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The Defense Line: A Publication From The Maryland Defense Counsel, Inc.

Three Decades of Adler and Lingering Mysteries of the Abusive Discharge Tort

Anthony W. KrausAnthony W. Kraus

It has been over thirty years since the Court of Appeals of Maryland first recognized the claim of abusive discharge in Adler v. American Standard Corporation, 291 Md. 31 (1981). Answering a certified question from Maryland’s federal district court, the Court of Appeals decided that employees who are fired for reasons “in contravention of a clear mandate of public policy” are entitled to relief in tort. The newly-announced claim, in derogation of employers’ traditional power to terminate at will, was based upon a delicate balancing of the interests of employees, employers, and society in general.

While thorough in its weighing of such concerns, the Adler decision left many thorny issues still to be resolved in the application of its new rule. Determining what constitutes “a clear mandate of public policy” has been the primary puzzle facing judges in adjudicating abusive discharge claims. Decisions applying the Adler rule have been largely devoted to discussing that issue, as has the related critical commentary. Generally, Maryland courts have found a “clear mandate of public policy” only where an employee has been discharged for (1) refusing to violate the law, (2) attempting to exercise a statutory duty, right, or privilege, or (3) performing an important public function. Makovi v. Sherwin-Williams Co., 316 Md. 603, 610 (1989). Even with these guidelines, the Adler rule has remained obscure and the subject of controversy. See, e.g., Haley, “Porterfield v. Mascari II Inc.: A ‘Clear Mandate of Public Policy’ Remains Unclear in Maryland’s Wrongful Discharge Jurisprudence,” 63 Md. Law Rev. 605 (2012).

Equally perplexing as how to rate the “clarity” of public policy mandates, however, are three other questions that arose but were undecided in Adler, and have persisted as sources of additional uncertainty in such claims. In Adler, the plaintiff had alleged that he had been discharged for “whistleblowing” internally to management in Maryland about illegalities that were principally defined by federal law and that had been committed out of state by company personnel in New Jersey and Mexico. This complicated scenario raised questions of (1) whether intra-company complaints, rather than reports to external public authorities, were sufficient to trigger abusive discharge relief in a whistle-blowing context, (2) whether federal law is incorporated as a source of “Maryland” public policy that can serve as a foundation for the claim, and (3) whether the relevant public policy should be confined to intra-state interests rather than more broadly encompassing interstate or international interests.

These three secondary Adler issues, which have been largely overlooked in the extensive commentary on the case, are the focus of this article. While these questions are yet to be decided by Maryland’s Court of Appeals, they have been addressed, at least preliminarily, by judges in Maryland and elsewhere, and have been the subject of sharp difference of opinion. To track where things currently stand and where they may be heading in Maryland, the relevant decisions are discussed below.

A. “Whistleblowing” Sufficient to Trigger Abusive Discharge Protection.

The ultimate resolution of the abusive discharge claim in Adler occurred in the United States Court of Appeals for the Fourth Circuit, following the trial of the case in federal district court. The Fourth Circuit reversed a jury verdict for the plaintiff, and held that the motivation for his discharge, which allegedly was retaliation for complaining internally to his immediate supervisors about commercial bribery, did not contravene a sufficiently clear mandate of public policy. In the view of the panel majority, an abusive discharge tort claim for whistleblowing arises only when an employee is fired for reporting employer wrongdoing to law enforcement agencies or other public authorities outside the company, which had not occurred. Adler v. American Standard Corporation, 830 F.2d 1303, 1306 (4th Cir. 1987).

The question of whether external communication to governmental authorities was necessary to trigger protection under the Adler doctrine was revisited in Lee v. Denro, Inc., 91 Md. App. 822 (1992), in which a trial court had dismissed a complaint for lack of such alleged public reporting. The Court of Special Appeals affirmed on another ground, but the opinion by Judge Diana Motz noted in dicta that “[t]he existence of public policy would not seem to depend on whether an employee articulates her grievances to government authorities.” Id. at 835, n. 5.

