Preventing the Professional’s Impossible Choice: Paving the Path for Ethical Codes as Public Policy in the Context of Wrongful Discharge in South Carolina
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Preventing the Professional’s Impossible Choice: Paving the Path for Recognizing Ethical Codes as Public Policy in the Context of Wrongful Discharge in South Carolina
Matthew B. Abney[1]*
The following narrative illustrates a dilemma faced by professionals in South Carolina that this Note will analyze and propose to solve. Imagine a certified public accountant working for a privately held South Carolina company employed at-will to oversee special projects while maintaining a general oversight role.[2] The accountant discovers some questionable accounting practices, including failing to record certain transactions and reducing certain costs to misrepresent the profitability of the company.[3] Realizing these practices violate her ethical code of conduct, the accountant repeatedly brings these concerns to her supervisor until she is eventually terminated for voicing her concerns.[4] The accountant considers bringing a claim for wrongful discharge in violation of public policy against her former employer for terminating her after she refused to knowingly misrepresent facts concerning the company’s financial status in violation of her ethical code.[5]
As it currently stands in South Carolina, the accountant would likely have no remedy against her former employer, assuming the employer’s practices did not violate state[6] or federal[7] laws, because South Carolina has yet to recognize ethical codes as a source of public policy in a wrongful discharge action.[8] This Note aims to fill the gap of employee protection existing between the Sarbanes-Oxley Act and the South Carolina Whistleblower Act by relying on the tort of wrongful discharge in violation of public policy.
Employment at-will allows an employer or employee to unilaterally terminate an employment relationship for any reason or no reason at all.[9] This long-standing, yet maligned doctrine has been the majority rule in the United States since the early nineteenth century.[10] The one nationally recognized exception is wrongful discharge in violation of public policy.[11] In most states, an employee has a cause of action for wrongful discharge when that employee’s termination contravenes the public policy of the state.[12] South Carolina recognizes the public policy exception; to invoke it, an employee must show (1) they were discharged from at-will employment, (2) the discharge was retaliatory, and (3) the discharge violated a “clear mandate of public policy.”[13] Generally, the public policy exception in South Carolina protects employees from termination for refusing to violate the law or if the termination itself is a violation of the law.[14] However, “law” is a broad term that, depending on the jurisdiction, can encompass several legal authorities, ranging from criminal codes to ethical provisions.[15] The breadth of the term “law” creates a critical question: what legal authorities can provide the basis for an employee’s wrongful discharge claim that relies on the public policy exception?[16]
The public policy exception’s contours are uncertain and often debated.[17] Some scholars advocate for a narrow public policy exception that balances the interests of both employer and employee.[18] Many reasons support a narrow public policy exception, but maintaining flexibility in the marketplace is the most compelling justification.[19] As one scholar put it, “The significance of the employment at will rule is ensconced in one single word—flexibility.”[20] An overly expansive public policy exception erodes that flexibility by forcing employers to defend their employment decisions no matter how justified.[21] Defending employment decisions is not only burdensome for any employer who will have to replace the terminated employee, but it is also costly.[22] For example, some scholars estimate that defending an employment lawsuit in California costs nearly $80,000, and these defense costs are in addition to the already high costs of finding a replacement following any termination.[23]
Some scholars, on the other hand, advocate for a broad public policy exception that would eliminate the power of state legislatures to declare public policy.[24] Others have gone as far as to advocate for federal legislation standardizing all public policy exceptions across states.[25] These arguments, however, presume the impending demise of the employment at-will doctrine in the United States.[26] Rather, this Note, in lockstep with the decisions of South Carolina courts, accepts employment at-will as generally beneficial if certain exceptions are recognized.[27] An in-depth analysis of the employment at-will doctrine is beyond the scope of this Note due to the vast amount of scholarship discussing the merits of the doctrine.[28] Additionally, despite arguments advocating for the doctrine to be abandoned,[29] the at-will employment doctrine remains the majority rule in the United States.[30]
In between these two approaches lies a middle ground argument for recognizing professional ethical codes as sources of public policy. Although some scholarship supporting the recognition of public policy in professional ethical codes exists, most of this scholarship focuses exclusively on ethical codes for attorneys.[31] This Note, however, focuses on the ethical code governing accountants in South Carolina because accountants have the clearest path for gaining recognition of their ethical codes as public policy.[32] Further, the path for accountants advocated by this Note will lay the foundation for other professions seeking recognition of their ethical codes as sources of public policy in a wrongful discharge claim.
This Note’s proposal is to prevent the dilemma faced by professionals similar to the accountant in the introduction. The impossible choice arises when, as a condition of continued employment, an employer requires an employee to violate the law.[33] Some courts maintain that the criminal law is the only source of public policy in a wrongful discharge claim.[34] Other courts recognize civil or administrative law as sources of public policy.[35] Some courts who have recognized public policy in civil or administrative law deemphasize the law itself and focus on whether the violated law reflects an intention by the legislature to create policy.[36] Regardless of the requirement for a specific authority of law or a focus on legislative intent, professionals face a specific dilemma when, as a condition of continued employment, they must violate their ethical code.
