10 years or whatever to pay off that particular loan. But based on all the other loans I have taken out plus what I assume is the usual payment method for the Harvard Loan, can anyone really say I relied unreasonably if I plan my life based on the idea that I'll have several years to pay off that loan?

If the answer is no, then what's the point of making a contract like "employment at will"? If the answer is yes, doesn't that take away a lot of the force behind the reliance doctrine?


-- Anonymous, November 01, 1998

In response to Tawen's question about the ability to collect on reliance based on the way things are "usually" done when the contract specifically states otherwise...

My guess to this question is that yes, given the small print on the promissory note, Harvard could collect repayment of your loan immediately upon your graduation, and that yes, despite what you have learned through previous loan experiences, you could be charged as relying unreasonably on the expectation of a lengthier period to repay. Otherwise, as you pointed out, why bother having the small print on the promissory note, or the terms of the "employment at will" contract. My interpretation is that this small print is a clear example of contracting around the possibility of breach.

With respect to your concern as to whether this detracts from force behind the reliance doctrine, I would say that it doesn't really. My understanding is that the main purpose of the reliance doctrine is not so much to remedy the poor relying paties who were surprised by a breach, but rather to deter parties from carelessly promising. Here, Harvard has not carelessly promised, and in fact has taken extra care to ensure mutual understanding of how it plans to act given a potential turn of events (i.e. future dire need of money by the university, etc.) Thus, by rewarding/recognizing Harvard's initiative to expressly spell things out, and by not rewarding you on your reliance, not only is the driving doctrine behind reliance NOT desecrated, but the goal of getting parties to be as clear as possible in their contracting is supported.

-- Anonymous, November 02, 1998

Emmeline, thanks for your answer, which was really clear and made a lot of sense.

I guess I am not sure though how "careless promising," the behavior reliance doctrine is trying to deter, should be defined. I feel that contracts like "employment at will," which in some sense can be said to be the opposite of careless promising, actually encourage careless promising. For example, if "employment at will" contract cannot be challenged in court based on the reliance doctrine, employers would be able to be a lot more careless in promising employees salaries / benefits while they are on the job--because those can always be terminated as soon as the employer wants to terminate them.

I know it can be argued that if clauses like "employment at will" are really that disadvantageous to the employees, competition among the employers will result in the employer using that type of contract having no employees. But here is why I think this type of contract clauses particularly violates the spirit behind the reliance doctrine: the clause is in some sense taking advantage of the employees' expectations about how things are "usually" done--that you won't be fired unreasonably regardless of what the contract says.

I suppose I can see why this kind of contract might make sense in an employment context--you don't want to force people to work with others with whom they have a personality clash. (Although I am not sure about that either.) But I see less justification in a context where no personal association is involved--like the Harvard Loan case. I guess this is sort of like the discussion we are having in Property about whether there should be an implied reasonableness requirement in the landlord consent to subletting clause in a lease.

Do other people have an opinion on this?


-- Anonymous, November 07, 1998

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