1.5 The Employment-At-Will Doctrine

The U.S. is among a handful of western nations where the employment-at-will doctrine remains the predominant rule governing employer-employee relationships. All states, with the exception of Montana, embrace this doctrine. The employment-at-will doctrine provides that an employer may terminate an employee at any time, for any legal reason, without incurring liability.

In common law, the employer and the employee were seen as having equal bargaining positions and the doctrine represented the freedom to contract and the greater weight of flexibility over stability. Accordingly, under the at-will doctrine, the employee may also leave a job at any time, and for no reason, without facing adverse legal consequences. The at-will doctrine has come under much criticism in the modern age due to its potential harsh consequences to employees: the employer may change, at any time and without notice, the terms of wages, benefits, or time off, leaving employees vulnerable and insecure.

Exceptions to Employment At-Will

Contracts and union collective bargaining agreements may lessen the brunt of the at-will doctrine by providing for specific terms of employment or termination only for cause – poor employee performance or misconduct – or economic exigencies. Recognizing its unequal consequence to employees over employers, the common law has developed three exceptions to the at-will doctrine that protect employees:

1) public policy; 2) implied contract; and 3) implied covenant of good faith.

Public-Policy Exception

The public-policy exception is recognized in at least 44 states, and is invoked when an employee is terminated for reasons which violate a public-policy interest. This can include an employee refusing to break the law, exercising a legal right, fulfilling a statutory duty, or engaging in whistleblowing. 1 The public-policy exception is not a uniform doctrine and each state varies in how it construes and applies the rule. Most states require that, in order to qualify as public policy, some principle must be expressly stated in a state constitution. Other states allow that the definition of public policy may be derived from state administrative regulations, ethics codes, and broad notions of public good and civic duty. Additionally, examples of employee actions protected by the public-policy exception might include an employee refusing to commit perjury, reporting child labor law violations, making a claim of discrimination, joining the national guard, serving on jury duty, voting, or filing a worker’s compensation claim.

If an employee is terminated for claiming minimum wage or overtime compensation, engaging in union activities, opposing unlawful discriminatory practices, filing for workers' compensation, or "whistleblowing," the employer may face liability for a retaliatory discharge. Most states protect public employees from retaliatory discharge for reporting government wrongdoing. Seventeen states have extended whistleblowing employee protection to private employers.

Implied-Contract Exception

The second exception to the at-will doctrine is a principle called the implied contract. Forty-one states, along with the District of Columbia, recognize this exception. An explicit contract is an agreement in which the parties state exactly what they agree to do. An implied contract, on the other hand, is a legally binding agreement which is created, not through formal contract negotiation and documentation, but by the actions of the employer and the employee. The conduct creating the implied contract may be oral assurances from the employer that as long as an employee does good work he or she will have a job. These promises, if reasonably relied upon, may create a valid contract consideration – good work equals continued employment.

One of the more common ways in which an implied contract is created is through employee reliance on an employer’s handbooks, policies, or practices. For example, if a worker at a firm has never been terminated without strict adherence to the progressive discipline procedures outlined in the employee handbook, it would be a breach of an implied contract for the employer to deviate from that practice for a particular employee. The handbook, coupled with established procedure, creates an implied contract upon which the employee may rely.

The implied contract exception can be difficult to establish. Courts are reluctant to honor oral promises of long-term employment, since business relationships are often dynamic and uncertain. Moreover, employers often include bold-faced language in employee training documents and handbooks, which clearly states that the handbook does not create contractual rights for the employee or contractual obligations for the employer. Also, the fact that an employer has the right to unilaterally modify the handbook, something it could not do under contract law, undermines an employee’s reliance on the handbook as an implied contract.

Finally, the ancient doctrine of the Statute of Frauds requires that a contract which cannot be performed within a year of its creation must be in writing. The requirement that a contract be written acts to invalidate the notion that an employer’s oral promises may be accepted by an employee and, thereby, establish an implied contract, if a year has elapsed from the time of the promise.

Implied Covenant-of-Good-Faith Exception

A few states, just 13, recognize the third at-will doctrine exception known as the implied covenant of good faith and fair dealing. This doctrine holds that each party to the employment relationship makes an implied promise to treat each other in good faith and fairness, and when that covenant is broken, the employee has a cause of action for wrongful termination. Because of the strong presumptions of the at-will doctrine, these cases are hard to prove. Moreover, the definitions of good faith and fair dealing are varied, but often rest on notions of bad faith or malice by the employer. The cases where the exception has been applied include situations where an employer terminated an older worker right before a pension was to vest, or where a salesperson was fired just before a large commission was due.

Notwithstanding the exceptions, the good news for employers is that at-will presumption is strong and it can be difficult for an employee to prove that his or her circumstances fall within one of those exceptions.