On September 1, 1999, the Pennsylvania Superior Court decided Spierling v. First American Home Health Care Services, Inc. et al., the most recent controversial decision  in the fast changing area of employment law.

            Holding fast to the rulings of the Pennsylvania Supreme Court, the Spierling Court held 2-1 that it is not a violation of public policy for an employer to fire an employee for reporting Medicare fraud.  Stated differently, reporting Medicare fraud is not a recognized public policy exception to the at-will employment doctrine.  The decision brings a sigh of relief for defense attorneys who have watched the at-will employment doctrine erode.  Conversely, it is condemned by Plaintiffs’ attorneys throughout the state who fight for an expansion of individual employees rights and for Pennsylvania courts to expand the exceptions to the at-will employment doctrine.

            The at-will employment doctrine was judicially recognized in the last century in Henry v. Pittsburgh & Lake Erie R.R. Co., 139 Pa. 289, 21 A. 157 (1891), which held an employee may be terminated “with or without cause, at pleasure, unless restrained by some contract . . . questions of malice and want of probably cause have [nothing] to do with the case.”  Id. at 297, 21 A. at 157.  Typically, this concept is expressed that an at-will employee can be discharged for “a good reason, bad reason, or no reason at all” as long as there is otherwise no violation of law.

Spierling facts

            Leslie Spierling was a registered staff nurse before being promoted to the administrator at First American Home Health Care, one of the largest companies in the nation that provided home health care services for patients until its bankruptcy in 1996.  During Spierling’s employment, the federal government investigated and discovered acts of Medicare fraud at First American.  The federal investigators set up an “800” number fraud hotline and First American employees were told to use it to report suspected Medicare fraud.

            Spierling then undertook a review of “old and discarded” files in one of First American’s facilities and found what she believed to be evidence of past Medicare fraud.  Spierling told her supervisor, who in turn called the fraud hotline and notified a Regional Vice President.   Three days after the call to the fraud hotline, the Regional Vice President traveled to the facility and terminated Spierling and the supervisor.

            Spierling also averred that relevant records were shredded by the company in the week following her termination; at all times she had received excellent performance evaluations; her termination deviated from normal company procedures; three other supervisors were also terminated after they reported evidence of Medicare fraud; and she was promised that if she did not contest her termination, prospective employers would not be given negative references.

            Spierling filed a two-count complaint in the Allegheny County Court of Common Pleas alleging wrongful termination and age discrimination.  Defendant filed preliminary objections in the nature of a demurrer challenging both counts.  Although Defendants deny the allegations, for purposes of the preliminary objections, the trial court was required to consider the allegations in the light most favorable to the Plaintiff.

            After oral argument, the trial court granted the preliminary objections and dismissed both counts of the complaint.  Plaintiff appealed only the dismissal of the wrongful termination claim to the Superior Court.

            On appeal, Plaintiff argued that reporting Medicare fraud was, itself, a recognized public policy exception, and, in any event, Plaintiff was obligated by law to report the fraud.  Defendant countered that reporting Medicare fraud was not a recognized public policy exception.  Moreover, Defendant averred, no statute or regulation required Plaintiff to report Medicare fraud.

Summary of Spierling Opinion

           The three judge panel relied on a recent Pennsylvania Superior Court case to analyze Defendants’ alleged wrongdoing.  Turning to Hennessey v. Santiago, 708 A.2d 1269 (Pa. Super. 1998), the Superior Court restated the three part test  -- one part of which must be met to a establish a public policy exception.  Citing Hennessey, the Court stated, “It is well established that Pennsylvania recognizes the at-will employment doctrine.  As this Court has noted, however, there are a few, narrow public policy exceptions to the at-will employment doctrine. . . .”  The exceptions are:

                        ·  the employer cannot require an employee to commit a crime;

· there must not be a statutory prohibition to discharging an employee for engaging in the conduct in question; or

·  there must be a statutorily imposed duty obligating the employee to engage in the conduct.

           Spierling did not argue that Defendant required her to commit a crime, nor did she argue there was a statutory prohibition that prevented Defendant from discharging her for reporting Medicare fraud.  Spierling was adamant, however, that there were several laws and regulations requiring her to report the fraud, and, in fact, levied penalties against her for failure to report.  The Superior Court reviewed the various statutes and regulations presented by the Plaintiff in her brief and determined that none of them required her to report the Medicare abuse.  Therefore, the Court found, Spierling was under no statutorily imposed duty to report the Medicare fraud and failed to meet the third condition.

