What is at-will employment? Insights for employers

What is not considered at-will employment?

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.

What are the pros and cons of at-will employment?

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.

Pros of at-will employment

1. Reduces the number of costly legal battles. At-will employment affords employers autonomy and legal cover. If the reason for termination does not violate one of the clearly stated exceptions to the at-will doctrine, employers can shape their workforce as they choose.
2. Provides freedom from contractual obligations that may otherwise require annual negotiation. Renegotiating employment contracts is an arduous process that can involve contentious give and take. When business needs change, and contract terms are no longer applicable, contract negotiations become difficult.
3. Helps attract high-caliber talent who would not want to be trapped if a better opportunity arose. The competition to attract employees with certain skills is so high that employers may not want to risk scaring these in-demand candidates off with restrictive contract terms.
4. Supports economic growth and competition. Employees who are contractually obligated to stay at one company cannot bring their fresh ideas to other corporations. A lack of idea-sharing can hinder innovation and economic progress.
5. Gives companies the freedom to quickly fire superfluous employees, a bad fit, or are contributing to an unpleasant working environment. Being forced to retain an ineffective or disruptive employee negatively impacts a company’s productivity and bottom line.

Cons of at-will employment

1. Makes people concerned about losing their jobs for any random reason (absent a few exceptions). Though at-will employment is exceedingly common, there are still individuals who want the added security a job term provides. Some believe this employment scenario permanently keeps people on the edge of unemployment.
2. Increases the potential for higher employee turnover. An employee’s ability to leave a job at any given moment makes business planning challenging. It is hard to determine employment needs with an uncertain workforce. Plus, finding and training replacements is expensive.
3. Increases employee stress due to lack of job protection. Employee anxiety can affect productivity and morale.
4. Prevents the use of company-specific terms and expectations often present in employment contracts. When terms for termination are clearly stated, employers may have an easier time defeating wrongful termination claims.
5. Reduces job security for high-level employees. Employers pursuing high-level workers with specific skill sets might benefit from offering contractual job security to these sought-after individuals. Employees may also want an employment contract preventing highly competitive talent from job hopping.

The impact of at-will employment cannot be classified as all good or all bad, but its impact on termination is less amorphous.

Good faith termination vs. wrongful termination

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.

Good faith termination

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:

• Poor performance. This is the most common basis for termination.
• Personality differences. Simply stating, “We just don’t get along” is adequate. Employers should not say much more, as they run the risk of muddying the legal waters. Notably, if a personality difference is an issue, a protected trait cannot be the reason for the issue.
• Poor attendance. Employers cannot retaliate for absences related to a protected medical leave.
• Bullying or fighting at work. Employers who do not address inappropriate workplace behavior or violence can become the subject of negligence litigation.
• Violation of work-related rules. Employee handbooks set forth long lists of work-related rules that must be followed. Simply not doing your job can also be a violation of a work-related rule. By accepting employment, employees have fundamentally agreed to do their jobs.

Wrongful termination

Termination predicated on an unlawful basis in violation of federal or state law — can result in wrongful termination claims. Unlawful termination grounds include:

• Discrimination. Federal law dictates employers cannot terminate an employee based on a protected status. These traits include age, race, national origin, disability, sex, sexual orientation, and religion. Always review the latest Equal Employment Opportunity Commission (EEOC) updates.
• Retaliation. Employees cannot be fired for making claims of discrimination, wrongful conduct, or for filing a workers’ compensation claim. Note, whistleblowers are a protected group.
• Public policy.  An employee cannot be terminated for refusing to follow an employer’s unlawful request. This public policy exception exists for the betterment of society.
• Health and safety complaint. An employer cannot terminate employees for reporting a health and safety violation.
• Protected medical leave. The most common protected medical leave regulation is the Family Medical Leave Act (FMLA). Employers should review their state’s protected medical leave policy.
• Performance metrics. Not every wrongful discharge claim is based on legal grounds. For instance, if an employer tells an employee they have six months to show improvement and then fires the employee in three months, a wrongful termination claim will likely follow.

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.

Best advice for employers when terminating an at-will employment relationship

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.

How to protect your legal interests

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.