At-Will Employment

An employer’s practice of at-will employment is an employment agreement between employer and employee that may be terminated by either employer or employee at any time without notice and without any reason (cause). Unless there is specific company documentation, oral or written, that the company policy is employee termination for cause, the law presumes that most employment is at-will employment.

However the employer does not have carte blanche regarding employee terminations. The employer cannot terminate an employee for illegal reasons. At-will employees have rights and protections by statutory exemptions and common-law exceptions to an employer’s at-will employment practice. An employee can choose to accept at-will employment and is free to voluntarily terminate his employment at any time without notice, for his own reasons.

Statutory Exceptions

Federal, state and local anti-discrimination statutes are statutory exceptions to the employment at-will doctrine. Title VII of the Civil Rights Act of 1964 prohibits employers of 15 or more employees from basing employment decisions on an employee’s race, color, religion, sex, or national origin. The Fair Housing Amendments Act (FHAA) provides further protection against discrimination based on disability and familial status. Other federal statutes such as the Age Discrimination in Employment Act (ADEA) and the Americans with Disabilities Act (ADA) also provide anti-discrimination protection for at-will employees.

State statutes and local ordinances in many jurisdictions provide greater anti-discrimination protections than federal laws. Federal, state, and local laws protect at-will employees from termination, suspension, or other work reduction as employer retaliation against an employee for exercising rights under employment or labor law, reporting employer discrimination, reporting health and safety violations, or other issues in the workplace.

Common-law Exceptions

Common-law exceptions to at-will employment are in addition to statutory exceptions. The three major common-law exceptions are public policy, implied contract, and implied covenant of good faith and fair dealing.

Public Policy Exception

The public policy common-law exception is recognized by most states but criteria for violations of public policy can vary significantly among states depending upon how broadly the exception is construed.

Employees are protected against adverse employment actions that violate a public interest. Most states consider only public policy expressed by statute or state constitution, while a few states allow public policy to include administrative rules and regulations, professional codes of ethics, or civic duty.

Public policy exceptions may include reporting a violation of the law, exercising a statutory right, refusing to perform an act that state law prohibits, and engaging in acts that are not in the public interest. As examples, public policy violations could be termination of an employee for filing a workman’s compensation claim, filing a safety (OSHA) complaint, serving on a jury, or being called for military duty.

Implied Contract Exception

The exception of implied contract of employment is recognized by most states, but even where recognized may not be easily proved by a dismissed employee. However implied contracts can be created by oral assurances by an agent of the employer, by employee documents such as handbooks, policies, or practices or other written assurances by the employer. The employment relationship may have begun as an at-will employment with no express written agreement, but the employee may have gained an expectation of a fixed term employment based upon oral statements by supervisors, employer actions, or written employer policies adopted during the employee’s term of employment.

Implied Covenant of Good Faith and Fair Dealing

Some states recognize an implied covenant of good faith and fair dealing in employment relationships. The exception noted in this implied covenant is the understanding that the parties in the employment relationship will not treat each other in an unfair manner or act in bad faith toward each other. Thus an employee’s termination should be for cause and not for arbitrary reasons.

Courts have found employers in violation of this covenant of good faith when employees are terminated to avoid employer responsibilities in paying for employee healthcare, retirement benefits, or commissions.

Terminated employees could use this exception when filing suit against the employer for wrongful termination with no other evidence to the contrary of an implied oral or written contract.

Wrongful termination or wrongful dismissal is commonly understood to be an unfair employment termination. As noted above, wrongful termination could result from employer discrimination against a member of a protected class, as retaliation for an employee action, or from an employee’s refusal to commit an illegal act for the employer. In addition, wrongful termination could be as a result of the employer failing to follow his own stated termination policy and procedures.

However not every termination is unfair and not every unfair termination constitutes wrongful dismissal. The employer must have illegally terminated the employee for the dismissal to be considered wrongful termination. If the termination is not deemed illegal, then, it is not wrongful termination no matter how unfair it might seem. Wrongful termination can be claimed in the employment at-will relationship and under contractual employment agreements.

Filing a claim of wrongful termination can involve a variety and complexity of issues, including filing claims with government agencies or filing private lawsuits. If the claim of wrongful termination is upheld, the employee could be entitled to compensatory damages, injunctive relief, punitive damages, attorney fees, and/or reinstatement.

The presumption of at-will employment can be changed through contractual agreement between employer and employee by specific terms of employment or by allowing termination for cause only.

Just Cause Termination

Just cause termination is dismissal of an employee for a legally specific reason referred to as good cause, lawful clause or sufficient cause, to prove the employer’s right to discipline or terminate an employee.

An employment contract may specifically outline the situations or employee actions that would lead to termination for cause. Cause generally includes reasons such as unsatisfactory employee performance, employee misconduct, or employee negligence.

Employment Contract

The presumption of at-will employment can be modified by an employment contract that provides for a specific term of employment or allows termination of an employee for cause only.

An employment contract is a negotiated agreement between an employer and prospective employee that recites the obligations of each party, employment terms and conditions, and details of the employment such as employee start date, wage/salary information, and benefits. When the employment contract is signed, it becomes a legal document binding the parties to the employment terms.

An employment contract should specifically address the employment terms and conditions of employee termination. A prospective employee can negotiate language in the employment contract that provides protection for employee from termination without cause. Employment contracts may specifically address situations or actions that constitute employee termination for cause.

An employment contract can include various agreements that more fully define employer and employee obligations. As examples, an employer may require the employer to sign acknowledgement of:

  • A confidentiality agreement
  • A non-compete agreement
  • An assignment of intellectual property agreement
  • An exclusive employment agreement
  • Agreement to use arbitration or mediation for dispute resolution

If an employment contract is terminated by the employer before contracted end date, the employer has breached the employment contract. The employee may be able to bring a claim for wrongful termination due to breach of contract.

Best Practices

Employers that utilize at-will employment practices should ensure that such practices are clearly detailed in all company documents and articulated by company personnel in clear understandable language so that employees are knowledgeable about the employment arrangement before consenting to at-will employment.

Best practices for an employer include legal consultation in general regarding employment policies and termination policies in particular and have procedures in place to accurately and thoroughly document employee records for performance and disciplinary issues. Employee termination as an appropriate course of action by the employer should be documented following thorough investigation of facts. All employee disciplinary actions including termination should be conducted in a fair, consistent, non-discriminatory manner as applicable to every employee.

At-will employment offers an employer flexibility to manage his workface. An employer can change the terms of the employment without notice in response to market conditions and business necessity.

As necessary, when needing to terminate an employee, at-will employment offers a more efficient release process without the need for lengthy legal resolution. If the employee clearly understands the at-will employment arrangement and consents to the employment agreement, both employer and employer have a mutual working relationship until either employer or employee exercises the right to terminate without notice.

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