Opinion ID: 1238594
Heading Depth: 1
Heading Rank: 3

Heading: Public-Policy Exception to Employment-at-Will Doctrine.

Text: A. Overview. We adhere to the common-law employment-at-will doctrine in Iowa. Fitzgerald v. Salsbury Chem., Inc., 613 N.W.2d 275, 280 (Iowa 2000). However, we joined the parade of other states twenty years ago in adopting the public-policy exception to the employment-at-will doctrine. Id. at 281. In doing so, we recognized a cause of action in Iowa for wrongful discharge from employment when the reasons for the discharge contravene public policy. Id. Since the adoption of this exception, we have identified and explained the elements of the cause of action. Lloyd v. Drake Univ., 686 N.W.2d 225, 228 (Iowa 2004). These elements are: (1) existence of a clearly defined public policy that protects employee activity; (2) the public policy would be jeopardized by the discharge from employment; (3) the employee engaged in the protected activity, and this conduct was the reason for the employee's discharge; and (4) there was no overriding business justification for the termination. Id.; accord Fitzgerald, 613 N.W.2d at 282 n. 2. This case primarily focuses on the public-policy element of the tort and ultimately requires us to decide if the source of public policy can be derived from administrative regulations. Yet, the case also requires us to consider the parameters of the public-policy element and to dig into the element to unearth and identify the often difficult distinction between a claim based on public policy and a claim based on a private dispute between an employer and employee. In this way, we must also consider the element of the tort that requires the employee to establish that the discharge was caused by the employee's participation in an activity protected by public policy. B. Sources of Public Policy. The concept of public policy generally captures the communal conscience and common sense of our state in matters of public health, safety, morals, and general welfare. Truax v. Ellett, 234 Iowa 1217, 1230, 15 N.W.2d 361, 367 (1944). Although public policy can be an elusive concept, once recognized, it becomes a benchmark in the application of our legal principles. See In re Marriage of Witten, 672 N.W.2d 768, 779 (Iowa 2003) (recognizing the definition of public policy is largely elusive). We have used public policy to constrain legal principles in many areas of the law, especially contracts. While we continue to adhere to the doctrine of employment at will, we have always recognized that parties may not incorporate matters into contracts that are contrary to our public policy. Walker v. Gribble, 689 N.W.2d 104, 110-11 (Iowa 2004). This fundamental principle actually dates back to one of our first cases as a territorial court in 1839, when we refused to enforce a contract for slavery. See In the Matter of Ralph, 1 Morris 1 (Iowa 1839). Thus, the public-policy exception to the employment-at-will doctrine carries forward a hallmark concept of this state; that the rights of each individual in a civilized society are ultimately limited by the rights of others and of the public at large and that the delicate balance between these rights is what helps hold us together as a society. Gantt v. Sentry Ins., 1 Cal.4th 1083, 4 Cal.Rptr.2d 874, 824 P.2d 680, 686-87 (1992), overruled on other grounds by Green v. Ralee Eng'g Co., 19 Cal.4th 66, 78 Cal.Rptr.2d 16, 960 P.2d 1046 (1998); see also Rocky Mountain Hosp. & Med. Serv. v. Mariani, 916 P.2d 519, 523 (Colo.1996) (The rationale underlying the [discharge-in-violation-of-public-policy] exception was the long-standing rule that a contract violative of public policy is unenforceable.). When a contract violates public policy, including a contract of employment, the entire community is damaged. In each case we have decided since adopting the public-policy exception to the employment-at-will doctrine, we have relied on a statute as a source of public policy to support the tort. See, e.g., Lara v. Thomas, 512 N.W.2d 777, 782 (Iowa 1994); Springer v. Weeks & Leo Co., 429 N.W.2d 558, 560 (Iowa 1988). At the same time, we have consistently rejected claims of wrongful discharge based on public policy when the public policy asserted by an employee was not derived from a statute. For example, we have declined to find public policy to support a wrongful-discharge tort based on generalized concepts of socially desirable conduct. See Lloyd, 686 N.W.2d at 229-30 (rejecting a claim for wrongful discharge by a private security guard for attempting to uphold criminal laws by arresting a perceived lawbreaker when no statute was identified protecting or promoting the employee activity sought to be protected). We have also held that public policy cannot be derived from internal