The professional’s dilemma is best summarized by the Colorado Supreme Court’s Rocky Mountain Hospital decision, in which the court stated, “[a] professional employee forced to choose between violating his or her ethical obligations or being terminated is placed in an intolerable position.”[37] For instance, South Carolina accountants who violate their code of ethics could be subject to professional consequences.[38] To avoid this “intolerable position,” this Note seeks to recognize as public policy the accounting ethical code that, if violated, levies professional consequences such as suspension, an administrative fine, or license revocation.[39] The professional’s dilemma will be effectively prevented by establishing a rule that deters employer-coerced violations of ethical rules.
Some employees have argued that a condition of continued employment that contravenes “personal morals” of the employee based on professional judgment is sufficient to state a wrongful discharge claim.[40] Similarly, some scholars have argued that an employee’s “reasonable belief” that the employer action violates public policy is sufficient.[41] However, unlike a coerced violation of a recognized ethical code, neither of these approaches creates “equally destructive alternatives” for an employee to confront.[42] Therefore, under a personal moral or reasonable belief standard, an employee, as a condition of continued employment, may never face equally destructive alternatives and the ensuing impossible choice of termination or ethical sanction. Thus, to state a wrongful discharge claim based on the public policy exception, a professional employee must show that, had they followed their employer’s directive, they would have been subject to an ethical sanction.[43] This requirement adequately ensures the employee’s choice was ethically impossible rather than morally impractical.[44]
Since the adoption of the public policy exception in 1959 with the California Court of Appeal’s decision in Petermann v. Teamsters Local 396,[45] courts have struggled with properly defining the boundaries of public policy in the context of a wrongful discharge.[46] Generally, almost all courts agree that the policy must come from the legislature, either through statutes or the state’s constitution.[47] However, courts tend to differ on two grounds: first, what can serve as the language of the legislature, and second, how to interpret that language.[48]
First, courts differ on the legal authorities that can provide predicate policy for the purposes of a wrongful discharge claim.[49] For example, some states, such as Texas, adopt a hardline deference to the legislature to create statutory exceptions to the employment at-will doctrine.[50] On the other hand, Colorado recognized ethical codes as public policy quite early in its wrongful discharge jurisprudence.[51] South Carolina, like most states that recognize the public policy exception, currently sits in the middle of these two approaches.[52] South Carolina courts recognize the General Assembly has the sole power to explicitly declare whether a statute contains the public policy of the state.[53] However, once a statute contains a statement of public policy, the statute’s entire scheme is considered public policy, including regulations that might be promulgated in furtherance of the statute’s goals.[54]
Second, courts differ on whether to interpret the language of the legislature broadly or narrowly, with most courts adopting a narrow interpretation based on the plain language of the law.[55] A narrow interpretation of the legislature’s language typically requires a “clear and articulable definition of policy.”[56] A broad standard allows a court to imply the policy from the statute’s text to protect notions of public good.[57] South Carolina embodies the narrow interpretation and courts require the General Assembly to declare public policy.[58]
This Note proceeds in three parts. Part II will discuss the current state of South Carolina’s definition of public policy in the context of a wrongful discharge action as relevant to accountants regulated under Title 40 of the South Carolina Code.[59] Part III surveys various states that have chosen to recognize public policy in ethical codes. Part IV advocates for the South Carolina Supreme Court to recognize public policy in the accounting code of ethics which, if violated, would result in suspension, revocation of license, or an administrative fine. Finally, this Note recommends that other professionals seeking to prevent employer coerced violations of their ethical codes to lobby the General Assembly to add clear statements of public policy to other statutory schemes enumerated under Title 40.
