The Meaning of Cause in Employment Contracts

• Jurisdiction: Colorado,United States
• Citation: Vol. 31 No. 7 Pg. 133
• Pages: 133
• Publication year: 2002

31 Colo.Law. 133 Colorado Lawyer 2002.

2002, July, Pg. 133. The Meaning of Cause in Employment Contracts

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133

Vol. 31, No. 7, Pg. 133

The Colorado Lawyer
July 2002
Vol. 31, No. 7 [Page 133]

Specialty Law Columns
Labor and Employment Review
The Meaning of "Cause" in Employment Contracts
by David R. Fine

This column is sponsored by the CBA Labor Law Forum Committee to present current issues and topics of interest to attorneys, judges, and legal and judicial administrators on all aspects of labor and employment law in Colorado

Column Editor

John M. Husband of Holland & Hart LLP in Denver - (303) 295-8228

About The Author

This month's article was written by David R. Fine, Denver, a partner with Kelly, Haglund, Garnsey & Kahn LLC - (303) 296-9412.

"Cause" is often not defined in termination provisions of employment contracts, although the interpretation of this term is critical to determining a dispute over termination of employment. This article reviews the law concerning the meaning of "cause" and its implications for practitioners.

In Colorado, employment is generally "at-will." Ordinarily, either an employer or an employee can terminate an at-will employment relationship at any time without incurring legal liability, unless there was an illegal reason for the termination.1 There are numerous exceptions to the at-will rule. Employment contracts, especially those involving executives, often have termination provisions expanding the employee's rights. The agreements may be express (written or oral) or implied (for example, contained in employee handbooks or similar documents).

In some instances, employment contracts allow termination of employment only for "cause."2 Some employment contracts make termination "other than for cause" a condition for the employee to receive certain employment benefits, such as a retention bonus or severance. Despite the importance of its meaning, "cause" may or may not be defined in the contract. Colorado courts have neither determined what "cause" means when it is not defined in a contract nor which party has the burden of proving that "cause" did or did not exist. However, courts in other jurisdictions have addressed these questions.

This article discusses varying standards for determination of "cause," reviews the law in Colorado, and canvasses decisions of courts in other jurisdictions.3 Finally, the article offers advice for practitioners facing questions about the meaning of "cause" in employment contracts.

Objective Versus

Subjective Determination Of Cause

Significant workplace policy issues underlie the determination of the meaning of "cause" in an employment contract. The competing principles are the employer's need for latitude in efficiently operating its business and the employee's interest in continuing employment without fear of arbitrary actions by the employer. The possible tests for determining cause weigh these principles differently.

At one extreme, a court could defer completely to the employer and conclude that "cause" essentially means any good faith, rational reason given by the employer for the employment action. This is sometimes referred to as the "subjective standard."4 This approach would have the jury essentially rubber-stamp an employer's "cause" decision and certainly would result in virtually all such decisions being upheld.

At the other end of the spectrum, a court could define "cause" so as to allow a fact-finder to substitute its judgment completely for that of the employer, in essence acting as a super-employer in deciding whether the employment action was proper. Such an approach allows the jury to reexamine the factual basis for an employer's decision and to determine whether those facts constituted cause for termination.

An intermediate approach would attempt to give deference to the employer's employment decision, but allow an objective review of that decision by a legal fact-finder, under certain parameters. This is sometimes called the "objective standard." As discussed below, most courts that have addressed the subject have employed this standard.

Status of Colorado Law

Colorado courts have not determined the meaning of "cause" in an employment agreement that otherwise does not define the term. The Colorado Civil Jury Instructions ("C.J.I.") recognize, but do not resolve, the "cause" issue. In fact, the applicable Colorado model jury instruction provides that if the employment contract in question does not define "cause," the court may be required to formulate an appropriate instruction informing the jury of what "cause" means.5 The instruction cites a number of sources "for assistance in formulating an appropriate instruction."6 One of those sources is a treatise that states...