employment policies or agreements. See Davis v. Horton, 661 N.W.2d 533, 536 (Iowa 2003) (holding no cause of action for public-policy discharge of employee for seeking to mediate an employment dispute pursuant to an employee handbook when no statute could be identified that protected the rights of employees to mediate disputes). In fact, consistent with other states, our wrongful-discharge cases that have found a violation of public policy can generally be aligned into four categories of statutorily protected activities: (1) exercising a statutory right or privilege, Springer, 429 N.W.2d at 559 (right to file workers' compensation claim); Lara, 512 N.W.2d at 782 (right to pursue unemployment benefits); Teachout v. Forest City Cmty. Sch. Dist., 584 N.W.2d 296, 300 (Iowa 1998) (intending to report child abuse); (2) refusing to commit an unlawful act, Fitzgerald, 613 N.W.2d at 286 (refusal to commit perjury); Borschel v. City of Perry, 512 N.W.2d 565, 567 (Iowa 1994) (referring to refusal to commit an unlawful act as one basis for wrongful-discharge claim); (3) performing a statutory obligation, Fitzgerald, 613 N.W.2d at 286 (testifying truthfully); and (4) reporting a statutory violation, see Harvey v. Care Initiatives, Inc., 634 N.W.2d 681, 685-85 (Iowa 2001) (recognizing employee, but not independent contractor, right to file complaint against employer). See generally Gantt, 4 Cal.Rptr.2d 874, 824 P.2d at 684; Vanessa F. Kuhlmann-Macro, Blowing the Whistle on the Employment At-Will Doctrine, 41 Drake L.Rev. 339, 341-42 (1992) (citing three categories of protected whistle-blowing activity). Our adherence in our prior cases to identifying statutes as a source of public policy is consistent with our earlier pronouncement that the tort of wrongful discharge should exist in Iowa only as a narrow exception to the employment-at-will doctrine. See Springer, 429 N.W.2d at 560 (adopting narrow public-policy exception). The legislature is the branch of government responsible for advancing public policy, and courts can be assured that the tort is advancing a legislatively declared goal when public policy is derived from a statute. See id. at 561. In turn, we can be assured that the public-policy exception to the employment-at-will doctrine is a product of the balancing by our legislature of the competing interests of the employer, employee, and society. See Fitzgerald, 613 N.W.2d at 283. This balance means the discretion employers have to discharge at-will employees without cause will be limited only under narrow circumstances, and the law will continue to give law-abiding employers the freedom to make managerial decisions in the operation of their businesses. See Green v. Ralee Eng'g Co., 19 Cal.4th 66, 78 Cal.Rptr.2d 16, 960 P.2d 1046, 1054 (1998); Palmateer v. International Harvester Co., 85 Ill.2d 124, 52 Ill.Dec. 13, 421 N.E.2d 876, 880 (1981) (observing employer business decisions, no matter how sound, cannot override a decision by the legislature). The use of statutes as a source of public policy also helps provide the essential notice to employers and employees of conduct that can lead to dismissal, as well as conduct that can lead to tort liability. Fitzgerald, 613 N.W.2d at 282. The public-policy exception was adopted merely to place a limitation on an employer's discretion to discharge an employee when the public policy is so clear and well-defined that it should be understood and accepted in our society as a benchmark. See Martin Marietta Corp. v. Lorenz, 823 P.2d 100, 109 (Colo.1992) (action directed by employer violates a specific statute relating to public health, safety, or welfare or undermines a clearly expressed public policy relating to the employee's basic responsibility as a citizen with the employee's right or privilege as a worker). Our reliance on statutes as a source of this limitation has been a way to ensure that the tort continues to serve its objectives. While we have justifiably relied on statutes, we have not closed the door to using other sources as a means to derive public policy to support the tort. We have repeatedly observed that our constitution is a proper source of public policy. See id. at 283 (citing Borschel, 512 N.W.2d at 567). Moreover, we have recognized that other jurisdictions have used administrative regulations as a source of public policy, yet we have not had the occasion to decide the issue until today. See id.; see also Tullis v. Merrill, 584 N.W.2d 236, 239-40 (Iowa 1998) (relying on an administrative regulation to find public policy from a statute). Kid University generally asserts that administrative regulations are an unreliable source of public policy because they are too numerous to serve as a recognized guide for employers and do not actually express the voice of our legislature. It argues that even a regulation pertaining to safety is merely another administrative rule in a veritable ocean of safety regulations in this state. In deciding whether administrative regulations may be used as an additional source of public policy to support the tort of wrongful discharge, we generally observe a strong fundamental congruence between statutes and administrative regulations. Administrative agencies have become an important component of our modern world of governance as a means for our legislature to better deal with the array of complex and technical problems it faces. See Mistretta v. United States, 488 U.S. 361, 372, 109 S.Ct. 647, 654-55, 102 L.Ed.2d 714, 731 (1989) (discussing the development of Congressional delegation of authority). Thus, our legislature often delegates its rule-making authority to administrative agencies as a means to better accomplish its objectives in dealing with these problems. See Auen v. Iowa Dep't of Commerce, 679 N.W.2d 586, 590 (Iowa 2004) (addressing legislature's delegation of authority to adopt rules necessary to carry out Iowa Code chapter 123). The administrative regulations ultimately adopted are necessarily tied to the broad directives of the legislature and effectuate the intent of the enabling legislation. See Lenning v. Iowa Dep't of Transp., 368 N.W.2d 98, 103 (Iowa 1985) (analyzing the validity of an administrative rule based on whether the rule conflicts with the intent of the enabling legislation). Administrative regulations have the force and effect of a statute. Stone Container Corp. v. Castle, 657 N.W.2d 485, 489 (Iowa 2003). Moreover, the regulations are required to be consistent with the underlying broader statutory enactment. Iowa Dep't of Revenue v. Iowa Merit Employment Comm'n, 243 N.W.2d 610, 615-16 (Iowa 1976). These observations reveal that administrative regulations can be an important part of a broader statutory scheme to advance legislative goals. They can reflect the objectives and goals of the legislature in the same way as a statute. Consequently, the justification for relying on statutes as a source of public policy can equally apply to administrative regulations. Administrative regulations have the potential to reflect legislative intent, satisfy our concern that public policy be derived from statutory sources, and can provide the same notice to employees and employers as a statute. The argument that most administrative regulations are too detailed and numerous to serve as a source of public policy is itself too generalized to eliminate all administrative regulations as a source of public policy. Consequently, we are satisfied that administrative regulations can be used as a source of public policy to support the tort of wrongful discharge when adopted pursuant to a delegation of authority in a statute that seeks to further a public policy. We also recognize this position is consistent with most jurisdictions that have considered the question. See Green, 78 Cal.Rptr.2d 16, 960 P.2d at 1054; Conoshenti v. Pub. Serv. Elec. & Gas Co., 364 F.3d 135, 149 (3d Cir.2004) (New Jersey law); Schatzman v. Martin Newark Dealership, Inc., 158 F.Supp.2d 392, 398-99 (D.Del.2001) (Delaware law); Bonidy v. Vail Valley Ctr. for Aesthetic Dentistry, P.C., 186 P.3d 80, 83 (Colo.Ct.App.2008); Sears, Roebuck & Co. v. Wholey, 139 Md.App. 642, 779 A.2d 408, 413 (2001); Kittelson v. Archie Cochrane Motors, Inc., 248 Mont. 512, 813 P.2d 424, 426-27 (1991); Leininger v. Pioneer Nat'l Latex, 115 Ohio St.3d 311, 875 N.E.2d 36, 39 (2007); Weaver v. Harpster, 885 A.2d 1073, 1077 (Pa.Super.Ct.2005); Feliciano v. 7-Eleven, Inc., 210 W.Va. 740, 559 S.E.2d 713, 723 (2001); Bammert v. Don's Super Valu, Inc., 254 Wis.2d 347, 646 N.W.2d 365, 369 (2002). But see Rackley v. Fairview Care Ctrs., Inc., 23 P.3d 1022, 1030 (Utah 2001). Nevertheless, a declaration that an administrative regulation can be a source of public policy to support the tort of wrongful discharge does not answer the question whether a particular administrative regulation is a source of public policy to support the tort. To support the tort, an administrative regulation must state a clear and well-defined public policy that protects an activity in the same way as a statute must state a clear and well-defined public policy to support the tort. See Lloyd, 686 N.W.2d at 228 (requiring the existence of a clearly defined public policy that protects an activity). Thus, the administrative regulation must not only relate to public health, safety, or welfare, but the regulation must also express a substantial public policy in a way that furthers a specific legislative expression of the policy. Accordingly, we turn to the particular administrative regulation governing child care facilities at issue in this case to determine if