Employers who are located in an employment-at-will state may be quick to defend their right to terminate an employee at any time, for any reason, with or without notice. While the concept of employment-at-will gives employers this right, it is important for them to understand that the context of their words and actions, applicable state or municipal labor laws, and employee rights could potentially interfere with this freedom to terminate an employment-at-will relationship. Terminating an employee without considering possible exceptions to employment-at-will could create a considerable risk of wrongful termination litigation, which could, in turn, require the employer to provide back pay, pay for lost compensation for the period of time between judgment and reinstatement, reinstatement, a promotion, compensatory damages, reasonable accommodations, punitive damages, and attorney’s fees.
Excluding the state of Montana, which is the only state that currently does not recognize employment-at-will, employment law in the United States usually presumes employment-at-will. There are three primary exceptions to the concept of employment-at-will that may be enforced at the federal, state, or municipal level. These exceptions are described below.
Public Policy Exception
The public policy exception states that an employee may not be terminated for reasons that are illegal under federal or state law. This includes employees who are protected against a termination for discriminatory reasons under such laws as Title VII of the Civil Rights Act, the Americans with Disabilities Act and its Amendments Act (ADAAA), and the Age Discrimination in Employment Act (ADEA). It also includes employees who are protected from termination for utilizing a legal right, such as the right to report a perceived fraudulent activity, safety violation, or harassment claim, or the right to take legally protected time off such as military leave, family and medical leave, or even jury duty leave. Currently, the only states that do not recognize this exception are: Alabama, Florida, Georgia, Louisiana, Nebraska, New York, and Rhode Island.
Implied Contract Exception
An implied contract is an oral or written statement that demonstrates an expectation of employment for a certain length of time. If an implied contract has been communicated, an employee may be protected from termination. Wording that could be interpreted as an implied contract may be contained in employment-related documents such as employment contracts, confidentiality agreements, non-compete agreements, collective bargaining agreements, or other agreements that express a particular timeframe, have a definite ending date, or provide a timeline for separation. An implied contract could also be a less formal verbal statement such as when a hiring manager tells a new employee, “Your first year will be mostly training,” or a when a supervisor tells an employee, “This project that you are working on will last for at least six months.”
Certain organizational policies may also be considered an implied contract. An example of this is a policy that requires employees to give two-weeks advance notice when they resign. This policy could imply that the employer has guaranteed employees the right to remain employed for those two-weeks. States that recognize the implied contract exception include: Delaware, Florida, Georgia, Indiana, Louisiana, Massachusetts, Missouri, Montana, North Carolina, Pennsylvania, Rhode Island, Texas, and Virginia.
Covenant of Good Faith Exception
In states that recognize this exception, there must be just cause in order to terminate an employee and employers are expected to uphold a duty to be honest, fair, and act in good faith toward their employees. States that currently recognize this exception include: Alabama, Alaska, Arizona, California, Delaware, Idaho, Massachusetts, Montana, Nebraska, Utah, and Wyoming.
Given the complexities within the exceptions to employment-at-will, the question may be asked how employers can lessen the risks involved in terminating an employee, when needed. Listed below are several suggestions employers may want to consider:
- Verify that language regarding employment-at-will is included in employment-related documents such as applications, offer letters, employee handbooks, employment agreements, etc.
- Inform applicants and new employees of the employment-at-will relationship and ask them to sign an employee handbook acknowledgement form and/or acknowledgement forms for workplace policies that clearly state the employment-at-will relationship.
- Establish and enforce fair workplace policies, conduct formal and/or informal training for employees, and set procedures for evaluation and feedback so employees are aware of areas of needed improvement.
- Ensure employees are treated fairly and consistently. One employee should not be allowed to “get away with” a certain action while another employee is disciplined for that action. At the same time, an employee needs to be held to consistent standards and not be allowed to ignore or violate a policy one day and then be disciplined on another day for the same action.
- Document employment-related actions well. Any inconsistency in documentation could become evidence in a discrimination suit or lead to a nullification of the employment-at-will relationship.
- Review carefully any impending termination to ensure consistent practices have been used, that there is documentation supporting the termination, and that the termination is based on a genuine business rationale.
Most employers recognize that, even though an employment-at-will termination may be necessary on rare occasions, it is not in their organization’s best interest to terminate employees subjectively whenever they want. Keeping fair and consistent employment-related practices and helping employees succeed in their job by working with them to resolve work-related problems may substantially reduce the risk of a wrongful termination suit. It also could save an employee from termination thereby alleviating the time and expense associated with hiring a replacement and the additional burden placed on other employees after a termination occurs.
As always, employers should be aware of evolving state and local employment laws or regulations which may have enhanced exceptions to employment-at-will relationships. For additional information about concerns or questions related to employment-at-will, please contact us at www.NewFocusHR.com.
Written by: Kathi A. Walker, SHRM-SCP, PHR
Sr. HR Consultant
New Focus HR, LLC