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At-Will Employment Doctrine

In the world of employment, there are two positions of bargaining.  One is the employer, often referred to as the Company, and the other is the employee.  In general, the public views the two positions as unequal in nature given the power of the Company.  This is due to the historical position the courts have taken in employer/employee cases.   As the human resources officer of your Company it is important for you to fully understand the At-Will Employment Doctrine as this doctrine sets the relationship between the two parties.

The legal system defines employment as terminable by either party at any time for any reason.  This is referred to as At-Will Employment or the Employment At-Will Doctrine.  In most situations, there is no written employment contract and there is no definite requirement to be employed for a period of time between the Company and the employee.  Therefore, the employer can terminate the employee for any cause subject to some exceptions as defined below: 

Exceptions 

Public-Policy Exception 

Some states passed laws restricting the At-Will Employment related to worker’s compensation claims.  Due to the nature of worker’s compensation insurance and its underlying ‘NO FAULT’ principle, employers are not allowed to dismiss an employee for filing a claim or refusing to break the law related to the investigation of a claim.  The public policy exception extended this protection to discriminatory reason or for exercising their due rights under the federal employment law. 

Each state is different in their particular laws and definition of public policy.  The following eight states do not recognize any form of public policy exception: 

Alabama                      Florida
Georgia                       Louisiana
Maine                          Nebraska
New York                   Rhode Island 

Of the above eight states, three of them have strong union bases to alleviate this lack of public policy position via bargaining. 

Implied-Contract Exception

Many employees believe that satisfactory performance implies a mutual covenant of employment security.  However, this implied relationship has changed during the last 50 years as many companies cycled through growth and retrenchment.  These periods of retrenchment saw massive layoffs and turnover in employment.

The implied contract is created by the policies of the Company and documentation available to employees.  The most common document is the employee handbook.  A common statement made in the handbook is discipline or termination for ‘JUST CAUSE’.  In addition, the employer indicates in their handbook a procedural disciplinary process substantiating the implication that the employee will not be terminated without cause.  Other forms of assurance include oral representations or expectations laid out in the position profileThis implication invalidates the At-Will Employment relationship. 

Thirty-eight states recognize the implied contract exception.  Those dozen states that do not legally allow this exception include: 

Delaware                     Florida
Georgia                       Indiana
Louisiana                     Massachusetts
Montana                      North Carolina
Pennsylvania               Rhode Island
Texas                           Virginia   

Covenant-Of-Good-Faith Exception 

The third exception to the At-Will Employment is not as well supported in the United States.  Only 11 states actually recognize this exception.  This exception requires the ‘just cause’ requirement to terminate an employee.  Terminations cannot be made in bad faith.  In addition, the longer the period of service to the company, the greater the dependence on the requirement for a legitimate reason to terminate an employee.  

In the case of Kmart Corporation v. Ponsock, the Nebraska Supreme Court ruled that most of the population is dependent on others for their livelihood.  Therefore, the employer could not terminate an employee once a long term relationship exists without some just cause.  In this case, Kmart had terminated Ponsock to avoid paying retirement benefits.  Since Kmart gained financially from the termination, Ponsock was allowed to sue for financial reimbursement. 

The eleven states that recognize this particular exception include: 

Alabama                      Alaska
Arizona                       California
Delaware                     Idaho
Massachusetts             Montana
Nevada                        Utah
Wyoming 

Policy Statements 

For employers, the best tools for mutual understanding are well written policy statements.  One such policy should state the relationship between the employees and the Company is an AT-WILL relationship.  The only exception is a written agreement signed by the Company President.  Remind employees that they are free to resign at any time for any reason.  You may ask for a proper notice, but indicate this is not required.   

In addition, the Company should state in another policy that the Company has external and internal forces that may change the employment status of any employee, their service hours or demote employees without any formal notice.

Another Company policy should state that the Company does not terminate employees in retaliation for complaints or for initiating investigations from outside authorities related to unlawful employment acts such as discrimination, OSHA violations or the various forms of harassment. 

In the employee handbook, the Company may indicate a progressive discipline procedure for policy violations or performance issues.  The key is to indicate there is an issue and there is an opportunity to remedy the situation.  However, the Company still reserves its right to terminate the employee without notice for any cause or any reason.  The use of a discipline procedure is the sole discretion of the Company. 

Summary 

The Employment At-Will Doctrine is a legal concept encased in historical court cases and law.  It refers to the right of both the employee and employer to terminate their relationship with or without reason.  Each state is different in recognizing the three primary exceptions to this bargaining relationship.  Most states recognize the public-policy exception and the majority of states will enforce an implied contract exception.  However, very few states recognize the covenant of good faith in regards to limiting the scope of the At-Will Employment relationship. 

To prevent any misunderstandings between the Company and the employee, it is wise for the employer to generate policies stating that only a written contract between the Company and the employee negates this At-Will Employment.  In addition, the Company should recognize the right of employees to file complaints without fear of termination or retaliation.  Finally, issue a policy that states the Company will do its best to exercise an progressive discipline procedure but is not required to nor does the Company give up its right to terminate for any reason.  Knowledge is Power.

If you have any comments or questions, e-mail me at dave (insert the usual ‘at’ symbol) businessecon.org.  I would love to hear from you.   If interested in my help as an accountant or consultant, contact me through the ‘My Services’ page in the footer. 

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About David J Hoare (387 Articles)
I spent 12 Years as a Certified Public Accountant, Over 20 Years of Practice in Accounting and Consulting, Controller in Management of Closely Held Operations, Masters of Science in Accounting, Prepared over 1,000 Business Tax Returns and Hundreds of Individual Returns