The Maryland Court of Appeals further considered the matter in Wholey v. Sears, Roebuck & Co., 370 Md. 38 (2002), which involved an alleged retaliatory firing for internal investigation and reporting of criminal conduct. Contrary to the dicta in Lee v. Denro, the court concluded that ‘“[t]o qualify for the public policy exception to at-will employment, the employee must report the suspected criminal activity to an the appropriate law enforcement or judicial official, [and] not merely investigate suspected wrongdoing and discuss that investigation with co-employees or supervisors,” as the plaintiff allegedly had done. Id. at 62 Under Section 762 of Article 27 of the Maryland Code, it is a crime to retaliate against a person who reports suspected criminal behavior to law enforcement authorities; and consistent with that statute, the Court held that an abusive discharge claim could be brought by an employee fired for reporting crimes to public officials, but not for simply reporting crimes internally. In so ruling, the court confirmed the Fourth Circuit’s conclusion in Adler that mere investigation or internal reporting of suspected criminal activity was not enough. While two judges did not join in Wholey opinion, and just concurred in the result, their expressed reservations did not relate to the external reporting requirement. Rather, because the plaintiff had failed to meet the requirements of § 762, they concluded that the issue of whether or not an abusive discharge claim could be based on that statute’s public policy was moot and need not have been addressed.

In Lark v. Montgomery Hospice, Inc., 414 Md. 215 (2010), the Court of Appeals subsequently considered whether such external reporting was required as an element for a direct, statutory whistleblowing claim under Maryland’s Healthcare Workers Whistleblower Protection Act, Md. Code Ann., Health Occ.§§ 1-501 - 1-506. In contrast to its more conservative decision in Wholey under the common law, the court interpreted the statute liberally to provide job protection for employees who merely complained internally about noncompliance with laws, rules or regulations; and it did not require the reporting of such wrongdoing to “an external board.” The court noted that the statute specifically included protection for those who “threatened to report” as well as who reported, which clearly contemplated that no actual external report was necessary for relief. The court also cited out-of-state abusive discharge cases that had extended common law protection to internal whistleblowers.

In the most recent abusive discharge case raising the internal/external reporting distinction — Parks v. Alpharma, Inc., 421 Md. 59 (2011) — the Court of Appeals side-stepped further assessment of the issue. In Parks, the plaintiff claimed to have been fired for making internal complaints about her employer’s unlawful practices in development of pharmaceuticals. Among other things, she contended that its practices had violated the Maryland Consumer Protection Act, the Federal Trade Commission Act, and labeling regulations of the Federal Drug Administration. Consistent with Wholey, the trial court had dismissed her claim because she had not reported the alleged wrongdoing externally; but the Court of Appeals affirmed on the alternative ground that various public policies invoked in her complaint were insufficiently specific and focused to support a claim. While approving the result, Judge Adkins stated in a concurring opinion that the Court should specifically have disavowed the “external” reporting requirement relied upon by the trial court. She believed any such requirement had been effectively rejected in Lark, even though that opinion had involved a statutory rather than a common law claim. Parks, 421 Md. at 87-88

Consequently thirty years after Adler, it is still an open and much-debated question about whether the Fourth Circuit properly required “external” reporting for an abusive discharge claim based on whistleblowing, or whether, as Judge Adkins and Judge Motz both have proposed in the meantime, internal reporting should be sufficient.

B. Reliance upon Federal Public Policy.

In a later phase of the Adler litigation in 1982, after the theory of abusive discharge had been recognized preliminarily through the certified question procedure, the defendants had moved for dismissal of Adler’s claims insofar as they were based upon alleged contravention of federal law and public policy. Federal District Judge Harvey, before whom the case was then pending, flatly rejected the argument that federal law should not be considered part of the “public policy of Maryland” for purposes of stating such a claim:

If plaintiff recovers, there would be no binding determination of a violation of a federal statute, nor any enforcement of same. It is in no way offensive to state sovereignty to engraft federal public policy within the civil law. If defendant's arguments were to be adopted, this Court would accept the proposition that the State of Maryland, as a matter of public policy of its own, should not be concerned with serious violations of federal law resulting from acts of bribery. Federal and state officials regularly cooperate in the enforcement of the laws of the other sovereignty. This Court cannot agree that the State of Maryland should close its eyes and, as a matter of policy, not be concerned with violations of federal law.