South Carolina first recognized the public policy exception to the at-will doctrine in 1985 in Ludwick v. This Minute of Carolina, Inc.[60] Since Ludwick, South Carolina has seen a steady expansion of what legal authorities can constitute public policy.[61] The interests of the discharged employee and the General Assembly’s authority to promulgate policy have been critical in the court’s development of the public policy exception.[62] Likewise, the interest of the employer to not be “unduly fettered in exercising his rightful prerogative to select employees” has also been influential in the court’s decisions.[63] Therefore, recognizing new legal authority that can serve as predicate public policy for wrongful discharge actions requires balancing the interests of employees, employers, and the General Assembly.[64]
Initially, the court in Ludwick, without saying it explicitly, seemed to limit predicate public policy to the criminal law.[65] In Ludwick, the plaintiff, an at-will seamstress, was served with a subpoena to appear for a state board’s hearing.[66] Her employer stated that if she honored the subpoena and testified at the hearing, then she would be terminated from her job.[67] Failure to obey the subpoena would result in a criminal penalty of a fine or incarceration.[68] Therefore, the plaintiff faced “the dilemma of choosing between her livelihood, on the one hand, and obedience to the law of the state, on the other.”[69]
The court held that an employee could state a wrongful discharge in violation of public policy claim where “an employer requires an at-will employee, as a condition of retaining employment, to violate the law.”[70] While recognizing the difficulty of “determining a precise definition of . . . ‘public policy,’” the court did not set an outer limit of what legal authorities can constitute public policy.[71] Rather, the facts of the case suggested that the presence of a criminal penalty was the key factor.[72]
Many lower courts originally interpreted Ludwick as limiting predicate public policy in a wrongful discharge claim to the criminal law.[73] For example, in Miller v. Fairfield Communities, Inc., the Court of Appeals addressed the issue of whether Title 40’s regulation of real estate brokers could serve as public policy in a wrongful discharge action.[74] The plaintiffs, a husband and wife, brought a claim for wrongful termination of the husband’s employment from his at-will position as a golf professional at the defendant-resort.[75] After discovering that the wife, a real estate agent, was employed with one of the resort’s competitors, the resort gave the husband an ultimatum of either resigning or convincing his wife to resign from her job.[76] The husband chose to resign.[77]
The plaintiffs argued that the wife could not resign from her position or else she would have been subject to criminal penalties for misrepresenting to her clients that she would be their sole listing agent.[78] The plaintiffs cited a former code provision that governed listing agents and fined or incarcerated agents for any conduct in a real estate transaction which “demonstrates bad faith, dishonesty, untrustworthiness[,] or incompetency in such a manner as to endanger the interest of the public.”[79] Alternatively, the plaintiffs argued that the wife would have been subject to administrative sanctions had she resigned and failed to remain the listing agent for her clients.[80] The plaintiffs claimed that forcing an employee to incur criminal or administrative penalties as conditions of continued employment would violate public policy.[81]
The Court, however, found that the wife would not have been subject to criminal penalties because three months prior to the plaintiff’s resignation giving rise to their claim the General Assembly had amended the laws governing real estate agents to eliminate criminal penalties for all conduct except for practicing without a license.[82] Turning to the administrative penalties, the court relied on a narrow reading of Ludwick and stated that “it seems clear the Supreme Court did not consider public policy outside the sphere of criminal sanctions.”[83] Essentially, the court interpreted Ludwick to apply only to choices between jail time or termination.[84] Interestingly, the court indicated a willingness to find public policy in Title 40’s provisions, but only those provisions that carry a potential penalty of incarceration.[85]
The Supreme Court clarified Ludwick’s limitations seven years later in Culler v. Blue Ridge Electric Co-op., Inc. by holding that the public policy exception extended “at least to legislatively defined ‘Crimes Against Public Policy.’”[86] Under Chapter 17 of South Carolina’s criminal code, the General Assembly has identified specific crimes that constitute violations of the state’s public policy.[87] Relying on this identification, the Culler decision recognized public policy in criminal laws that solely levy a fine against the violator.[88] For example, some of the statutorily defined Crimes Against Public Policy do not levy a punishment of incarceration if violated.[89]
The Culler decision clarified that determining public policy requires focusing on the legislature’s intent to establish public policy in a statute, rather than on the sanction an employee might have faced from a statute.[90] Realizing the original purpose of Ludwick as preventing terminations that violate a “clear mandate of public policy,” the Culler decision reoriented the analysis to focus on legislative intent to establish policy.[91] In the court’s view, “legislatively defined ‘Crimes Against Public Policy’” is exactly the type of legislative intent required to establish public policy.[92]
From the outset of South Carolina’s public policy exception jurisprudence, the goal of preventing the impossible choice played an important role in the court’s reasoning.[93] While public policy was initially limited to laws that, if violated, carry criminal penalties such as incarceration, the court eventually expanded public policy out from the criminal law and focused on the legislative intent to establish policy.[94]
Ten years after Ludwick, the Supreme Court held that actions for wrongful discharge in violation of public policy were no longer limited to situations where “an employer requires an employee to violate a criminal law . . . and . . . situations where the reason for the employee’s termination was itself a violation of the criminal law.”[95] The Garner v. Morrison Knudsen Corp. decision clarified Ludwick by recognizing public policy in a wrongful discharge action in legal authorities outside of criminal law.[96] However, the decision did little else to clarify what legal authorities apart from criminal law might serve as predicate public policy as the “ultimate question whether the public policy exception to the employment at-will doctrine is applicable in this case” was not addressed.[97] Given the case’s procedural posture of dismissal via a 12(b)(6) motion, the facts of the case had not been fully developed and, therefore, could not be fully analyzed by the court.[98] Primarily, however, the Garner decision opened the door for greater expansion of the public policy exception in a wrongful discharge action.[99]
Following Garner, the Court of Appeals dismissed several wrongful discharge claims and left state trial courts scrambling to define the contours of the open-ended decision.[100] In the midst of this scramble, the Court of Appeals took up the issue of whether the South Carolina Rules of Professional Conduct (SCRPC), the ethical code for attorneys, could serve as public policy in a wrongful discharge action.[101] In Novak v. Joye, Locklair & Powers, P.C., the court held that because the SCRPC was not codified by the legislature, it could not serve as public policy in a wrongful discharge action.[102] Further, the court recognized that the SCRPC is not considered substantive law because a violation is not considered per se proof of legal malpractice.[103]
Soon after the Novak decision, however, two Supreme Court decisions changed the landscape of the public policy exception in a wrongful discharge action.[104] First, the presence of a clear mandate of public policy from the legislature is required.[105] Second, a statute containing a policy statement is sufficient to infer legislative intent to declare the public policy of the state.[106] These two decisions, read in conjunction with one another, undermine the appellate court’s reasoning in Novak when applied to professions that contain a clear statement of public policy from the General Assembly.
