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Employment At-Will: Federal

Employment At-Will requirements by state

Authors: Beth C. Rogers, Law Offices of Beth C. Rogers, LLC and Darrell R. VanDeusen, Kollman & Saucier

Summary

  • Absent a written agreement stating otherwise, employment relationships are presumed to be at-will, except in Montana. At-will means that an employer can terminate an employee at any time for any reason, or for no reason, but not for an illegal reason. Likewise, an employee is free to leave a job at any time for any or no reason with no adverse legal consequences. See The At-Will Employment Relationship.
  • State courts and legislatures have developed exceptions to the at-will presumption. These exceptions include contracts, statutory protections and public policy. See Most Common Exceptions to Employment At-Will.
  • Even if no employment contract exists or no statutory protection is available to a terminated employee, an at-will employee may challenge his or her discharge asserting certain tort claims. See Tort Exceptions.

The At-Will Employment Relationship

In all states, except Montana, employment relationships are presumed to be at-will. At-will means that an employer can terminate an employee at any time for any reason (with certain exceptions), or even without a reason, without incurring legal liability. Likewise, it means an employee is free to leave a job at any time for any reason, or without a reason, with no adverse legal consequences. However, employment at-will does not necessarily mean that there is no employment contract. It means that employment and compensation are not guaranteed for any specified time period.

The employment at-will doctrine is not found in federal law and state court interpretations of it vary. Although some states have passed laws explicitly recognizing the at-will doctrine, most states' interpretations of it have developed through common law (i.e., the law developed through court decisions) qualified by state statutes. Therefore, employers need to be aware of how the at-will doctrine has been interpreted by the states in which they operate and employ workers. Despite these varying interpretations, there are some common exceptions.

Most Common Exceptions to Employment At-Will

Even if an employer and employee do not enter into a formal employment agreement, there are various exceptions to the at-will presumption, including:

  • Contracts that contain a specific term of employment with termination-for-cause provisions;
  • Collective bargaining agreements;
  • Implied contracts;
  • Public policy;
  • The implied covenant of good faith;
  • Statutory exceptions;
  • Promissory estoppel;
  • Antidiscrimination laws; and
  • Anti-retaliation laws.

However, not all of the exceptions apply in every state.

Contracts

The most direct way to alter the presumption of at-will employment is by entering into a contract with an employee that expressly limits the time of the employment and/or restricts the circumstances under which the employment relationship may end. In these circumstances, the employer and the employee are both required to follow the terms of the contract.

A contract is a legal agreement that is not enforceable unless there was an offer, consideration and an acceptance when it was formed. In the employment context, an offer is usually a promise made by the employer to provide the employee with a job. Consideration is something of value exchanged between the parties, such as wages paid in return for the work performed. If the employee accepts the offer of employment and the compensation package, a contract is formed.

Typically, US companies negotiate individual employment agreements only with high level employees. There are, however, some industries that require all employees to enter into employment contracts. Many employment contracts provide that the employee may only be terminated for cause. Cause generally includes reasons such as poor employee performance, employee misconduct or economic necessity. An employment contract may specifically outline the situations or employee actions that would lead to termination for cause.

Collective Bargaining Agreements

Collective bargaining agreements (CBAs) also alter the at-will presumption. A CBA functions as a contract between an employer and one or more unions representing the employees. CBAs typically provide the terms and conditions of employment, such as wages, hours of work, working conditions and grievance procedures, and the rights and responsibilities of the employees and the union. Usually, employees covered by a CBA cannot be terminated without cause.

Implied Contracts

Most states recognize implied contracts of employment. An implied contract may be created by verbal (i.e., oral or written) statements. For example, the following oral assurances by a supervisor or employer representative may give rise to an implied contract: "We need good people around here. You've got a job for life!" or, "We don't dismiss employees without giving them a chance to correct their behavior." Likewise, written assurances, such as statements in an employer's handbooks or policies, as well as an employer's practices, may create an implied contract. An employee may have an expectation of a fixed term or even indefinite employment based on these statements.

