Editor’s Note: Mr. Austin is a member of the Labor and Employment Practice Group of Ward and Smith, P.A.
What is the Employment-At-Will Rule?
Here is a serviceable formulation of the basic employment-at-will rule ("At-Will Rule"): Where a contract of employment does not fix a definite term, it is terminable at the will of either party, with or without cause. Thus, the At-Will Rule supplies a default provision for the term of employment when the parties themselves have not agreed on a specific finite period of time.
What the At-Will Rule Is Not.
The At-Will Rule often is confused with the "Right to Work." The latter phrase refers to the prohibition in some states against discrimination based on non-membership in a union. Another distinct legal provision that complements the employee’s rights under the At-Will Rule is the Thirteenth Amendment to the United States Constitution which prohibits involuntary servitude, a constitutional protection that empowers an employee to walk away from the job with impunity in most cases.
What Is the Origin of the At-Will Rule?
The history of the At-Will Rule can be traced back to 1877 when a writer of legal treatises by the name of Horace Wood wrote that an employee without a contract for a fixed time could be fired for any reason or no reason at all. Accepted at the time was the notion of symmetry. Just as the employer could fire at will, the employee could quit at will. This laissez faire doctrine facilitated industrialization in America. More recently, the At Will Rule has been recognized as an "incentive to economic development."
The At-Will Rule in full flower maximized an employer’s freedom to hire and fire and, by implication, empowered the employer to virtually dictate terms and conditions of employment. In turn, the dissatisfied employee had the unbridled right to quit at will, a powerful self-help remedy only in times of scarce labor.
What Are the Exceptions to the At-Will Rule?
Justice Harlan, dissenting in a 1905 United States Supreme Court case, gave voice to the growing sentiment in modern times that employers and employees "were not upon an equal footing, and that the necessities of the latter often compelled them to submit to such exactions as unduly taxed their strength." A growing reform movement in the 1920s and 1930s recognized this inequality and the deleterious effects on the health and welfare of employees. The result was passage of workers’ compensation laws, wage and hour laws, and the National Labor Relations Act of 1935 ("NLRA"). Out of these laws came workplace protection for employees, better terms of employment, and the NLRA’s protection of concerted activity to achieve better working conditions. These laws comprised the first wave of statutory encroachment on employers’ power to impose take-it-or-leave-it conditions of employment.
Decades later came a second wave of employee-oriented laws enacted by Congress beginning with the Equal Pay Act of 1963 and Title VII of the Civil Rights Act of 1964. Congress followed up with passage of the Age Discrimination in Employment Act ("ADEA") and the Pregnancy Discrimination Act. State legislatures promulgated laws that mimicked the federal regulations. Protections thus were afforded to many employees previously disadvantaged on the basis of certain classifications, traits, characteristics, conditions, or status. "Equal pay for equal work" was one byproduct. Another was modification of the At-Will Rule. The employer now could terminate for no reason, a good reason, or an indifferent reason, but not for a discriminatory reason.
Further erosion of the At-Will Rule came from court decisions. For example, courts began to issue decisions protecting at will employees who refused to perjure themselves on behalf of the employer or who were terminated because they filed workers’ compensation claims. These judge made incursions into the At-Will Rule became known as the "public policy exception."
Another limitation that has been adopted in some states is the implied covenant of good faith and fair dealing that one party to a contract will not injure the other party’s right to receive the benefits of the contract. In the states where this exception to the At Will Rule is recognized, a claim of "bad faith termination" will trigger litigation over whether or not the covenant has been breached.
Courts also have identified implied contract doctrines limiting the At-Will Rule (1) when the employee furnishes "additional consideration," or (2) when the provisions of company literature are held to establish enforceable contractual rights. For example, an employee’s relocation from one state to another to take a job will be sufficient "additional consideration" in some states to remove the employment contract from the At-Will Rule when made in reliance on assurances that the employee could be discharged only for incompetence. Examples of the second implied contract doctrine are found in cases where an employee handbook is explicitly incorporated into the employee’s contract and, thus, made a term of employment, and the handbook contains a provision that the employee will be terminated only in accordance with a published protocol.