it actually expresses a clear and well-defined public policy that can support a wrongful discharge claim. While courts do not declare public policy, courts must necessarily determine if public policy has been expressed in a statute or an administrative regulation. C. Public Policy Derived From Administrative Rules Governing Staff Ratios of Child Care Facilities. Our legislature has chosen to regulate child care facilities under chapter 237A of the Code. The regulatory agency is the department of human services. Iowa Code § 237A.12. Specifically, this statute authorizes the department to adopt rules setting minimum standards to provide quality child care in the operation and maintenance of child care facilities. Iowa Code § 237A.12(1). The legislature specifically authorized the department to adopt rules regulating [t]he number ... of personnel necessary to assure the health, safety, and welfare of children in the facilities. Iowa Code § 237A.12(1)( a ). One rule adopted by the department in response to this legislative directive establishes specific staff-to-child ratios. Iowa Admin. Code r. 441-109.8. The employee in this case relies upon this administrative rule as a declaration of a public policy that prohibits an employer from discharging an employee for refusing to violate the staff-to-child ratio rule or for insistence on compliance with the rule. Our prior cases have revealed that not all legislative enactments support a wrongful-discharge tort. Instead, many statutes simply regulate conduct between private individuals, or impose requirements whose fulfillment does not implicate fundamental public policy concerns. Foley v. Interactive Data Corp., 47 Cal.3d 654, 254 Cal.Rptr. 211, 765 P.2d 373, 379 (1988). The difficult task for courts is to determine which claims involve public policy and which claims involve private disputes between employers and employees governed by the at-will employment doctrine. See Gantt, 4 Cal.Rptr.2d 874, 824 P.2d at 684; see also Fitzgerald, 613 N.W.2d at 282 (holding court determines issue as a matter of law). Our prior cases provide many important guidelines. From the beginning of our adoption of the public-policy exception, we have emphasized that the public policy must be both well recognized and clearly expressed. Springer, 429 N.W.2d at 560. These two concepts partially express the important notion that the policy identified must deal with a public interest so that the discharge from employment violates a fundamental, well-recognized interest that serves to protect the public, not individual interests. Of course, the public interest in a policy is most easily observed in those instances when an enactment expressly protects a specific employment activity from adverse employment consequences. See Tullis, 584 N.W.2d at 239 (considering a statute that not only permits employees to file claims for wages, but expressly prohibits an employer from discharging employee for filing a claim for wages). Yet, in our seminal case adopting the tort of wrongful discharge, we made it clear that the public policy to support the tort can exist in a statute without an express declaration that the specific activity is protected from adverse employment consequences. See Springer, 429 N.W.2d at 560-61. Instead, public policy to support the tort can be found if the statute clearly implies the activity in question is protected in the workplace. In Springer, we found an express declaration in the statute that an employer could not be relieved of any duties imposed under the workers' compensation statute to be a clear implication of a public policy to protect an employee from adverse employment consequences for filing a claim for benefits. Id. The unqualified statutory declaration impliedly captured the specific protected activity to serve as the foundation for the tort. This requirement of aligning public policy with specific statutory language can be observed in our cases that followed Springer. See Fitzgerald, 613 N.W.2d at 286 (statute that outlaws perjury clearly implies a public policy to protect an employee who either refuses to commit perjury or insists on providing truthful testimony); Teachout, 584 N.W.2d at 300-01 (statute that specifically promotes the reporting of child abuse clearly implies a public policy to protect an employee who files a child abuse report from adverse employment activity); Lara, 512 N.W.2d at 782 (statute that voids any agreement to limit or deprive an employee of unemployment benefits clearly implies a public policy to protect a worker who seeks partial unemployment benefits from adverse employment activity). These cases reflect the principle that the public policy to support the tort must be clear and well-defined so that a legislative declaration of a protected activity will