First, in Taghivand v. Rite Aid Corp., the plaintiff, a store manager fired for reporting crimes of shoplifting at the store, argued that South Carolina recognizes a strong public policy in crime prevention through its statutory scheme and justice system.[107] However, the court was unpersuaded and refused to imply policy where the General Assembly had chosen not to include a more “clear and articulable definition of policy.”[108] The Taghivand decision set the stage for the Supreme Court to finally identify the type of legislative statement required to recognize public policy.
Second, in 2018, the South Carolina Supreme Court in Donevant v. Town of Surfside Beach explicitly identified an example of legislative language necessary to recognize public policy.[109] Unlike Ludwick, in which the court specifically noted the criminal punishment the employee would face for refusing to follow the subpoena, the Supreme Court’s Donevant decision was not concerned with the plaintiff’s lack of criminal law punishment.[110] Instead, the court’s analysis relied on the presence of a clear statement of policy from the legislature.[111]
In Donevant, a building official employed by a town was terminated for issuing a stop-work order after discovering that construction work was being done without a proper permit.[112] The court first explained the origin of the South Carolina Building Code (SCBC) as being adopted by the state Building Code Council, an agency of the state’s Department of Labor, Licensing, and Regulation.[113] Given the defendant-town’s adoption of the SCBC,[114] the town and its building official were bound to “enforce compliance with the provisions of this code” and “issue all necessary notices or orders to ensure compliance.”[115] The court also found that the SCBC placed an affirmative duty on any person seeking to construct a building to first acquire a permit.[116]
Thus, when the building official discovered the lack of a permit, she was obligated by the SCBC to halt construction.[117] Failure to halt construction would have resulted in civil “discipline ranging from a letter of caution to a revocation of her license as a building official.”[118] Alternatively, the building official could have been subject to a charge of misconduct in office.[119] Therefore, the defendant-town’s decision to terminate her was a violation of the General Assembly’s public policy to “maintain reasonable standards of construction in buildings and other structures in the State consistent with the public health, safety, and welfare of its citizens.”[120] The court stated, “[t]his case fits squarely within the long-established limits of the public policy exception to the at-will employment doctrine because firing Donevant for enforcing the building code violates a clear mandate of public policy.”[121]
In its decision affirmed by the Supreme Court, the Court of Appeals reasoned that “[i]t is difficult to imagine a more clear declaration of public policy than language stating ‘[t]he public policy of South Carolina is. . . .’”[122] Additionally, the court noted that “even if [plaintiff] violated a law that only carried a civil penalty, it would not be fatal to her claim for retaliatory discharge.”[123] Consistent with Garner’s holding, the Court of Appeals further held that “there could be situations where an employee was terminated in violation of public policy even if she was not required by her employer to violate the law or the reason for her termination was not a violation of criminal law.”[124]
Consequently, Donevant marks the full departure from criminal law as the sole statement of public policy in a wrongful discharge action.[125] Therefore, if the General Assembly has explicitly imbued a statute with a clear statement of public policy, then interference by an employer with an employee advancing the legislature’s goals will give the employee a cause of action for wrongful discharge in the event of termination.[126]
The Donevant decision from the Supreme Court created a wider path for employees pursuing wrongful discharge claims. First, an employee must be able to point to a clear mandate of public policy from the legislature with language such as “[t]he public policy of South Carolina is. . . .”[127] Second, the employee must be advancing the public policy of the state when they are discharged, and the employer’s decision to terminate must interfere with the public policy being advanced by the employee.[128] Finally, the employee’s decision to advance the state’s public policy must be mandatory as enforced by some sort of legal penalty for failure to act on that duty.[129] Under Donevant, employees are no longer reliant on the criminal law as the sole source of public policy, so long as the General Assembly has provided a clear statement of policy in an applicable statute on which the employee can rely.[130]
There are several methods states use for identifying public policy in wrongful discharge actions, but most agree that public policy should primarily emanate from the state legislature.[131] The following Sections will discuss states that, unlike South Carolina, have already explicitly recognized professional ethical codes as sources of public policy. While Colorado provides the cleanest comparison to South Carolina in terms of requiring the legislature to enunciate public policy,[132] New Jersey and Missouri provide a path for South Carolina to recognize ethical codes as sources of public policy in a way that retains deference to the General Assembly and ensures employers retain their flexibility in termination decisions.[133]