Courts have allowed employees to proceed with claims of the existence of an implied contract based on proof that a verbal promise:

  • Was well-known and recognized throughout the company;
  • Accurately represented a practice of the employer;
  • Was made by someone with the requisite authority;
  • Created a reasonable expectation that the policy applied to the employee; and
  • Did not contradict a written policy of the employer.

Even if no blanket, company-wide verbal statements are made to employees, verbal promises made to a single employee may give rise to claims of an implied contract. In this case, the employee must prove that:

  • Clear and unequivocal representations were made to the employee;
  • The employee relied on those representations; and
  • The employer provided the employee with some additional consideration beyond continued employment.

Offer letters. An offer letter may unintentionally give rise to an implied contract if appropriate precautions are not taken. For that reason, if an employer sends a letter to a new hire to confirm the job offer and any other employment terms (e.g., the start date), the letter should only include the start date, which is not a term of employment, and wording that the employment relationship is at-will, along with a definition of what that means.

The letter should also state the rate or amount of compensation the employee will be paid in each payroll period (e.g., by the hour, week or month). Compensation should not be stated in terms of an annual salary because an employee may interpret that as a promise of at least a full year of employment.

In addition, offer letters should avoid references to future events (e.g., reviews, bonuses or promotions) occurring after a specific amount of time on the job or on a specific date. Offer letters should also identify any contingencies of the offer (e.g., the execution of a nondisclosure agreement), and state that employment is conditioned upon a number of factors including, but not limited to, a successful background check and reference check.

Stating, in clear and unambiguous language (i.e., in a disclaimer) that employment with the organization is and will remain at-will is a good way to ensure that an offer letter has not inadvertently modified the at-will employment relationship. For example: Employment with the company is at-will, and either you or the company may end employment at any time, for any reason.

Practical Example

The following offer letter may alter the at-will employment relationship and result in an implied contract of employment:

Dear Mr. Smith:

ACME Explosives is excited to offer you employment as a detonation tester. You will be paid $31,200 annually, with annual bonuses and salary increases after completing one year. Absent any disciplinary issues, you will be promoted to senior detonation tester after two years. We expect that you will like working at ACME and hope that you will have many years of employment here.

If you agree to this offer, please sign this letter and return it to me.

Sincerely,

Bill Jones, President

Practical Example

If an employer intends to enter into an at-will employment relationship, the following letter will help preserve the nature of that relationship:

Dear Mr. Smith:

ACME Explosives offers you employment as a detonation tester beginning on May 1, 2018, at a pay rate of $15 per hour. Your employment with the company is at-will, and either you or the company may end the employment relationship at any time or for any reason. We look forward to having you join us on May 1.

Sincerely,

Stacy Brown, Director of Human Resources

Employee handbooks. An employee handbook is an important communication tool between an employer and its employees as well as a valuable resource for providing workplace standards to guide employee behavior and performance expectations. Establishing written company guidelines protects the organization, its assets and its workforce.

However, statements or the absence of certain statements in an employee handbook may jeopardize the at-will employment relationship. In fact, some state courts have held that in appropriate circumstances, representations made in an employee handbook or manual are enforceable. For example, explicit and clear job security provisions contained in an employee handbook widely distributed among a large workforce may be enforceable as a binding commitment of the employer. To avoid this from happening, employee handbooks should include a statement that all employees are employed at-will. This will also provide an employer with a valuable defense in response to employees' breach of contract claims.

Just cause provisions. An employee handbook that only permits termination of employment for just cause protects the employer against arbitrary terminations. Just cause is a fair and honest cause or reason that is regulated by good faith on the part of the employer. A termination is considered made for just cause if it is based on facts that are:

  • Supported by substantial evidence; and
  • Reasonably believed by the employer to be true.

