At-Will Employment

Sections within this essay:

Background

In many employment situations, the law generally considers the employment relationship to be terminable at the will of either party. That is, an employer may terminate an employee at the will of an employer, while an employee may quit at any time. When either of these events occur, the party that ends the relationship is not liable to the other, even if this termination causes damage to the other party. This type of relationship is termed employment at-will.

Although rules governing at-will employment remain largely intact today, courts and legislatures have crafted some exceptions to these rules. Some of these exceptions apply when the employer and the employee have entered into a contract. Other exceptions apply when the discharge violates a mandate of public policy or when an employer violates a duty to exercise good faith and fair dealing with the employee. Though these exceptions do not prohibit an employer from terminating an employee, they will allow the employee to recover damages. Individual states vary regarding protections offered to employees in an at-will employment relationship.

The United States remains the only major industrial power that adheres to the at-will employment doctrine. Other nations, including Great Britain, France, Italy, Germany, and Japan, each have statutes that require employers to show good cause before the employers can terminate employees.

History

Historically, courts in England did not adhere to rules that recognized an employment relationship as one that could be terminated by either party at any time. In fact, ancient statutes and early decisions sought to protect employees by presuming that the employment relationship would last for a certain period of time, such as one year. This type of rule prevented employers from hiring employees for a short period of time, such as for the duration of a harvest season, and then firing the employee during the winter season, when the employee would not have food or shelter.

Courts in the United States during the 19th century began to follow the rule that where an employee did not have a contract for a fixed length of time, the employer could terminate the employment relationship at any time. H.G. Wood, an author of a leading treatise on the relationship between master and ser-vant, formulated a rule in 1886 that set forth the employment at will doctrine. Nearly every state eventually adopted the at-will doctrine as the law governing employment relationships.

Application of the Doctrine

The employment at will doctrine contains three major rules. The first general rule is that an employer is not liable for any alleged damages suffered by an employee who is fired arbitrarily. Until courts in the1980s began to recognize exceptions to the at-will doctrine (see below), the courts generally refused to award damages to discharged employees, even in situations where the employer did not follow its own procedures or where the employer acted with malice. The second general rule is that an employee who alleges that his or her employment contract was for a specified term has the burden of proving that the contract was for a defined term. The third general rule is that a court will construe an employment contract for an indefinite period of time, including a contract for "permanent" employment, to mean that the employment relationship is at will.

Exceptions

The employment at will doctrine often leads to harsh results. Employees often feel a strong need for security in their jobs, but the doctrine provides no such security since an employer can terminate an employee without any recourse in the law. Civil rights legislation enacted in the 1960s provided support for the idea that employers should not have unfettered rights to hiring and firing of employees. Discharged employees challenged the at-will doctrine in courts during the 1970s and 1980s and eventually experienced some success. Courts began to allow employees to recover damages in suits for wrongful discharge.

The major exceptions to the employment at will doctrine are as follows:

Public Policy

The first recognized exception to the employment at will doctrine applies when an employer terminates an employee in a manner that violates public policy. This exception generally applies in four circumstances: (1) an employee refuses to perform an illegal act at the request of an employer; (2) an employee attempts to exercise a legal right provided by statute, such as filing a workers' compensation claim;(3) the employee reports on an employer's illegal acts, also known as "whistleblowing;" and (4) an employee attempts to perform a public duty, such as serving on a jury.

The majority of states recognize at least some form of a public policy exception. Courts are generally more likely to recognize a public policy exception that is based on a statute than one based on some other authority, such as a constitutional right. Thus, for instance, employees who have attempted to argue that they were wrongfully discharged for engaging in actions allegedly protected by the First Amendment to the U.S. Constitution have not had significant success in the courts.

This exception does not eliminate the employment at will doctrine, but rather allows employees to recover for wrongful discharge.

Written Employment Contracts

Some employees enter into employment relationships by signing employment contracts, although the number of employees in general who have such contracts is relatively small. Company executives, highly paid employees, and highly skilled employees are examples of those who may receive written employment agreements. These contracts contain the terms of employment, including salaries, the length of the employment contract, provisions regarding early termination, and so forth.

An employee who has a written contract with his or her employer must first prove the existence of the contract. Once the employee has proven this, then the employee must prove that the employer has breached the agreement. Whether an employer has breached a contract depends on the terms of the agreement itself. In some instances, a contract may restrict an employer from terminating an employee except for certain reasons or by following certain procedures. The employee must prove that the employer breached the agreement in order to recover.

