If you aren't exactly sure what the phrase "at-will employment" means, you are not alone. Many people don't know the intricacies of this legal principle, despite its prevalence in the U.S. workplace. Unless an employee has an actual or implied contract — and most don't — the employment relationship is at-will. At-will employment has many advantages for employers, particularly regarding employee termination. However, employers who don’t understand the doctrine’s details could land in hot water. In this article, we define at-will employment, outline the arrangement’s pros and cons, and provide insight regarding fair vs. wrong termination. Thoroughly understanding this legal doctrine will help employers avoid costly wrongful termination claims.
Public policy exceptions to the doctrine’s termination allowances also exist. Additionally, many states have created their exceptions to the general rule of at-will employment.
Get free access to Practical Law, the how-to resource with a 50-state chart describing state laws regarding at-will employment and exceptions.
The existence of an express or implied contract removes employment from the at-will realm.
The existence of an express employment contract creates a contractual employment relationship. A contract that limits the methods and reasons for termination, negates default at-will status. Notably written employment policies that only cover topics like salary or employee benefits do not affect this status.
An implied contract is not as straightforward as an express contract. Implied contracts are created by oral or written statements or actions that imply the existence of an employment term. For example, saying “I’ve never fired anyone” could be interpreted as a guarantee of continued employment. Probationary employment also creates confusion amongst new employees. When an employee handbook sets forth a probationary period, employees may argue that after completing this trial phase their jobs are no longer subject to performance-based termination.
Disputes over the existence of implied contracts can lead to wrongful termination claims. Employers must be aware of the impact of their words and actions.
Once at-will employment is established, employers must learn its implications.
At-will employment protects both employee and employer by providing no-fault freedom to part ways. Employers draw myriad benefits from this arrangement, including a positive impact on personnel decisions, operating costs, efficiency, and business growth. Prospective employees are similarly drawn to this arrangement as it provides flexibility to quit at any time for any reason. For example, an employee who is unhappy at work or has been offered a better job can simply quit — no questions asked.
The impact of at-will employment cannot be classified as all good or all bad, but its impact on termination is less amorphous.
One of the most important aspects of at-will employment is its exceptions’ impact on the legality of termination. Many employers unknowingly violate these exceptions, opening the door to very costly wrongful discharge lawsuits.
A fair termination, referred to as good faith termination, is dismissal based on a lawful justification. Some of the most common grounds for good faith termination include:
Termination predicated on an unlawful basis in violation of federal or state law — can result in wrongful termination claims. Unlawful termination grounds include:
Just because you can terminate an employee for any reason (or no reason at all) doesn’t mean termination decisions should be made haphazardly. Remember, employees who feel blindsided are less likely to provide useful feedback during the exit interview. Careful, well-planned firing decisions are an employer’s best defense against a wrongful termination claim.
Documentation, documentation, documentation! Employers should document everything leading up to an employee’s termination. Employees should be given warnings and chances to improve their performance. The provision of counseling, training, warnings, and performance reviews increases the likelihood of improved performance and decreases the likelihood of successful wrongful termination claims.
The general rule is employees should never be surprised by termination; however, there are instances when this general rule doesn’t apply. Certain behaviors, such as workplace intoxication, theft, or violence warrant immediate termination. Managers should seek legal advice from their company’s attorneys when making controversial hiring and firing decisions.
At the time of termination, an employee’s severance package should be set forth (if applicable). The entire termination conversation should be well documented.
On its face, at-will employment sounds straightforward, but constantly changing state and federal laws complicate an otherwise basic doctrine. To avoid wrongful termination claims and costly legal action, employers must stay on top of these changes. It is also crucial to avoid making statements and taking actions that could inadvertently impact an employee’s at-will status. Keep up on ever-changing legal termination requirements with the Practical Law’s Employee Termination Best Practices. It includes laws and policies to consider, how to document termination protocols, and practical tips to reduce the risk of a lawsuit. Try it for free today.
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