In other words, a just cause termination is one that is not based on an arbitrary, capricious or illegal reason. If an employer's handbook or policy promises that terminations will only occur for just cause, the employer may have to abide by the obligations thereby created and justify its decision to terminate employment.

However, employers should be aware that employees covered by collective bargaining agreements usually may only be terminated for cause. In Montana, if an employee completed a probationary period, the employer bears the burden of proof to demonstrate just cause or good cause to support a decision to terminate that employee.

Progressive discipline provisions. An employee handbook that includes a progressive discipline plan (i.e., "three strikes" before termination) is enforceable as a binding commitment of the employer that it will go through the progressive discipline steps prior to terminating an employee. An employer should reserve the right, in its discretion, to make exceptions to traditional progressive discipline depending on the nature and severity of the offense (e.g., for theft, dishonesty, insubordination and workplace violence). In addition, while state laws may vary, an employer may be able to prevent a contract interpretation by:

  • Avoiding the use of words such as "must," "will" or "shall" and, instead, using words such as "generally," "typically" and "usually" in drafting the policy; and
  • Including an at-will disclaimer in any workplace discipline policy that is part of an employee handbook or manual.

Practical Example

Julia worked at Acme Institute for 16 years, ostensibly as an at-will employee, in a secretarial position. Over the years, Julia's supervisors questioned her level of tardiness and her attendance. At one time, Julia was put on probation for three months, after which her attendance improved. Julia was again put on probation on subsequent occasions because of unsatisfactory attendance and tardiness. A memorandum was placed in Julia's personnel file stating that she still had excessive absences and warning that future incidents will result in further disciplinary action, up to and including termination. Finally, after Julia's job performance continues to decline, she is informed that she is being terminated for tardiness and absenteeism. Julia writes a two-page letter requesting that Acme provide her with another chance, especially since she has never been suspended. The letter refers to the procedures set forth in an employment manual furnished to Julia.

In a section of the manual entitled "Progressive Discipline", under the subsection for "Habitual Tardiness", the manual states the following guidelines:

First Offense: Oral Warning

Second Offense: Written Reprimand

Third Offense: Suspension

Fourth Offense: Termination

Acme does not respond to Julia's letter or return her telephone calls pertaining to the letter. Julia files a wrongful termination complaint, alleging that Acme breached the express terms of the employment manual when it terminated her without first providing her with all steps of the progressive discipline process outlined in the manual, including suspension. Although Acme gave Julia multiple warnings, it did not follow its own procedures as set forth in the employee handbook, since Julia was never suspended from work. Therefore, Acme will likely lose the case because the employee handbook created an implied contract between Acme and its employees. Indeed, the manual promises employees that they will get an oral warning, written reprimand and suspension prior to termination. Because the handbook promised certain specific procedures before termination, it altered Julia's at-will status and Acme would likely be bound to comply with the handbook's job security provisions.

Economic necessity. Employers are assumed to have retained the right to terminate employees for economic reasons, even if the handbook limits termination to misconduct or poor performance. Generally, an action for wrongful termination is not available to an employee whose job is eliminated due to legitimate economic or business reasons or if the termination was not made in bad faith. However, an economic justification for a layoff may not in itself suffice if procedural requirements of the manual are at issue. For example, despite a valid reduction in force, an employer may be required to follow the procedure in its manual to look for and offer alternative employment within its organization for employees before terminating them.

Handbook disclaimers. Creation of an implied contract through an employee handbook may also be avoided by including a handbook statement that clearly provides that the policies and procedures within it do not create contractual rights and that the employer reserves the right to modify its policies and procedures at any time. The disclaimer should also explicitly explain at-will employment. For example:

This handbook is intended to be used as a guide. There may be occasions when the company may change rules or modify policies, both written and unwritten, as business requires. There is no promise of any kind by the employer contained in the handbook. This Handbook is not an employment contract, and both the company and the employee understand that employment may be terminated by either party at any time, for any reason, and without notice. Only the president of the company has the authority to modify this at-will relationship, and then only by written agreement signed by both parties.