Adler v. American Standard Corporation, 538 F. Supp. 572, 578-79 (D. Md. 1982).

Although the Fourth Circuit did not reach the issue in the appeal of Adler, it did address the point in a subsequent case — Szaller v. The Am. Nat’l Red Cross, 293 F.3d 148 (4th Cir. 2002) – where its view diverged sharply from Judge Harvey’s. The Fourth Circuit concluded that predicating abusive discharge relief on federal public policy, at least as derived from the welter of federal administrative regulations, would unduly burden Maryland employers and blur the boundaries of the claim:

Szaller argues that the Red Cross violated a clear mandate of public policy by discharging him for reporting allegedly improper blood handling procedures to a Red Cross hotline. . . He relies solely on FDA regulations and a consent decree between the FDA and the Red Cross to support his wrongful discharge claim. Maryland courts, however, have given no indication that federal regulations or consent decrees constitute Maryland public policy. . . . [F]ederal policy is enforced by the means Congress specifies, not through state-law wrongful discharge actions.

In an attempt to address the overwhelming burden his position would place on Maryland employers, Szaller contended at oral argument that only federal regulations dealing with situations of “extreme importance” should be included in the state’s public policy. . . But all federal regulations address areas of public concern, and a litigant could argue that all federal policies protect cogent and compelling interests. If the Maryland courts or legislature wish to define which federal regulations also qualify as clear mandates of state public policy, they are free to do so. But federal courts cannot draw the line for Maryland.

Szaller, 293 F.3d at 151.

Prior to Szaller, federal law had been utilized in a few Maryland abusive discharge claims as a source of applicable public policy See, e.g., Magee v. DanSources Technical Services, 137 Md. App. 527 (2001) (holding a claim could be based upon discharge for refusing to violate a federal statute outlawing health care benefit fraud); Kessler v. Equity Management, 82 Md. App. 577 (1990) (finding that the discharge of a rental property manager for allegedly for refusing to enter apartments and “snoop” through their contents contravened not only state law policies against trespass and invasion of privacy but also the 4th Amendment’s policy against unreasonable searches); and DeBleeker v. Montgomery County Maryland, 292 Md. 498 (1982) (upholding a potential § 1983 discharge claim by a public employee alleging retaliation for exercising 1st Amendment rights, and obliquely citing Adler in support of its ruling.).

The question arose again in Parks v. Alpharma, ante, which involved alleged violation of Federal Drug Administration regulations, among other things; but the Court of Appeals skirted the issue of reliance on federal law, and affirmed for other reasons. Again, however, in dicta in a concurring opinion, Judge Adkins expressly endorsed permitting state abusive discharge claims based on contravention of federal public policies, and stated her concern that the majority’s references to the Szaller opinion might be construed as tacit approval of the Fourth Circuit’s conclusion to the contrary. With a vehemence reminiscent of Judge Harvey’s in Adler, she rejected what she characterized as the “Fourth Circuit’s tirade against reliance on federal regulation in abusive discharge cases” and remarked that “it was by no means beyond the ken of this Court to assess the relative importance of one Federal regulation over another in terms of wrongful discharge law.” Parks, 421 Md. at 89–91. Although not mentioned in her concurrence, she had personal experience in applying federal law in an abusive discharge setting, having authored the Court of Special Appeals’ decision in McGee, which had relied upon an anti-fraud provision in federal health care benefit law.

Whether the failure of other judges to join Judge Adkins’ concurrence in Parks reflects their support for the Fourth Circuit’s position, or simple reluctance to consider an issue they may have viewed as unnecessary to address, remains to be seen when the question again arises before the court in a future case.

C. Extra-Territorial Contravention of Relevant Public Policy.

An additional unresolved question raised in Adler was whether a retaliatory firing in Maryland for whistleblowing about wrongdoing occurring outside of the state contravened Maryland’s public policy sufficiently to support an abusive discharge claim. Judge Harvey’s opinion in Adler had given short shrift to any potential constitutional and practical problems related to the out-of-state location of the reported misconduct, which primarily had been commercial bribery in New Jersey and Mexico. Adler, 538 F. Supp. at 578 (“The civil law remedy in Maryland for an abusive discharge does not . . . have extraterritorial effect”). One Fourth Circuit panel member had raised concerns about it in oral argument in the Adler appeal, but the court’s eventual decision did not address it.

In the wake of Judge Harvey’s original ruling, the courts of Maryland appear not yet to have had occasion to reconsider the issue, but there is a split of authority that has emerged in the out-of-state decisions, illustrated by decisions from Illinois and New Jersey.

In Pratt v. Caterpillar Tractor Co., 500 N.E.2d 1001, 1002 (Ill. App. Ct. 1986), an Illinois appeals court rejected an abusive discharge claim brought by an employee who alleged that his employer’s Swiss subsidiary had paid bribes in violation of the Foreign Corrupt Practices Act (“FCPA”) and who reportedly was terminated for refusing to certify to the contrary on company documents. The court concluded that Congress’s efforts to regulate American international corporations in their dealings with foreign states did not implicate the public policy of Illinois. In Osikowiz v. Northwest Airlines, Inc., 1994 WL 23153 (N.D. Ill. Jan 27, 1994), another Illinois court concluded that there is no local public policy basis under Illinois law “favoring the reporting of extraterritorial crimes.”

In contrast, two decisions from New Jersey’s Supreme Court have taken the opposite view. In D’Agostino v. Johnson & Johnson, 133 N.J. 516 (1993), the court addressed an abusive discharge claim by a Swiss resident working for the Swiss subsidiary of a New Jersey-based corporation, who claimed to have been fired in Switzerland for objecting to payments there in alleged violation of the FCPA. The court concluded that foreign bribery in Switzerland had a potential effect on New Jersey and upon the health and welfare of its citizens, and that because the FCPA was intended to have an extraterritorial effect, incorporation of the FCPA’s policies into New Jersey employment law was a permissible extraterritorial effect. It also sought to characterize the result as “not exporting New Jersey employment law so much as applying New Jersey domestic policy, drawn from federal sources, to a domestic company.” Id. at 539.

Subsequently, that court sustained a similar internationally oriented claim brought under the New Jersey Conscientious Employees Protection Act, which codifies the state’s abusive discharge law. In Mehlman v. Mobil Oil Company, 153 N.J. 163 (1998), the state supreme court concluded that the defendant company’s director of toxicology, who alleged that he was fired for advising a company manager that gasoline sold by the company in Japan contained unsafe benzene levels in excess of 5%, had a viable claim. Such benzene levels exceeded those prescribed by the Japanese Petroleum Association, which represented the oil industry in its relations with the Japanese government, and whose guidelines were found by the court to authoritatively state the public policy of Japan. The court concluded that retaliation for whistleblowing about violation of such foreign public policy, even if the employee had been unaware of the policy’s specific legal underpinning in the law of Japan, was properly actionable under the statute.

It is unclear whether Maryland will go so far in extending the reach of its law of abusive discharge, although doing so would appear to be at odds with the Court of Appeals’ cautionary comments about the intended “limited nature” of the claim. See, e.g., Makovi v. Sherwin-Williams,Co. 316 Md. 603, 609 (1989). But whatever the eventual outcome, the persistence of these basic questions, among others, is a reminder of the complexity of what the Court of Appeals began in Adler. In initiating relief for discharged employees that seeks to vindicate the vague, general concept of “public policy,” and also is to evolve through the halting, case-by-case procedure of the common law, the court created what, to borrow Churchill’s phrase, seems to be an abiding riddle, wrapped in a mystery inside an enigma, at least in comparison to the more familiar forms of employment regulation found in focused, comprehensive statutes.

Anthony Kraus is a Principal in Miles & Stockbridge P.C.’s Baltimore office. His practice focuses on traditional labor-management matters in the Firm’s Labor and Employment Practice Group.

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