Oral Contracts

In some instances, an employer may make oral promises to an employee regarding job security. These promises often take place before the employee is hired and are often intended to entice the em-ployee to work for the employer. Although employees may have difficulty proving that an employer has made an oral promise, courts frequently enforce such promises of job security.

As is the case with a written contract, the specific language than an employer uses when making an oral promise will determine whether a court will enforce the contract or treat the relationship as one that is at will. Courts are more likely to enforce a contract that states a more definite period of time. Such a period of time may be very specific, such as a promise for employment for one year, or it may be determined in some objective manner, such as a promise that an employee will remain employed until the completion of a particular project. Courts have struggled with other types of promises, such as a promise of "permanent" or "lifetime" employment. Some courts treat an employment relationship under such a promise merely as an employment at will relationship, while other courts view such a promise as a commitment to continued employment so long as the employee remains alive.

Employee Handbooks and Manuals

Employees often provide standardized instructions to employees through the use of employee handbooks or manuals. These handbooks allow the employers to train a large number of employees without the use of individual training. These handbooks can set forth the employer's standard employment practices and establish the expectations of employees. Provisions in a handbook or manual may include descriptions of the following examples:

• Compensation of employees
• Health and other benefits offered to employees
• Work hours
• Overtime
• Leaves of absence
• Holidays
• Vacation time
• Rules of expected behavior
• Discharge
• Discipline and disciplinary procedures
• Grievance
• Promotion

Until the 1980s, courts seldom enforced the terms of an employee handbook as a contract. In many instances, handbooks do not contain language that a court would construe as promissory in nature. However, courts in the 1980s began to recognize that language in these handbooks may bind the employer contractually. The majority of jurisdictions now recognize an employee handbook as an exception to at-will employment.

A number of issues may arise in the context of employee handbooks. Many cases involve a question of whether an employer may fire an employee and, if so, whether the employer followed the proper procedures in firing the employee. Cases involving employee handbooks often turn on whether the language in a handbook is sufficiently specific. For instance, if a handbook sets forth a list of reasons why an employer may fire an employee, courts will likely find that this language binds the employer. On the other hand, if a handbook is vague about reasons for a discharge, courts are more likely to determine that the relationship is at will.

Where an employer includes language indicating that an employee handbook does not constitute a promise or a contract, courts usually rule in favor of the employer. In such an instance, the courts require that the disclaimer is clear and unequivocal, that it is placed conspicuously, and that the disclaimer is communicated to the employee.

Good Faith and Fair Dealing

A minority of states recognize that an employment contract may give rise to an implied covenant of good faith and fair dealing. Although this concept applies generally to all contracts, courts traditionally did not apply this covenant in cases involving employment contracts. This situation often arises where an employee has accrued benefits and the employer takes an action that effectively deprives the employee of these benefits. For instance, assume that an employee of a company has just completed a large sale, and the company will owe a large commission to the employee. On the following day, the company fires the employee, thus avoiding the requirement of paying the commission. In states that recognize an implied covenant of good faith and fair dealing, a court may apply the covenant to require payment of the commission.

Federal Statutes

A number of federal statutes restrict employers from discharging employees on certain grounds. A listing of these statutes is as follows:

• Age Discrimination in Employment Act
• Americans with Disabilities Act
• Civil Rights Act of 1964
• Clean Air Act
• Consumer Credit Protection Act
• Employee Retirement Income Security Act
• Energy Reorganization Act of 1974
• Fair Labor Standards Act
• Family and Medical Leave Act
• Federal Water Pollution Control Act
• Judiciary and Judicial Procedure Act
• National Labor Relations Act
• Occupational Safety and Health Act of 1970
• Railroad Safety Act
• Vietnam Era Veterans Readjustment Assistance Act
• Vocational Rehabilitation Act of 1973

Selected State Laws Concerning At-Will Employment

The vast majority of states recognize at least one exception to the employment at will doctrine. The most commonly accepted exception is the public policy exception; the only states that do not recognize this exception include Alabama, Florida, Georgia, Louisiana, Maine, New York, and Rhode Island. A few states have enacted piecemeal legislation related to at-will employment, though only Montana has enacted a comprehensive statute on the subject.

The following provides summaries of some selected state laws regarding application of the doctrine of at will employment and its exceptions:

ALABAMA: The Alabama Supreme Court has held that even where an employment contract has been made with reference to and subject to workers' compensation laws, this did not restrict an employer's right to terminate the contract at will. Several cases have reaffirmed the employment at will doctrine.