Colorado courts, while initially limiting public policy to statutes and constitutional provisions, eventually recognized ethical codes as public policy in 1996.[134] The Colorado Supreme Court, in an en banc decision in Rocky Mountain Hospital & Medical Service v. Mariani, held that professionals could rely on ethical codes as a source of public policy in a wrongful discharge action.[135] The plaintiff, a licensed certified public accountant (CPA) employed by the defendant hospital system, complained to her supervisors concerning “questionable accounting practices.”[136] Some of the questionable practices included recording an asset bought by one company on the books of another company.[137] Plaintiff alleged that many of these practices were violations of her accounting ethical code.[138]
In validating the recognition of ethical codes as public policy, the Colorado Supreme Court stated that “[a] professional employee forced to choose between violating his or her ethical obligations or being terminated is placed in an intolerable position.”[139] The Colorado state legislature, in its statutory scheme establishing the state Board of Accountancy, declared, “[i]t is . . . in the interest of the citizens of the state of Colorado and a proper exercise of the police power of the state of Colorado to provide for the licensing and registration of certified public accountants.”[140] Given the Colorado state legislature’s declaration of public policy in establishing the state Board of Accountancy, the court found the ethical rules regulating the profession serve an important public purpose of ensuring accuracy in financial reporting.[141]
Colorado’s formulation for determining whether an ethical code can serve as predicate policy is narrowly tailored to ensure employers are aware of which ethical code provisions an employee can rely on in their wrongful discharge claim.[142] Some of the limitations for a professional who seeks to rely on their ethical code in a wrongful discharge claim require the public policy be enunciated in an ethical rule referenced in a statute, and the policy must prevent or demand certain conduct from the professional.[143]
The Supreme Court of New Jersey issued the seminal case from a state recognizing public policy in ethical codes.[144] The court in Pierce v. Ortho Pharmaceutical Corp. held that a professional code of ethics, when designed to serve the interests of the public, can serve as predicate policy in a wrongful discharge claim.[145] The court, however, limited a plaintiff’s ability to rely on ethical codes by requiring an employee to point to a “clear mandate of public policy” rather than personal morals of the plaintiff employee.[146]
In Pierce, the plaintiff employee, a medical doctor, resigned after she refused to continue formulating and lab testing a controversial medicine that was awaiting approval for human testing by the FDA.[147] The plaintiff felt that applying to the FDA to test the medicine on humans was unnecessary and unethical given the potential dangers associated with the drug.[148] Pointing to the Hippocratic Oath as her only source of public policy, the plaintiff argued that she was ethically bound to cease working on development of the drug, especially with human testing imminent pending FDA approval.[149]
The court placed professional ethical codes on the same level as federal and state law by saying professional employees are bound by a special duty to abide by all three.[150] The court, however, was unpersuaded by the plaintiff’s argument that she was in danger of violating federal law or her ethical codes.[151] The court noted that Plaintiff’s employer was not requiring human testing prior to FDA approval of the drug’s formulation, so the employer was not actually violating federal law that required FDA approval prior to human testing.[152] Therefore, the plaintiff was never at risk of violating federal law unless the FDA denied the request for human testing, and the employer then required plaintiff to pursue illegal testing of a controversial drug that could harm human test subjects.[153]
Next, the court found that the plaintiff was not at risk of violating the Hippocratic Oath when she was terminated because the drug, though controversial, was not yet being tested on humans.[154] The Hippocratic Oath contained no prohibitions on “research that does not involve tests on humans and that cannot lead to such tests without governmental approval.”[155] Therefore, the plaintiff failed to show that, as a condition of continued employment, she was forced to violate the Hippocratic Oath.[156] Despite the plaintiff being unable to state a claim for wrongful discharge, the Pierce decision cemented the viability of ethical codes as predicate public policy, and its reasoning has been relied on by several other courts faced with the same issue.[157]
Judge Pashman, the lone dissenter in Pierce, argued that, given the novelty of the issue presented, the plaintiff’s claim should not be dismissed by summary judgment motion; rather, the plaintiff should be allowed to present her case at trial.[158] Although the plaintiff failed to plead sufficient facts to show a violation of public policy, Judge Pashman offered up several potential methods the plaintiff could have used in stating her claim.[159] One method was that because New Jersey law authorizes revocation of a doctor’s license if the doctor engages in gross malpractice, had the plaintiff been allowed to proceed with her claim, she may have been able to show that following her employer’s controversial directive might have resulted in the revocation of her license to practice medicine as an act of gross negligence.[160] Pashman concluded his dissent stating, “[p]laintiff has been denied the benefit of the rule which she has sought to vindicate her professional conscience.”[161]
