Evolution of At-Will Employment

Employment that is at-will is employment that the employer can terminate at any time without justification or good cause. In some states, the reason for the termination must not be one that is contrary to recognized public policy. Employment that is at will can be terminated with or without notice to the employee.

In an at-will employment arrangement, the employee also can terminate their employment without providing a reason and even without notice to their employer, although considerations of courtesy and good relations would suggest that an employee should give an employer advance notice of their intent to vacate their position.

Termination of employment that might contravene public policy would be, for example, terminating the employment of a worker who files a worker’s compensation claim when they are injured. Or it could be terminating employment for a discriminatory reason, e.g. on the basis of race, gender or age. Forty-three of the states in the U.S. recognize this public policy exception to the at-will employment rule.

So, again, employment that is at will cannot be terminated for a reason that contravenes public policy in the forty-three states that follow this rule. Note, however, that different states have differing definitions of what public policy is. Alabama, Florida, Georgia, Louisiana, Nebraska, New York and Rhode Island do not recognize the public policy exception to at-will employment.

Employers should be mindful of the fact that courts have found that there can be an implied contract to the effect that an employee’s employment would not be terminated except for good cause. Courts may find that a contract can be inferred from the facts and circumstances of the employment, for example, from written manuals of policies and procedures. Thirty-eight of the fifty states in the U.S. recognize the implied contract exception to at-will employment.

For example, suppose an employee has an annual review in which their performance is evaluated and for a period of years the employee received positive evaluations indicating that their performance was acceptable or met the company’s standards.

This situation would imply that the employee could reasonably expect their employment to continue as long as their performance met standards and could only be terminated for good cause. If the employee’s employment were to be terminated, the employee might have a cause for a lawsuit for retaliatory termination, wrongful termination or possibly breach of an implied contract of employment.

Eleven states have recognized an exception to the rule of at-will employment for an implied covenant of good faith and fair dealing. Per this exception, courts in the eleven states that recognize this exception view every employment contract as including a covenant of good faith and fair dealing.

California and Nevada are among the states that recognize this covenant, and Florida is among the states that do not. The covenant of good faith and fair dealing has been interpreted by courts to mean either that employer personnel decisions are subject to a “just cause” standard or that terminations made in bad faith or motivated by malice are prohibited.

What Is Good Cause?

In general, courts have considered the following to be good cause for termination:

• Employee’s inadequate performance of their assigned tasks;
• Improper conduct by the employee, e.g. engaging in sexual harassment of co-workers, or criminal conduct;
• Changes in the employer’s economic situation that require a reduction in staff;
• A change in the employer’s goals.

Failure to provide good cause for termination is often considered a breach of contract if there is a contract between the employer and the employee that provides that the employment can only be terminated for good cause. Both employer and employee should keep in mind that contracts can be written or oral, express or implied.

If a court decides that an employee has been terminated without good cause, although there is a contract providing that employment can only be terminated for “good cause”, any of the following damages might be awarded to the employee:

• Reinstatement;
• Back pay;
• Restitution for lost benefits;
• Payment of a lump sum amount as severance.

What constitutes good cause varies by state. In Texas, for example, good cause has been defined to include the following:

• Failure to follow a clear and reasonable order of the employer, which is insubordination;
• Failure to obey the employer’s reasonable rules;
• Exhibiting dishonesty on the job;
• Using false pretenses to obtain the job;
• Directing conduct toward fellow employees that interferes with the employer’s business;
• Failure to perform the job competently despite receiving adequate training;
• Without permission, temporarily removing company property from company premises for personal use.

Other examples of good cause include engaging in criminal activity such as fraud or embezzlement on the job, violating federal, state, or local law, harassing other employees or customers, consuming alcohol or drugs in the workplace or coming to work intoxicated, possessing weapons in the workplace, or failing to observe safety rules or regulations.

How Can an Employer Substantiate “Good Cause” for Termination?

Employers first want to determine whether they want to employ staff members as at-will employees or as employees whose employment can only be terminated for good cause. They then may wish to consult with an experienced employment lawyer in order to determine how to clearly establish the terms of the contracts of employment that it wishes to conclude with its employees.

If an employer concludes contracts of employment with its work force that provide for employment that can be terminated only for good cause, it might then want to establish and communicate what good cause is.

• Prove Employees with a Policies and Procedures Manual: To help clarify their standards and protect against litigation, companies often create employee manuals which specify termination policies and procedures. Generally, an effective manual must state the company’s specific termination procedures and the reasons that justify termination. In most situations, employers can assume that continued employment is an indication of an employee’s implied acceptance of the termination policies and procedures, but they may want to make this explicit.
• Outline a Termination Procedure: An employee manual should indicate the company’s procedure for termination and specify when an employee’s infraction will result in immediate suspension or termination. Companies often use a “progressive discipline” process that involves a multi-step process of warnings and opportunities to correct deficiencies. With such a process in place, a company will use suspension or termination only if an employee fails to improve performance after they have received multiple warnings.
• Follow the Policies and Procedures: Once policies, procedures and reasons for termination have been established, the employer should be sure to follow them closely in every case.

In most situations, by establishing and following a prescribed set of termination procedures, employers can establish some protection against wrongful termination claims or claims that the employer failed to follow its own policies and procedures so a particular case of termination was not valid.

A second way to guard against claims of wrongful termination if employment is terminated without cause is to include in a policy manual or other document that expresses termination policies a clear and express disclaimer stating that its policies and guidelines do not create contractual rights to continued employment and that employment is at will. Also, keep in mind that three states, Florida, Pennsylvania and Texas do not recognize the implied contract of continued employment exception to the at-will employment rule.

Should You Hire an Attorney for At-Will Employment Issues?

An experienced contract attorney could provide important guidance to ensure that policies and procedures sufficiently provide protection for both employees and employers.

If you are an employer facing a claim for wrongful termination or an employee who believes you have been terminated without justification, you need to consult an experienced employment attorney to learn what your rights and obligations are in the situation. An employment attorney can review the facts of your situation and advise you of the best next steps to take.

If you are an employer and need help drafting employment contracts and related material for your business, you should get the help of an experienced employment attorney so you get the result you want for your business.