CALIFORNIA: The California Supreme Court has recognized that an employer who has violated a mandate of public policy may be liable under a contractin tort.

CONNECTICUT: The Connecticut Supreme Court in a 1980 case held that an at-will employee could recover for wrongful discharge after the employer fired the employee for insisting that the employer comply with the Food, Drug, and Cosmetics Act.

IDAHO: In 1996, the Idaho Supreme Court ruled that a teacher could recover for wrongful discharge after the state department of education fired her for missing work when she responded to a subpoena. According to the court, the firing violated public policy because failure to comply with a subpoena could be punished by contempt under a state statute.

INDIANA: Indiana courts have recognized that an employee may have a cause of action when an employer retaliates after an employee has exercised a statutorily-conferred right, an employee has refused to perform an unlawful act, or the employee has breached a statutorily-imposed duty.

IOWA: The Iowa Supreme Court recognizes two exceptions to the general rule of at-will employment. First, an employee may recover when a discharge violates a well-established and well-defined public policy. Second, an employee may recover when an employee handbook creates an implied contract.

KANSAS: The Kansas Supreme Court has recognized that an employee may recover for wrongful discharge where the employee is terminated for filing a workers' compensation claim.

MASSACHUSETTS: The Supreme Judicial Court of Massachusetts has stated that an employee may be terminated at any time, for any reason, or for no reason at all.

MONTANA: Montana has enacted the Wrongful Discharge from Employment Act. In most instances, an employee may only be discharged for "good cause." The statute defines good cause as reasonable job-related grounds for dismissal based on failure to satisfactorily perform job duties, disruption of employer's operation, or other legitimate business reasons.

NEW HAMPSHIRE: The New Hampshire Supreme Court has held that termination of an at-will employment relationship that is motivated by bad faith or malice on the part of the employer is not in the best interest of the legal system and constitutes a breach of contract.

NEW JERSEY: The New Jersey Supreme Court has held that an employee may have a cause of action for wrongful discharge when the discharge is contrary to a clear mandate of public policy. Such a mandate may appear in the form of legislation; administrative rules, regulations, or decisions; or judicial decisions.

OHIO: Ohio courts recognize the tort of wrongful discharge in derogation of public policy. This tort has four elements, including the following: (1) the clarity element, which requires that a clear public policy existed and was manifest under state or federal law; (2) the jeopardy element, which requires that the dismissal of employees like those involved in the plaintiff's dismissal would jeopardize public policy; (3) the causation element, under which a plaintiff must prove that the dismissal was motivated by conduct related to the public policy; and (4) the overriding justification element, where a plaintiff must prove that the employer lacked a legitimate business justification for the dismissal.

SOUTH DAKOTA: A South Dakota statute defines termination of employment at will as follows: "An employment having no specified term may be terminated at the will of either party on notice to the other, unless otherwise provided by statute."

VERMONT: The Vermont Supreme Court has held that the dismissal of an at-will employee on the basis of age contravened public policy and established a cause of action under the public policy exception to at-will employment.

WISCONSIN: The Wisconsin Supreme Court held that an employee could recover under the public policy exception to at-will employment when the employer was terminated for refusing to drive a company truck after telling the company that he did not have a required license to operate the truck.

Additional Resources

Employment Law in a Nutshell. Covington, Robert N. and Kurt H. Decker, St. Paul: West Group, 2002

Employment Law. 3rd Edition, Rothstein, Mark A., Charles B. Craver, Elinor P. Schroeder, and Elaine W. Shoben, St. Paul: Thomson/West, 2005.

West's Encyclopedia of American Law 2nd Edition, Thomson/Gale, 2004.

Organizations

American Bar Association Section of Labor and Employment Law

321 N. Clark Street
Chicago, IL 60610 USA
Phone: (312) 988-5813
Fax: (312) 988-5814
URL: http://www.abanet.org/labor/home.html

National Employment Law Project

55 John Street, 7th Floor
New York, NY 10038 USA
Phone: (212) 285-3025
Fax: (212) 285-3044
URL: http://www.nelp.org

National Employment Lawyers Association

44 Montgomery Street, Suite 2080
San Francisco, CA 94104
Phone: (415) 296-7629
Fax: (415) 677-9445
URL: http://www.nela.org/home.cfm

U.S. Department of Labor

200 Constitution Avenue, NW
Washington, DC 20210 USA
Phone: (866) 4-USA-DOL
URL: http://www.dol.gov