provide the required notice to employers and employees. On the other hand, legislative pronouncements that are limited in scope may not support a public policy beyond the specific scope of the statute. See Fitzgerald, 613 N.W.2d at 285 (statutes that protect against specific discriminatory practices do not imply a public policy to protect workers who engage in conduct not specifically covered from adverse employment action); Harvey, 634 N.W.2d at 685-86 (statute that authorizes persons to request state authorities to investigate a nursing home, but only specifically provides whistle-blowing protection to employees and residents does not imply a public policy to protect whistle blowers who are independent contractors). A court may not give public-policy protection that the legislature has chosen not to provide under a statutory scheme. Overall, these prior cases have made it clear that a policy sought to be derived from an enactment must affect a public interest so that the tort advances general social policies, not internal employment policies or individual interests. Consequently, this same approach is applicable to determine if an administrative regulation advances a public policy to support the tort. In this case, the legislature clearly delegated authority to the department of human services to promulgate specific rules concerning the proper staff-to-child ratios as a means to assure the health, safety, and welfare of children in child care facilities. Iowa Code § 237A.12(1)( a ). Without question, the protection of children is a matter of fundamental public interest. Teachout, 584 N.W.2d at 300-01. See also Palmateer, 52 Ill.Dec. 13, 421 N.E.2d at 876 (observing there is no public policy more important or fundamental than one favoring the effective protection of the lives of citizens). These factors satisfy the goal that the regulation affect the public interest. Nevertheless, Kid University argues that the specific ratio regulations, while important, are not important enough to limit the discretion of employers to discharge employees. We agree with Kid University that the public policy advanced by the wrongful-discharge tort must be important and that many administrative regulations may not support the tort. However, we have no hesitation in finding that the staff-to-child ratios demonstrate an important public policy in Iowa. Our legislature has specifically said the ratios are needed to protect children, and we have consistently declared the safety of children to be one of our highest priorities in this state. See In re B.B.M., 514 N.W.2d 425, 428 (Iowa 1994) (holding the welfare of the child is the paramount consideration in cases dealing with children). We recognize the right of employers to operate a business is also important, but certainly not more important than the health, safety, and welfare of our children. We disagree with the district court that the use of this administrative regulation as a basis for the tort will undermine the at-will employment doctrine. To the contrary, it expresses the type of policy the tort was designed to embrace. Our legislature clearly wanted the ratios to be put into place to protect children, and this important public objective would be thwarted if an employer could discharge an employee for insisting the ratios be followed. Lastly, Kid University argues that this particular administrative regulation is too detailed and confusing to qualify as a clearly defined public policy. It asserts reasonable employers could not expect to know they are violating the public policy behind the ratios by discharging an employee when the ratios are not clearly defined. While the particular administrative regulation at issue in this case may be detailed, no reasonable employer with knowledge of the ratio requirements would believe the ratios could be disregarded or that the refusal by an employee to disregard the ratios could be used as a reason to terminate the employee. Any confusion in the application of the ratios would not undermine or diminish the important public policy that child care facilities in this state be operated with an adequate number of staff as determined by the Iowa Department of Human Services. We conclude the particular administrative rule at issue in this case supports a clear and well-defined public policy that gives rise to the tort of wrongful discharge. The ratios were implemented at the specific direction of the legislature to protect the health, safety, and welfare of those children in Iowa who attend day care facilities. Additionally, the legislature intended for the ratios to be an important component of the larger public policy to protect children and, in turn, established a basic, important component of the operation of a day care center in Iowa. These factors