What At-Will Employment Means & Doesn't Mean for Businesses

At first glance, at-will employment may seem like the golden ticket for firing any and every employee that you just don’t feel is working out. Maybe the employee isn’t as strong of a performer as you initially thought or maybe he or she just doesn’t fit in with the team. While at-will employment allows you to remove as needed, it also comes with a list of stipulations that could land your company in legal hot water if they aren’t considered first.

What Is At-Will Employment?

According to the National Conference of State Legislatures (NCSL), at-will employment means you, the employer, can terminate one of your employees at any time, for any reason (except an illegal reason) or for no reason without incurring legal liability. Keep in mind, it also means said employees can quit working for you at any time, for any reason with no adverse legal consequences from you. So while you can fire anyone without cause, any of your employees can pick up and leave at the drop of a hat.

Along with being able to terminate an employee, at-will also means you can change the terms of the employment relationship with no notice and no consequences. This means, in its unadulterated form, the U.S. at-will rule allows you to alter wages, get rid of benefits, reduce PTO and even change schedules.

Which States Have At-Will Employment?

Interestingly enough, every state has at-will employment except for Montana. Yet looking globally, the United States is only one in a handful of countries with at-will employment relationships. The NCSL believes the United States is holding out as an at-will country due to the respect for freedom of contract, employer deference and the idea that both companies and workers favor an at-will relationship over job security.

The At-Will Presumption

If you have a company in any state in the United States—that isn’t Montana—it is presumed that your employee relations are “at-will” and you can terminate one of your employees at any time for any reason unless a previous employment contract exists. For example, the at-will presumption can be modified if a contract exists that specifies the term of employment or termination may only be due to cause. These types of contracts typically exist for high-level employees and in collective bargaining agreements. Think of a basketball player who signs a seven-year contract or a manufacturing union that negotiates a new contract that includes a stipulation that union employees cannot be fired without cause.

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What about Right to Work States?

In terms of labor unions, right-to-work states have laws that determine whether workers can be required to join a labor union to get or keep a job, according to the NCSL. Meaning, in these states just because there are labor unions in operation, a worker doesn’t have to automatically join them to keep their jobs. There are currently 27 states and Guam that give workers a choice for joining a union or not.

Here are the Exceptions to At-Will Employment

So, at face value at-will employment seems pretty straightforward—if you don’t like an employee, you can make the choice to fire them. But, of course, there are exceptions to this rule that fall into either one of two categories: common law and statutory along with Montana’s good clause rule.

 

Common Law Exceptions to At-Will Employment

Being able to fire (and be fired) at will seems kind of harsh and the courts agree. While it can be difficult for an employee to prove, three major common law exceptions to at-will employment have come to light: public policy, implied contract and implied covenant of good faith. Promissory estoppel is another exception.

  • Public Policy: The most common exception, public policy protects employees against adverse employment actions that violate well-known state public policy. For example, you can’t fire an employee for filing a workers’ compensation claim after getting injured on the job. The NCLA acknowledges that some courts have refused to recognize a separate public policy exception where a statutory remedy is available. For example, the majority of states will only recognize public policy if it already exists in the state constitution or statutes.
  • Implied Contract: Recognized in 41 states and District of Columbia, implied contracts are employment terms that were given verbally, not in writing. For example, if a manager tells an employee the company doesn’t fire anyone without a reason, that could be an implied contract. Because they’re done word-of-mouth, implied contracts are difficult to prove. Yet, if your company has a practice of only terminating employees for cause or has something in the employee handbook about termination procedures, your employee could make a case for implied contract.
  • Implied Covenant of Good Faith: Basically, these exceptions are terminations that are done in bad faith. For example, firing an older employee to avoid paying retirement benefits or a salesperson before paying out a large commission. Good faith covenants are only recognized by a handful of states and judicial interpretations vary among them all. The NCLA notes that there have been very few cases in which employers were found liable under this exception.
  • Promissory Estoppel: Promissory Estoppel is a legal term where someone who promises something is barred from denying that promise when the promisee is relying on it and injury or injustice occurred because the promise was not kept. For example, you offer an out-of-state candidate a job so the candidate quits his or her current job, relocates to your area but is then terminated before the first day, he or she has a case for promissory estoppel. The NCLA states you would be required to pay damages if the employee can show you made a clear promise of employment, the employee relied on this promise, it was reasonable to expect the employee would be hired once he or she moved and the employee was financially injured as a result of the termination.

Statutory Exemptions to At-Will Employment

Aside from common-law exceptions, there are also statutory exceptions to at-will employment doctrine. These exemptions occur when other laws will be broken if you terminate an employee due to at-will rules. This includes discrimination and retaliation.

  • Illegal Discrimination Termination: Just because you work in an at-will state, you still cannot terminate an employee based solely on race, color, religion, sex, national origin, age, disability or veteran status. These employee rights are set by federal and state anti-discrimination statutes like the EEO.
  • Retaliation for Pro-Employee Activities: An employer cannot fire an employee simply because they engaged in legal activities the employer didn’t like. For example, demanding a minimum wage or overtime, engaging in union activities, calling out discriminatory practices, filing workers’ compensation and being a whistleblower. These activities are protected under federal and/or state laws.

Montana’s Good Cause Rule

As mentioned above, Montana is the only state that is not an at-will state. Instead, Montana relies on the Wrongful Discharge From Employment Act of 1987. The WDEA created a cause of action for employees who believe they were terminated without good cause. According to the NCLA, Montana is the only state to pass such a law, although similar legislation has been introduced elsewhere.

How to Avoid Legal Problems with At-Will Terminations

The first thing we can recommend is to check with your legal counsel before firing an employee without cause. Keep in mind, as SHRM warns, that doesn’t mean the employee still won’t sue even if you’re within your legal right to terminate at-will. The association reports that retaliation, discrimination or similar claims aren’t uncommon with at-will terminations. It’s both easier and just to have a reason for ending an employee’s time with your company whether it be due to the company’s poor financial health, the employee’s performance or workplace behavior. For example, your HR department, along with managers, can set a precedent for poor performance with regular performance reviews which can be electronically attached to your employees’ files. And you should spell out company policies and expected workplace behavior, in writing, during your onboarding process and require new employees to sign off after reading them. This way you have proof of expected behavior should the employee violate those expectations.

Put Your Employees First

Aside from the legalities surrounding at-will termination, along with the potential fallout, it not always worth it to use as a standard practice for terminating employees. Consider your company culture. How your company operates and treats its employees is integral to having employees who are productive and loyal while helping your recruitment efforts. If your employees think they will be fired at any time for any reason, you’re not creating a great culture to work in.

If you have no idea what your employees think about your company, especially your hiring and firing practices, you can request BirdDogHR’s free HR Assessment. It can determine if your current HR practices help or hinder your company’s ability to find great candidates, keep them engaged and loyal, maintain compliance, automated open enrollment and improve your overall processes.