At-will employment

Exceptions

Although the “at will” doctrine is normally the starting point in almost all states, each state has developed its own exceptions. Probably no other area of employment law is as state-law driven as is that relating to the circumstances under which employees may be terminated. As a general rule, the exceptions fall into four categories:

Specific statutory prohibitions

All states have laws which preclude terminations for specific reasons such as race, sex, religion, and age. In addition, there are numerous laws which preclude termination for protected conduct such as voting, “whistle blowing,” assisting public officials, serving on a jury, and so on.

Public policy

In most states, an employee may not be discharged when the termination is against an explicit, well-established public policy of the state. For example, in most states, an employer cannot terminate an employee for filing a workers’ compensation claim after being injured on the job, or for refusing to break the law at the request of the employer.

The definition of public policy varies from state to state, but most states either narrowly limit the definition to clear statements in their constitution or statutes, or permit a broader definition that enables judges to infer or declare a state’s policy beyond the state’s constitution or statutes.

Implied contract

Another major exception to the employment-at-will doctrine results when it is determined that an implied contract is formed between an employer and employee, even though no express, written instrument regarding the employment relationship exists. An employer may make oral or written representations to employees regarding job security, procedures that will be followed when adverse employment actions are taken or other employment matters. If so, these representations may create a contract for employment. This exception is recognized in most states, although the requirements for creating an implied contract vary.

In a number of cases, courts have found that the contents and representations made in employee handbooks may create an implied contract, unless there is a clear and express statement that the guidelines and policies in such handbooks did not create contract rights.

The typical situation involves handbook provisions which state that employees will be disciplined or terminated only for “just cause” or under other specified circumstances, or provisions which indicate that an employer will follow specific procedures before disciplining or terminating an employee. A hiring official’s oral representations to employees, such as saying that employment will continue as long as the employee’s performance is adequate, also may create an implied contract that would limit termination.

An implied contract for employment cannot be disregarded at the employer’s whim, but the employer can often prevent the contract from being created by including in its policies and provisions a clear and unambiguous disclaimer stating that its policies and guidelines do not create contractual rights. They may also wish to reaffirm that employment is “at will” and may be terminated at any time.

Staff members who are involved in the hiring process should be aware that they should not verbally or in writing create an expectation of continued employment to prospective or current employees. When determining compensation for employees, indicating that an employee will be paid $50,000 “per year” may lead some courts to conclude that his or her employment was guaranteed for at least one year.

Covenant of good faith

The exception for a covenant of good faith and fair dealing represents the most significant departure from the traditional employment-at-will doctrine. Rather than narrowly prohibiting terminations based on statute, public policy, or an implied contract, this exception—at its broadest—reads a covenant of good faith and fair dealing into every employment relationship. Although most states have not recognized this exception, at least in its broad application, it can create significant issues in states such as California which do so.