Implied Covenant of Good Faith and Fair Dealing

A handful of states recognize an implied covenant of good faith and fair dealing in employment relationships. That means neither party will do anything to injure or prevent the other party from meeting its obligations under the contract. The purpose of this implied covenant is to ensure that both parties to the contract get the benefit of the bargain. If an implied contract is created by an offer letter, a handbook or a verbal promise, the implied covenant of good faith and fair dealing will apply to the implied contract.

Judicial interpretations of this covenant have varied from requiring just cause for termination to prohibiting terminations made in bad faith or motivated by malice. Examples of bad-faith terminations include an employer firing an older employee to avoid paying retirement benefits or terminating a salesperson just before a large commission on a completed sale is payable.

Public Policy

The most widely recognized exception to the at-will presumption protects employees against adverse employment actions that violate a public interest. States that recognize the public policy exception vary significantly in how broadly or narrowly they construe it.

The majority of states accept only public policy expressed in state constitutions and statutes. A minority of states also allow additional sources that may include administrative rules and regulations, professional codes of ethics and broader notions of public good and civic duty. For example, an employer may not refuse to hire a job applicant (or terminate an employee) - even if employment is ostensibly at-will - because the job applicant (or employee) refuses the employer's request to commit perjury at a trial. This protects the public policy of protecting employees who refuse to perform an act that state law prohibits. All states' laws provide, however, that public policy does not cover a personal dispute between the employee and the employer.

Typically, an at-will employee alleging wrongful discharge in violation of public policy must prove the following four elements for the claim to be successful:

  1. The employee refused to commit an unlawful act, performed an important public function or exercised a legal right or privilege involving a clear mandate of public policy;
  2. The employee was subsequently terminated;
  3. Prior to termination, the employee's performance met the employer's expectations; and
  4. There is a causal connection between the employee's discharge and the public policy violation.

If an at-will employee proves these four elements, the employer must be able to state a legitimate reason - independent of the alleged public policy violation - that supports the termination decision. If the employer shows a legitimate termination reason exists (e.g., poor performance), the burden then shifts to the employee to prove that the legitimate reason presented by the employer is pretextual or a rouse to misdirect the court from the true reason for the termination. In cases involving a public policy violation, the employer has the burden of proving it would have discharged the employee for a legitimate reason regardless of the public policy issue.

Promissory Estoppel

Under the theory of promissory estoppel, an employer may be prohibited from terminating an employee, and may be required to pay damages, if the employee can prove that the:

  • Employer made a clear and unambiguous promise of employment;
  • Employee relied on that promise;
  • Employee's reliance was reasonable and foreseeable; and
  • Employee was injured as a result.

Imagine an individual who receives and accepts a job offer, quits his current employment, and then relocates his family to the city where the new job is located. Before his first day on the new job, he is terminated. An individual in this situation may claim promissory estoppel.

Federal courts have generally accepted the definition of promissory estoppel established in Heckler v. Comm. Health Servs. of Crawford Co., Inc., +467 U.S. 51 (1984). In that case, the Supreme Court ruled that promissory estoppel applies if the employee relied on the employer's conduct in a manner that worsened the employee's position. The Court also held that the reliance must be reasonable, such that the employee neither knew nor should have known that the employer's conduct was misleading.

Antidiscrimination Laws

Federal antidiscrimination statutes (such as Title VII, the Americans with Disabilities Act, the Age Discrimination in Employment Act (ADEA) and the Equal Pay Act) prohibit employers from basing employment decisions on an employee's race, color, religion, sex, pregnancy, genetic information, citizenship, national origin, age, disability and veteran status. State statutes may also protect employees from discrimination based on other factors, such as sexual orientation.