Likewise, Missouri recognized ethical codes as a source of public policy with the decision in DeFoe v. American Family Mutual Insurance Co.[162] In DeFoe, the court held that an attorney pointing to the state’s rules of professional conduct as public policy in a wrongful discharge claim must articulate a “clear mandate of public policy.”[163] The plaintiff argued that his employer, by assigning a heavy caseload, was interfering with his ability to provide competent representation.[164] The plaintiff relied on two ethical code provisions to support his argument, but the court held that neither provision, when applied to the plaintiff’s case, provided a clear mandate of policy.[165] The court also pointed out that neither ethical provision discussed workload in any way.[166] In dismissing the argument, the court noted that, while an increased caseload could affect competence, “an attorney’s ability to competently handle any given caseload varies greatly by not only the individual attorney but also the complexity of each individual case.”[167]
Essentially, the court was hesitant to apply the two ethical provisions because an employer would be unable to gauge competence of an individual attorney based solely on their caseload.[168] While the court did recognize the ability of ethical codes to serve as public policy, the requirement of a clear mandate prevents employees from bringing claims based solely on their professional judgment rather than a definite violation of the ethical rule.[169]
The DeFoe court shared many of the same concerns from Rocky Mountain and Pierce concerning the reliability of ethical codes as sources of public policy.[170] The decisions, though sharing similar concerns, came out differently based on the plaintiff’s ability to point to a specific rule that prevents or demands certain conduct.[171] The plaintiff in DeFoe failed to identify a specific ethical provision preventing attorneys from having an unmanageable workload; therefore, his claim was unsuccessful.[172]
South Carolina’s statutory scheme regulating accountants is similar to Colorado’s statutory scheme,[173] so the Rocky Mountain decision’s analysis provides a path for South Carolina to follow when recognizing accounting ethical codes as sources of public policy. Accountants in South Carolina are generally regulated under Title 40 of the South Carolina Code, and accountant conduct is subject to ethical provisions adopted by the State Board of Accountancy.[174] The first section of the statutory scheme regulating accountants proclaims the following: “It is the policy of this State, and the purpose of this chapter, to promote the reliability of information used for guidance in financial transactions or for accounting or for assessing the financial status or performance of commercial, noncommercial, and governmental enterprises.”[175] From there, the chapter establishes a state Board of Accountancy responsible for the “administration and enforcement” of the entire chapter.[176]
Explicitly stated in the statute, the powers and duties of the state’s Board of Accountancy include “adopt[ing] a code of professional ethics appropriate to the profession.”[177] From this statutory requirement to adopt a code of ethics, the Board of Accountancy established the “Ethical Standards of the [American Institute of Certified Public Accountants’] AICPA” as the ethical code governing accountants in South Carolina.[178] According to the South Carolina Code of Regulations for the Board of Accountancy, “[l]icensees shall . . . not engage in any acts discreditable to the profession as defined by the Ethical Standards of the AICPA.”[179] The AICPA’s Rules of Professional Conduct define certain behavior or conduct that constitutes an “act discreditable to the profession.”[180] Additionally, the statutory chapter allows for administrative discipline if the AICPA Professional Standards are violated.[181] Given the State Board of Accountancy’s adoption of the AICPA’s Professional Standards as the governing ethical code for accountants in South Carolina, accountants licensed by the state of South Carolina are subject, in their professional activities, to the AICPA’s Ethical Standards.[182]
According to § 40-2-110(7) of the South Carolina Code, upon a hearing and a showing of a violation of the AICPA’s Ethical Standards, “the board may revoke, suspend, refuse to renew, reprimand, censure, or limit the scope of practice of a licensee and impose an administrative fine not exceeding ten thousand dollars per violation.”[183] Although an accountant cannot face criminal charges for violating the AICPA’s ethical provisions, the administrative penalties can be just as detrimental when the professional’s reputation, finances, or license to practice is at risk. Therefore, an accountant coerced to violate their ethical code as a condition of continued employment is “placed in an intolerable position” and must confront the impossible choice as defined in the beginning of this Note.[184]
Like Colorado’s progression in recognizing accounting ethical codes as sources of public policy, the South Carolina Supreme Court should recognize public policy for purposes of a wrongful discharge action in the AICPA’s ethical provisions pursuant to Chapter 2 of Title 40 of the South Carolina Code.[185] The General Assembly, by including a clear and articulable statement of policy in the statute’s first section, expressed an intent for Chapter 2 of Title 40 to act as the public policy of the state.[186] Recognizing public policy in the AICPA’s Ethical Standards as adopted by the state Board of Accountancy is consistent with the court’s holding in Donevant that recognized public policy in the building code as fitting “squarely within the long-established limits of the public policy exception to the at-will employment doctrine.”[187] Drawing from the holding in Donevant, accountants should be able to rely on their ethical code to pursue a wrongful discharge in violation of public policy under this Note’s proposal.