transform the ratios into a public policy and satisfy the element of the tort that a clear and well-defined public policy that relates to public health, safety, or welfare be identified. D. Employee Participation in the Protected Activity as a Cause of the Discharge. In addition to the existence of a public policy to create a protected activity, the tort of wrongful discharge requires proof that the discharge was a result of the employee's participation in the protected activity. This requirement is frequently identified as the causation component of the tort and requires the employee to show the protected activity engaged in by the employee was the determinative factor in the employer's decision to terminate the employee. Teachout, 584 N.W.2d at 301. Kid University first argues Jasper failed to establish this element because there was no evidence it actually violated the ratio requirements during Jasper's term of employment, and there was no evidence Jasper even reported a suspected violation of the ratio requirements to the department of human services during her employment. Thus, Kid University asserts Jasper did not engage in a protected activity to support liability. Instead, it claims Jasper was merely engaged in an internal employment dispute with Kid University over a legitimate employer concern that the center was overstaffed. We have recognized the tort of wrongful discharge not only protects the reporting of an activity violative of public policy, but also protects the refusal by an employee to engage in activity that is violative of public policy. See Fitzgerald, 613 N.W.2d at 286. Thus, Jasper was not required to show that Kid University knowingly violated the ratio requirements or that she reported a suspected violation to state officials. Under the category of claim brought by Jasper, she was only required to show Kid University wanted her to cut staff below the ratio requirements, and she was discharged for refusing to do so. See Sears, Roebuck & Co. v. Wholey, 139 Md.App. 642, 779 A.2d 408, 414-15 (2001) (`Limitation of the claim for [wrongful] discharge to situations involving the actual refusal to engage in illegal activity, or the intention to fulfill a statutorily prescribed duty, ties [wrongful] discharge claims down to a manageable and clear standard.') (quoting Adler v. Am. Standard Corp., 830 F.2d 1303, 1307 (4th Cir.1987)). Kid University argues there was insufficient evidence to support a finding by the jury that it requested Jasper to violate the ratio requirement or that she refused to do so. Again, Kid University characterizes the dispute as a legitimate employer concern to minimize overhead and expenses in the operation of its business. We readily recognize the tort of wrongful discharge is not intended to interfere with legitimate business decisions of an employer. Yet, staffing a child care facility below the minimum requirements established by an administrative rule is not a legitimate business concern. In this case, there was sufficient circumstantial evidence that Kid University wanted Jasper to reduce staff below the minimum state requirements. Hussain repeatedly urged Jasper to cut staff after Jasper had repeatedly told him the staff ratios were at the minimum levels. The repeated nature of the discussions over the reduction of staff, under the circumstances, was circumstantial evidence that Kid University wanted Jasper to disregard the requirements. Similarly, Zakia Hussain's comment about failing to disclose staff levels to the department of human services could be viewed as an implied demand to disregard the minimum ratios. Likewise, the evidence that Jasper was discharged within a short time after a discussion over staffing levels, as well as evidence that the center violated the staffing level shortly after Jasper was discharged, circumstantially shows Kid University wanted Jasper to violate the state requirements. This same evidence supports a finding by the jury that Jasper was discharged because she refused to violate the state requirements. We have said that the timing between the protected activity and the discharge is insufficient, by itself, to support the causation element of the tort. Hulme v. Barrett, 480 N.W.2d 40, 43 (Iowa 1992). However, there was ample circumstantial evidence for the jury to conclude Jasper was discharged for refusing to staff at a level below the minimum requirements. Kid University contends it offered ample evidence to justify the decision on grounds that did not violate public policy, but the jury was free to conclude those reasons were merely pretextual. We conclude there was sufficient evidence that Jasper's refusal to violate the administrative regulations was a cause of her discharge and that there was no overriding justification for the termination.