It is important to recognize that antidiscrimination statutes shield individuals only from adverse employment actions taken by an employer based on the individuals' membership in a protected class. However, an employer can still legally take an adverse employment action despite an individual's inclusion in a protected class. For example, an employer is free to refuse to hire an applicant in a wheelchair because she failed a typing test. However, an employer may not legally refuse to hire the applicant only because she is in a wheelchair.

Anti-Retaliation Laws

Retaliation is another statutory exception to the at-will employment presumption. Federal laws, such as Title VII and the ADEA, prohibit employers from rejecting job applicants or firing employees in retaliation for engaging in protected activities. Protected activities include opposing unlawful discriminatory practices, filing for workers' compensation, claiming minimum wage or overtime compensation, and telling the public or someone in authority about dishonest or illegal activities of a current, past or potential employer.

Practical Example

Alex owns and operates Acme Motor Plant. Alex employs Barney as his plant manager. Barney does not have a written employment contract for a specific term. However, he has been employed at Acme Motor Plant for 19 years and has consistently been given excellent employment reviews. Barney has managed the plant and its employees so effectively that the profits of Alex's business have grown every year during the term of his employment. They were on the downgrade before Barney was hired. On the 20th anniversary date of his employment, Barney receives a termination notice, effective immediately, with no prior warning or cause given.

Barney goes to see a lawyer to file a wrongful termination lawsuit against Alex and Acme Motor Plant. He is surprised to learn that he does not have a good case. Although the termination was clearly arbitrary and unfair, an employee may be terminated with or without cause at the discretion of the employer unless the termination violates a contract, statute or public policy. Barney did not have a contract, and the termination did not violate a statute or public policy. Barney is an at-will employee, and he does not have a viable wrongful termination claim.

Tort Exceptions

At-will employees challenging a discharge may file claims against their employers under a tort theory. A tort is a civil action for a wrongful act. Torts were created and developed by courts, recognizing that there are some acts and behaviors that should not be tolerated in a civilized society. As a result, even in the absence of a contract or statutory protection, an at-will employee may assert a tort claim against an employer for the wrongful discharge. Employers should review applicable state laws to determine whether any tort exceptions to employment at-will are recognized in the states in which they employ workers.

Intentional Infliction of Emotional Distress

When challenging a discharge, the tort of intentional infliction of emotional distress is exceptionally difficult to prove in the workplace because it has a very high standard of proof. Firing someone for a bad reason, even a false reason, typically will not be enough to establish this claim. An employee may only be able to state a claim if his or her discharge resulted from serious and ongoing harassment that caused emotional damage.

An employee must prove the following four elements to successfully establish a claim of intentional infliction of emotional distress or outrage:

  1. The conduct must be intentional or reckless, with the desire to cause emotional distress;
  2. The conduct must be extreme and outrageous, beyond all bounds of human decency;
  3. There must be a causal connection between the wrongful conduct and the emotional distress; and
  4. The emotional distress must be severe, so that no reasonable person could be expected to endure it.

Tortious Interference With Contract

Some states recognize claims for tortious interference with contract or tortious interference with economic advantage. Because an employer cannot interfere with itself, an employee asserting this claim must identify a third party whose interference caused his or her termination. For example, a former employee asserting a claim against a prior employer for interfering with an employment contract. In most states, a supervisor of the employee does not qualify as a third party because the supervisor is acting on behalf of the employer.

To prove third-party interference with a contract, an employee must prove:

  • A contract existed between the employee and the employer;
  • The third party had knowledge of the contract;
  • The third party intentionally interfered with the contract;
  • There was a breach of contract by the employer; and
  • The employee suffered damages.

An employee filing a lawsuit alleging intentional interference with prospective economic advantage in the context of an at-will employment relationship must prove that an act:

  • Was intentional and willful;
  • Was meant to cause damage to the his or her lawful business;
  • Was done using wrongful means and with malice; and
  • Caused actual damages.

Future Developments

There are no developments to report at this time. Continue to check XpertHR regularly for the latest information on this and other topics.