First, the General Assembly has imbued the statutory scheme regulating accountants with a clear statement of public policy.[188] According to the holding in Donevant, a statute’s statement of policy is sufficient to identify public policy for purposes of a wrongful discharge claim.[189] The statutory scheme regulating accountants contains a clear statement of public policy from the legislature, unlike the statutory scheme regulating attorneys that lacks a clear statement of public policy.[190]
Further, while the Novak decision noted that the SCRPC was not promulgated by the legislature and therefore could not serve as predicate public policy in a wrongful discharge claim,[191] the Donevant decision recognized public policy in the SCBC which was adopted by the South Carolina Building Codes Council rather than the General Assembly.[192] Similar to the SCBC which was delegated to a state agency to adopt and modify, the General Assembly entrusted the State Board of Accountancy with the adoption and modification of a code of professional ethics to govern accountants.[193] Finally, a violation of the AICPA’s Professional Standards was identified as a basis for discipline by the General Assembly.[194] Therefore, the holding from Novak is inapplicable to accountants in light of the Donevant decision because the statute governing accountants contains a clear statement of public policy, and the Supreme Court has recognized public policy in legal authorities delegated from and promulgated by the General Assembly.[195]
Second, an accountant-employee attempting to ensure accuracy in financial reporting according to the AICPA’s ethical requirement,[196] is advancing the public policy of the state. The policy of the state, as expressed by the General Assembly, is to “promote the reliability of information used for guidance in financial transactions or for accounting or for assessing the financial status or performance of commercial, noncommercial, and governmental enterprises.”[197] Therefore, if the employee is discharged for advancing the public policy of the state—contrary to the orders of their employer—the employer’s decision to terminate violates the public policy as stated in § 40-2-5 of the South Carolina Code.[198]
Finally, the employee’s decision to advance the state’s public policy is mandatory because compliance with the accounting ethical rules is enforced by administrative penalties such as an administrative fine, suspension, or license revocation.[199] If an employer, as a condition of continued employment, requires violation of an ethical rule, then the accountant-employee must confront the professional’s impossible choice: obey the employer’s unethical order and potentially face administrative sanctions, or refuse and face termination. Compliance with the ethical standards of the AICPA is not discretionary; it is mandatory.[200]
Consequently, if an employer’s directive interferes with the state’s interest in ensuring “the reliability of information . . . in financial transactions,” then the employee should be able to pursue a claim of wrongful discharge based on the public policy exception.[201] Similar to the building official in Donevant who was attempting to uphold the state’s policy “to maintain reasonable standards of construction in buildings” when she was terminated,[202] an accountant attempting to safeguard accurate reporting should have the remedy of a wrongful discharge claim if terminated for refusing to violate their ethical code.
An employer forcing its employee to knowingly misrepresent facts is a clear violation of the accountant’s ethical code, and the practice violates the General Assembly’s interest in maintaining accuracy in financial reporting.[203] Rather than only analyzing the interest of the General Assembly, this Note’s proposal requires weighing the interests of all three groups who will be affected by the recognition of accounting ethical codes as a source of public policy.
Recognizing ethical codes as a source of public policy in a wrongful discharge action requires weighing the interests of three groups: employees, employers, and the General Assembly. First, the recognition protects accountants by preventing the impossible choice and empowering accountants who side with their ethical rules.[204] Second, the employer retains its flexibility in the marketplace because the employer should already be encouraging adherence to ethical codes that apply to its accountant employees.[205] Lastly, recognizing ethical codes as proposed maintains power to determine public policy with the General Assembly pursuant to Donevant and Taghivand because a clear statement of policy must still be present in the professional’s controlling statute under Title 40.[206]
The added protection to the employee is straightforward. Simply put, recognizing accounting ethical codes as public policy for purposes of a claim for wrongful discharge prevents the professional’s impossible choice. The dilemma is effectively prevented by empowering accountants to comply with ethical rules rather than only punishing those who fail to follow them.[207] An accountant would not have to confront an impossible choice, for they would comply with the ethical rules and still seek a remedy against their employer in the form of a wrongful discharge claim.
On the other hand, dismissing all wrongful discharge claims relying on professional ethical codes as public policy would send a strong message to professional employees that “it is economically more advantageous to keep quiet than to follow the dictates of the [ethical rules].”[208] Additionally, allowing an employer, absent fear of any repercussions, to terminate an employee who stood up for the ethical obligations of their profession “give[s] the assistance and protection of the courts to scoundrels.”[209] Therefore, protecting the interests of the professional employee not only prevents the impossible choice, but also empowers accountants to follow their ethical code.
As for the employer, no real harm is done by recognizing the accounting ethical code as public policy in wrongful discharge claims because the employer should already be encouraging adherence to ethical codes that apply to its accountant employees. First, the employer itself is likely already subject to compliance with its own ethical rules. For example, a public accounting firm’s employees and supervisors who make termination decisions are mostly accountants and, therefore, subject to the state Board of Accountancy’s code of professional ethics.[210] Second, employers who may not themselves be subject to ethical rules but who hire accountants subject to ethical rules should want their employees, if for no other reason than public perception, to comply with the rules.[211] Finally, the standard proposed by this Note ensures employers will not face frivolous suits predicated on personal morals or professional judgment of the employee. As previously stated, the accountant employee must be able to prove they were faced with an impossible choice of termination or discipline for violating an ethical rule.
