At-Will Employment and Your Small Business

Running a small business requires you to make business decisions on a daily basis. Sometimes, you have to decide if an employee or worker should be fired, maybe because he or she is often late for work or isn't performing well. There are hundreds of reasons for terminating a worker's employment.

In most cases you won't have a problem, at least from a legal standpoint, because generally you can fire any employee at any time under what's called the "at-will employment doctrine" or "employment at-will rule." There are, however, exceptions to the rule, such as when there's an employment contract between you and the employee. Also, various state and federal laws might impact your decision to fire an employee.

It's important, then, to consider all of these things when making your decision, because if you're not careful, you might find yourself in court on a claim that you wrongfully discharged or terminated an employee.

What's "Employment At-Will?"

There are some exceptions to the rule, though, where an employee can only be fired for "good cause," such as disciplinary reasons or poor work performance. These exceptions include:

• You and the employee have an express employment contract in which the employee is hired for a "definite term." In such a case, he or she generally can't be fired until that term expires
• If your workers belong to a union, then they are covered by a collective bargaining agreement ("CBA"), which is a contract between you and the union. The CBA covers almost all aspects of your relationship with your workers, including if, how, and when they can be fired
• Rights created by the employment laws in your state. For example, in Montana, even an at-will employee can't be fired without "good cause" if he or she has completed a "probationary period"

These exceptions are not wide spread in the American workforce: Only a minority of employees are covered by CBAs or express employment contracts. There are, nonetheless, some other exceptions to the at-will doctrine that you're more likely to encounter when you fire an employee, such as implied contracts, state and federal anti-discrimination laws, and violations of "public policy."

Implied Contracts

An "implied contract" is one that arises from the parties' conduct or actions, rather than from an express agreement or written contract. In the at-will employment context, statements you make in your employee handbooks or manuals may create implied contractual obligations in favor of an employee.

If your handbook includes a clear disclaimer stating that employees have been hired as at-will employees and that the handbook is not a contract between the employer and its employees, courts will generally not find an implied contract. If the language of a handbook, however, makes promises regarding the employment--like an employee can be fired only for "good cause" or for a "good reasons" an implied contract may be found as to those promises, even if the handbook includes a clear disclaimer.

Usually, an employee doesn't have to show or prove that he or she read the handbook in order to be successful in a lawsuit that claims that you fired him or her in violation of an implied contract.

State and Federal Laws

Numerous state and federal statutes also limit your right to fire or take other adverse action against an at-will employee. All states and the federal government, for example, have passed discrimination laws making it illegal to take adverse employment actions--like firing or demoting--against an employee. These laws include:

• The Americans with Disabilities Act (ADA), which makes it illegal for you to fire an employee based upon his or her handicap or disability
• Title VII of the Civil Rights Act of 1964, which makes it unlawful for you to discharge an employee based upon his or her race, color, religion, sex or national origin
• The Age Discrimination in Employment Act (ADEA), which prohibits you from firing an employee based upon his or her age

Most states have similar anti-discrimination laws, and some states even have laws that ban discriminating against employees on the basis of marital status or sexual preference. Most states have passed laws to prohibit employers from firing employees because they filed workers' compensation claims. A federal statute and a number of state statutes, called "whistleblower" laws, also make it illegal for employers to take adverse actions against employees who report wrongdoing in the workplace.

Public Policy

Even if there's no state or federal law, you are generally forbidden from taking adverse actions against at-will employees where those actions violate established public policies. In many states, for example, it is a public policy violation to fire an employee for refusing to break the law. Therefore, an employee fired for refusing to testify falsely on behalf of his employer can bring a lawsuit against his employer for wrongful discharge.

Wrongful Discharge

If you fire an employee in violation of an express or implied employment contract, state or federal discrimination or employment laws, or public policy, that employee might be able to sue you for wrongful discharge. And, the consequences can be severe. If the employee is successful, you could be ordered to pay the employee money damages, such as lost wages, or his attorney's fees, and maybe even punitive damages, which is an award of damages to deter similar behavior in the future.

Questions for Your Attorney

• A former employee is suing me for wrongful discharge, claiming that when she was hired, my hiring manager told her that she "would have a job with us for as long as she wanted." Does she have a good claim?
• How much will you charge to write an employee handbook that makes sure that all of my employees know that they're being hired as at-will employees?
• Can I make potential employees sign a statement that they've read the employee handbook and refuse to hire an applicant if he refuses to sign one?
• Does our state have any special laws on at-will employment?