Congress has continued to add protections for employees which undermine the historic At-Will Rule. Deregulation may have held sway in other sectors, but more regulation has occurred in the employer employee relationship. The Americans with Disabilities Act ("ADA") and the Family and Medical Leave Act ("FMLA"), relative latecomers in 1990 and 1993, respectively, created additional limits on employers’ ability to discipline or terminate employees as a result of a disability or compelling need to be absent from work. This third wave of federal regulation on the employment relationship has intersected with an expansion of workers’ compensation remedies on the state level. Workers’ compensation, an integral part of the first wave of employee-oriented legislation, has undergone an expansive transformation since the mid 1980s, particularly in the liberalization of disability benefits. Together, the ADA, the FMLA, and expanded workers’ compensation rights impose deep constraints on the employer’s discretion to dictate an employee’s work conditions and length of tenure. The trend continued with the ADA Amendments Act of 2008, which explicitly calls for liberal interpretation of the phrase "disability" and repudiates restrictive interpretations of the ADA.
How Does the Employer Preserve At-Will Employment?
In the recruitment and interview process, as well as at the time when the offer of employment is made, no promise of employment should be made for any definite term, nor should there be any assurance that termination will be only for cause or for incompetence. The opportunity for career growth may be suggested without creating an exception to the At-Will Rule.
Company literature should include a statement that all employment is at will. Employee handbooks also should include conspicuous disclaimers in clear language that they do not create an express or implied contract. Such language is commonly emphasized by using distinctive lettering such as bold typeface and all capital letters.
Employees should be required to sign an acknowledgment stating that they have received and read the employee handbook, reiterating that the handbook does not create contractual rights and that all employment offered by the company is at will. Hammering away at at-will in this way may seem overly duplicative, but unprecedented access to information in our time has educated a large part of the workforce not only about the exceptions to the At-Will Rule, but also about the At-Will Rule itself. Few will be surprised.
How Can the Employer Avoid Wrongful Discharge Claims?
A bare-knuckled application of the At-Will Rule is the stuff of parody. Even Scrooge would not have fired Cratchit for no reason. In modern parlance, Scrooge would have stated a business- or, better yet, performance-based reason such as using too much coal, taking an unauthorized day (Christmas) off, or being late for work on the day after Christmas. Likewise, the modern employer typically has a non-discriminatory, business, or performance-based reason to end an employment relationship. It should be documented.
A recurrent nightmare for an employer’s attorney is a charge of discrimination by a former employee whose personnel file contains little more than a Form W-4 and, maybe, an I-9. A variation on the theme is the personnel file that contains regular performance evaluations but no documentation of performance deficiencies. Even worse are the attorney’s visions of the written record of a very poor performer creating the image of a picture perfect employee. Ideally, documented constructive criticism will help an employee improve and provide the employer’s "Exhibit A" in the event of a discrimination charge if things don’t work out.
An employer should strive to maintain control of the narrative. Attorneys for employers often hear the refrain, "We were told that it was better to not give a reason," or, "We understood that ‘at-will’ meant we didn’t have to give a reason." To the contrary, not documenting a reason gives a disgruntled employee an opportunity to supply a reason that puts the employer on the defensive.
The voluntary adoption of the model of due process constitutionally imposed on the public sector is also helpful to employers facing claims. An employer does not concede any legal right by adopting the familiar due process procedures of taking final action only after giving the employee pre-hearing notice, the chance to be heard, and an appropriate time for deliberation. Use of due process procedures allows the employer to keep the initiative, control the narrative, and maintain the high ground of fundamental fairness. While such procedures may be impractical in some cases, the employer still should use them whenever possible to avoid the many opportunities for second guessing by multiple government agencies, a judge, or a jury.
The At-Will Rule is relatively hale after hard use for over a century and a quarter. Nevertheless, in light of the many assaults on its foundation discussed in this article, we should not work it to death. It will do more good if employers find ways to help it carry its historic and important load.
© 2009, Ward and Smith, P.A.
Ward and Smith, P.A. provides a multi-specialty approach to the representation of technology companies and their officers, directors, employees, and investors. William Joseph Austin, Jr. practices in the Labor and Employment Practice Group where he concentrates his practice in workers’ compensation and employee benefits. Comments or questions may be sent to firstname.lastname@example.org
This article is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney.