On November 27, 2012, the Fourth Circuit reversed a $555,000.00 jury verdict in favor Jennifer Scott (“Ms. Scott”), a former employee of Merck & Co., Inc. (“Merck”), who sued for breach of contract based on a whistleblower non-retaliation policy contained in the company’s Code of Conduct, and in a similar policy promulgated by the Company’s Office of Ethics. Scott v. Merck & Co., Inc., No. 11-1584, 2012 U.S. Dist. LEXIS 24461 (4th Cir. Md. Nov. 27, 2012). The Fourth Circuit held, based on the unambiguous nature of the at-will disclaimers applicable to Ms. Scott’s employment, that the United States District Court for the District of Maryland (the “District Court”) erred in holding that the policies in question created an enforceable contract under Maryland law, both at the summary judgment stage and in post-trial motions.

Merck hired Ms. Scott in 1992 as a pharmaceutical sales representative. In her employment application, she executed an at-will disclaimer acknowledging the she had “the right to terminate her employment any time and for any reason” and that the company retained a similar right. Ms. Scott was also placed on notice that her employment was at-will in the Manager’s Policies, which state that “employees are not hired for a specific duration of time and that either Merck or the employee may sever the employment relationship at any time, for any reason with or without notice” … and that “(n)one of the Company’s policies, procedures, or practices should be viewed as creating promises or any contractual rights to employment for a specific duration of time or to any specific benefits of employment.” During her employment, Merck also provided her with two non-retaliation policy statements, both of which provided that an employee would not be terminated as a result of good faith whistleblowing.

During the final years of her employment, plaintiff’s relationship with her immediate supervisor deteriorated. She eventually reported him to Merck’s Office of Ethics for conduct that she in good faith believed violated company ethical standards. Sometime thereafter, Merck terminated her employment. She sued, alleging that she was terminated because of her whistleblower complaints in breach of the non-retaliation policy statements.

Prior to trial, Merck moved for summary judgment arguing that the non-retaliation policies were not sufficiently definite and specific to constitute enforceable contract terms. In addition, Merck argued that plaintiff could not justifiably rely on the policy statements in light of the specific disclaimers that Ms. Scott’s employment was at-will. In denying Merck’s motion, the District Court concluded that the non-retaliation policies were so unambiguous in creating an enforceable benefit that they trumped the previous at-will disclaimers. Subsequently, at trial, the jury awarded Ms. Scott a $555,000.00 verdict.

On appeal, Merck argued that the District Court erred in concluding that the non-retaliation policies altered the at-will nature of plaintiff’s employment in light of clear disclaimers to the contrary. The Fourth Circuit analyzed Merck’s policies and disclaimers under the so-called Staggs exception to the general rule that policy statements do not limit an employer’s discretion to terminate an at-will employee. Under the Staggs exception, an at-will employee can state a breach of contract claim based on her employer’s policy where the employee can show 1) that the policy specifically and definitely limited the employer’s discretion to terminate the employment at will, and 2) that the employee’s reliance on the policy was justifiable. Where the employer clearly and conspicuously disclaims any contractual intent, however, an employee cannot prove the second element of justifiable reliance regardless of how readily the employee could satisfy the first element of the Staggs exception.

In reversing the District Court’s denial of summary judgment, the Fourth Circuit stated that the District Court improperly reversed the Staggs analysis and incorrectly concluded that the definite, specific, and unambiguous language of Merck’s non-retaliation policies rendered the disclaimers moot. Rather, the Fourth Circuit concluded that it is the unambiguous nature of the disclaimer that defeats an employee’s reliance on policy statements under Maryland law. In essence, the District Court applied the Staggs analysis in reverse. Thus, according to the Fourth Circuit, the operative question on summary judgment was whether the disclaimers contained in Merck’s employment application and “Manager’s Policies” were sufficiently clear to render Ms. Scott’s reliance on the non-retaliation policies unjustifiable. The Fourth Circuit held that the District Court should have answered that question affirmatively and granted Merck’s motion for summary judgment.

The Scott decision affirms that at-will employees may be terminated at any time and for any reason provided that the at-will nature of employment is clearly and conspicuously disclosed to employees. Maryland employers must make sure that the at-will nature of employment is properly communicated to its employees in their employment applications, company handbooks, or elsewhere.

At the same time, Scott serves as a clear warning that, under certain circumstances, policies distributed to employees could be construed as contractual rights under Maryland law. If employers are not careful, their ability to terminate their employees could be inadvertently limited by internal policies; and they could find themselves facing a breach of contract action where such an action does not ordinarily lie. Significantly, the Fourth Circuit stopped short of establishing a blanket rule to nullify preemptively any employment guarantees provided in later issued policy statements based on a “clear and conspicuous disclaimer,” holding that such a decision should be determined by the Maryland courts and legislature.