Some employers have argued that ethical codes, being constantly updated and revised, are too variable to provide notice to employers of what constitutes public policy.[212] Courts have dispensed with the variability argument by stating that ethical codes, being “central to a professional employee’s activities[,]” may create conflict with employer demands.[213] Hence, when an employer demand arises that poses a conflict with an employee’s ethical code, an impossible choice is created that places an employee in an “intolerable position.”[214] According to the Colorado Supreme Court, “[i]t is just such a situation that the public policy exception was meant to prevent.”[215] Ultimately, the employer is in no worse position by the expansion because employers should encourage adherence to accounting ethical codes, and a proper standard will prevent frivolous claims based on personal morals or professional judgment of the employee.
Finally, turning to the interest of the General Assembly, the power to declare policy still rests with the legislature under this proposal. The General Assembly intentionally placed a clear statement of policy into the statutory scheme regulating accountants, and this statement cannot be ignored.[216] This Note does not advocate for the Supreme Court to assume the prerogative of policy maker. Rather, its goal is for the Supreme Court to fully realize the legislature’s statement of policy and give accountants the protection of public policy enunciated by the legislature nearly twenty years ago.[217] However, if an accountant wishes to prove their wrongful discharge claim by showing the employer forced them to violate ethical rules, certain limits are required to balance the interests of the employer and employee.
The Pierce decision illustrates the type of analysis required to maintain the employer’s flexibility while still preventing the impossible choice for accountants. The court in Pierce specifically noted that the plaintiff-doctor failed to prove that, had she complied with her supervisor’s orders, she would have violated the Hippocratic Oath.[218] Requiring accountants to show an ethical rule violation if the accountant followed the employer’s directive would ensure only those accountants faced with an impossible choice can bring wrongful discharge claims. This requirement also ensures that professional employers are not faced with frivolous claims based primarily on personal morals or professional judgment of the employee, rather than concrete ethical rules.[219] The linchpin of the accountant’s claim hinges on their ability to show the employer’s directive, if followed, constituted a violation of the AICPA’s ethical rules. Unlike the plaintiff-doctor in Pierce who failed to show her employer’s directive would have caused her to violate the Hippocratic Oath,[220] an accountant must show the employer’s command would result in an ethical violation.
Some scholarship advocates for a standard that merely requires the professional show a “reasonable belief” that the employer’s proposed conduct would violate the ethical rule.[221] However, this truncated analysis fails to address the common concern that an employee may not be subject to discipline for following the employer’s directive.[222] If an accountant decides to pursue a wrongful discharge theory on the grounds that their employer, as a condition of continued employment, required a violation of ethical rules, the accountant must be able to prove that, had they sided with their employer’s unethical command, they would have been subject to an administrative penalty. License revocation, suspension, or fine are all forms of discipline that can result from a violation of accounting ethical rules.[223] Therefore, an accountant employee bringing a wrongful discharge claim relying on their ethical code as the source of public policy must show that discipline would have resulted had they followed their employer’s directive. By requiring the employee to prove an ethical violation coupled with discipline had they sided with the employer, a court can accurately gauge whether the employee faced an impossible choice deserving of relief.
Finally, this Note lays the groundwork for other professional employees in South Carolina who may seek to rely on their ethical codes as sources of public policy in a wrongful discharge action. There are approximately seventy professions enumerated under Title 40 of the South Carolina Code;[224] of these, only two have clear statements of public policy similar to the statement for the statute controlling accountants.[225] Accordingly, only engineers and surveyors would share a similar path with accountants for gaining the recognition of their ethical codes under this Note’s proposal. Given the uniform severity of the impossible choice for professionals governed by ethical codes, certain professionals such as doctors and lawyers may desire the protection of public policy in their ethical codes. However, without a clear statement from the legislature, as required by Taghivand, courts are unlikely to imply legislative intent to declare policy.[226] Specifically, attorneys face a difficult path considering the decision in Novak, but a clear statement of policy from the legislature would satisfy the requirements later imposed by Taghivand and Donevant for recognizing ethical codes as public policy in a wrongful discharge action. Therefore, professionals with ethical codes seeking enhanced protection from employer abuses should lobby the General Assembly to amend their respective statutory schemes to include clear statements of policy. The General Assembly, in the interests of preventing the impossible choice for professional employees in South Carolina, should consider declaring the policy of the state in professions enumerated under Title 40 that have ethical codes enforced by administrative penalties.
In the interest of preventing the professional’s impossible choice, the South Carolina Supreme Court should recognize the AICPA’s Rules of Professional Conduct as public policy if, as a condition of continued employment, the employer requires the accountant to violate those rules. To prevent wrongful discharge claims based solely on personal morals, the employee must be able to show that, had they followed their employer’s directive, administrative penalties such as suspension, license revocation, or fine would have been levied. This moderate proposal not only maintains South Carolina’s adherence to employment at-will but the General Assembly also retains its power to declare public policy.
employee does not have a right to continued employment when he or she refuses to conduct research simply because it would contravene his or her personal morals”). ↑
at 4–5. ↑