            The Superior Court also cited the recent Pennsylvania Supreme Court decision of Shick v. Shirey, 552 Pa. 590, 716 A.2d 1231 (1998) for the general proposition that a court has the authority to establish a public policy violation to the at-will employment doctrine.  Although it is unclear from the majority opinion specifically how or if it applied Spierling’s facts to the holding in Shick, the Court seemed to defend its finding by restating, “Public policy is to be ascertained by reference to the laws and legal precedents and not from general considerations of supposed public interest.”

            In a 2-1 split decision, the Superior Court relied on Shick, followed the legal precedent of Hennessey and affirmed the trial court’s dismissal of the case.   In doing so, the Court came to the conclusion with some regret.  The majority provided a lukewarm endorsement of the prevailing law by stating, “we can afford [Plaintiff] no relief on public policy considerations” and added, “we are constrained to affirm the trial court. . . .” In a less than rousing endorsement of Defendant’s actions the Court reluctantly held, “Defendant-Appellees were within their rights to discharge her as an at-will employee.”

The Dissent

            Judge Berle M. Schiller summarized his views early in his lengthy dissent.   He stated, “I find it unconscionable on the eve of the twenty-first century, that a well-regarded employee who has been told to report Medicare fraud can be summarily discharged for doing so simply because she is an ‘at-will’ employee.” In this blazing dissent, Judge Schiller  criticized the majority for taking “refuge in a nineteenth century doctrine which, now as then, gives employers an almost absolute right of discharge over at-will employees.”  The dissent, in law-review-article style, reviewed the history of the at-will employment doctrine citing case law, articles and a variety of references from Horace G. Wood’s 1877 treatise Law of Master & Servant to Jay M. Feinman’s highly regarded American Journal of Legal History article, The Development of the Employment at Will Rule.

            Following his review and historical background of the at-will doctrine, Judge Schiller stated, “I can only agree that providing legal recourse to an employee who is retaliated against for assisting in the elimination of health care fraud is a clear mandate of public policy” and supported his thesis by declaring “health care fraud is big business.” 

            The dissent acknowledged the three-part exception in Hennessey, but found that Shick was not so narrow as to limit a finding for Spierling.  Judge Schiller adopted the Plaintiff’s view that the facts of Shick open the door to find a public policy exception without meeting one of the Hennessey conditions.

            In Shick, the plaintiff was fired for filing a workers’ compensation claim.  The dissent noted that, like Spierling, Shick was under no obligation to report his employer’s conduct, was not asked to commit a crime and there existed no statutory prohibition against the employer’s conduct, yet, the Supreme Court concluded that a public policy exception had been established.  On its facts, Shick would seem to expand the conditions set forth in Hennessey, although the Supreme Court in Shick made no clear pronouncement of an expansion of public policy exceptions.

            Judge Schiller concluded, “Employees should not be sacrificed on the altar of the employee at-will doctrine for reporting suspected Medicare fraud through proper channels in the course of their employment.”

Primed for the Supreme Court

            The question of the scope of exceptions to the at-will employment doctrine is vastly important to employers and employees throughout the state and is best decided by the Pennsylvania Supreme Court.   As the dissent notes, the facts in the Spierling matter are “egregious,” and there is a need to articulate the conditions under which a public policy exception can be found.  Specifically, the Supreme Court must clarify whether the public policy exception is limited to the three conditions in Hennessey, or whether the Shick decision was meant to expand the scope of the exceptions.  If the Supreme Court intended to expand the at-will employment doctrine, it should articulate a test that can be applied in future decisions.   Until then, defense counsel throughout the state will continue to rely on Hennessey, and plaintiff’s counsel will continue to present Shick as support for their arguments that the exceptions to the at-will doctrine are not limited by the three Hennessey conditions.

Michael J. Torchia, Esq. is a partner at Semanoff, Ormsby & Greenberg, LLP in Jenkintown.   He is the head of the commercial litigation department which emphasizes employment law, has an active workplace investigations practice and lectures extensively on employment law topics.  Mr. Torchia represented the Defendant in Spierling v. First American Home Health Care Services, Inc.