Business Law

Wrongful Termination

Most employees, except those working under an employment contract or a collective bargaining agreement, are considered to be at-will employees. This means that the employee may be fired for almost any reason or for no reason. It also means that the employee is free to quit his job without legal consequences.

As a small business owner, having at-will employees means your business can hire and fire employees as needed. There are, however, a few circumstances under which you can't fire at-will employees, or the employee may be able to successfully bring a wrongful termination lawsuit against your company.

Many states have begun to chip away at the at-will doctrine, and now provide limited reasons for wrongful termination lawsuits, even where the firing did not violate a specific state or federal law. These remedies, though not overriding the at-will employment doctrine, soften its edges, and allow employees to recover damages against employers who act in particularly egregious ways.

In order to avoid wrongful termination lawsuits, it's important to understand the circumstances under which these cases usually succeed.

Violation of State or Federal Law

Some state and federal laws prohibit companies from firing any type of employee, including at-will employees, for certain reasons. For example, your business can't terminate employees for discriminatory reasons, nor may you fire an employee because he acted as a whistleblower against the company.

It is important to understand, however, that you may terminate employees who fall into these categories for other reasons. If the terminated employee is likely to suspect that he was terminated for discriminatory reasons, or because he was a whistleblower, take the time to document the actual reasons for the termination. Although you aren't required to provide an explanation to the terminated employee, your documentation will be valuable if you are later sued.

Violation of Public Policy

Although an employee who is discharged because of his or her race, sex, religion, national origin or disability, for example, will have a remedy against an employer under state and federal statute, some violations of public policy aren't clearly spelled out by a state or federal law. In cases where an employer clearly violates an important public policy in firing an employee, most states will allow the employee to recover against the employer in a wrongful-termination action. In such cases, punitive damages, in addition to back pay or front pay, may be awarded.

Montana enacted a statute to embody this primarily judge-made law by providing an express legal remedy for employees who are fired contrary to an established public policy. In some states, however, courts are hesitant to chip away at the at-will doctrine at all; they refuse to allow any wrongful discharge actions.

Examples of public policy violations that often result in recoveries by terminated employees include:

  • Firing an employee for refusing to violate the law
  • Firing an employee for reporting a violation of the law by the employer that could or did harm the public
  • Firing an employee for exercising a statutory or constitutional right
  • Firing employees because they answered a subpoena or attended a civil deposition

Breach of Implied Covenant of Good Faith and Fair Dealing

In addition to providing a wrongful discharge remedy where an employer has violated public policy, a fewer number of states allow a wrongful termination claim by an at-will employee based upon the theory of a breach of an implied covenant of good faith and fair dealing. In such cases, the employee alleges that the employer breached an implied covenant of good faith and fair dealing by firing him or her.

Sales employees have been most successful in these actions, often prevailing against employers after showing that they were fired because the employers wanted to avoid paying their commissions. Similarly, employers who fire employees so that they don't have to pay end-of-year bonuses may also face such a claim. In these cases, the employees are usually entitled to recover the unpaid commissions or bonuses. They aren't, however, usually entitled to punitive or other damages.

Questions for Your Attorney

  • What documentation should I keep to prove my reasons for firing an employee?
  • What state and federal laws would prevent me from firing at-will employees?
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