Please note NCSL cannot provide advice or assistance to private citizens or businesses regarding employment-related matters. Please consult your state department of labor or a private attorney.
I. The At-Will Presumption
Employment relationships are presumed to be “at-will” in all U.S. states except Montana. The U.S. is one of a handful of countries where employment is predominantly at-will. Most countries throughout the world allow employers to dismiss employees only for cause. Some reasons given for our retention of the at-will presumption include respect for freedom of contract, employer deference, and the belief that both employers and employees favor an at-will employment relationship over job security.
A. At-Will Defined
At-will means that an employer can terminate an employee at any time for any reason, except an illegal one, or for no reason without incurring legal liability. Likewise, an employee is free to leave a job at any time for any or no reason with no adverse legal consequences.
At-will also means that an employer can change the terms of the employment relationship with no notice and no consequences. For example, an employer can alter wages, terminate benefits, or reduce paid time off. In its unadulterated form, the U.S. at-will rule leaves employees vulnerable to arbitrary and sudden dismissal, a limited or on-call work schedule depending on the employer’s needs, and unannounced cuts in pay and benefits.
B. Modification by Contract
The at-will presumption is a default rule that can be modified by contract. For example, a contract may provide for a specific term of employment or allow termination for cause only. Typically, U.S. companies negotiate individual employment agreements only with high-level employees. Collective bargaining agreements usually provide that represented employees may only be terminated for cause.
Cause generally includes reasons such as poor employee performance, employee misconduct, or economic necessity. An employment contract may specifically outline the situations or employee actions that would lead to termination for cause.
II. Common Law Exceptions to the At-Will Presumption
Over the years, courts have carved out exceptions to the at-will presumption to mitigate its sometimes harsh consequences. The three major common law exceptions are public policy, implied contract, and implied covenant of good faith.
The at-will presumption is strong, however, and it can be difficult for an employee to prove that his circumstances fall within one of the exceptions. Further, not all of the exceptions are recognized by all jurisdictions.
A. Public Policy
The most widely recognized common law exception to the at-will presumption protects employees against adverse employment actions that violate a public interest. This common law exception is similar to, and may overlap with, the retaliation exception described below. Some courts have refused to recognize a separate public policy tort where a statutory remedy is available.
States that recognize the public policy exception vary significantly in how broadly or narrowly it is construed. The majority of states accept only public policy expressed in state constitutions and statutes. A minority also allow additional sources that may include administrative rules and regulations, professional codes of ethics, and broader notions of public good and civic duty.
The American Law Institute’s proposed Restatement (Third) of Employment Law identifies four categories within the public policy exception:
|1) Refusing to perform an act that state law prohibits.||Refusing an employer’s request to commit perjury at a trial.|
|2) Reporting a violation of the law.||Reporting an employer’s fraudulent accounting practices or use of child labor.|
|3) Engaging in acts that are in the public interest.||Joining the National Guard or performing jury duty.|
|4) Exercising a statutory right.||Filing a claim under the state workers’ compensation law.|
B. Implied Contract
Implied contracts of employment are recognized in 41 states and the District of Columbia, but even where recognized may be difficult for a plaintiff to prove. An implied contract may be created in several different ways. Oral assurances by a supervisor or employer representative (e.g., “We need good people around here, you’ve got a job for life!” or “We don’t dismiss employees without giving them a chance to correct their behavior.”) may give rise to an implied contract. Likewise, the employer’s handbooks, policies, practices or other written assurances may create an implied contract.
Thus, even though there is no express written contract between the employer and an individual employee, that employee may have an expectation of fixed term or even indefinite employment based on a supervisor’s statement, an employer’s practice of only firing employees for cause, or an assertion in the employee handbook that specific termination procedures will be followed. The list of examples above is not exhaustive.
As a general rule, courts disregard language promising long-term, lifetime, or permanent employment as aspirational and consider the relationship to be at-will. Employers can further protect themselves by using a clear and unambiguous disclaimer on written materials stating that its policies and procedures do not create contractual rights. Employers can also reserve the right to modify policies and procedures at any time.
In states with a statute of frauds, the requirement that contracts of over a year be in writing creates an additional hurdle to employee claims involving oral assurances.
C. Implied Covenant of Good Faith and Fair Dealing
A minority of states recognize an implied covenant of good faith and fair dealing in employment relationships. Judicial interpretations of this covenant have varied from requiring just cause for termination to prohibiting terminations made in bad faith or motivated by malice.
Examples of bad faith terminations include an employer firing an older employee to avoid paying retirement benefits or terminating a salesman just before a large commission on a completed sale is payable. There have been relatively few cases in which employers were found liable under an implied covenant of good faith and fair dealing theory.
D. Additional Tort-Based Claims Limiting At-Will Employment
At-will employees may also bring claims against their employers for the following torts:
Intentional interference with a contract. This claim may be made in the employment context when a supervisor or co-worker with an improper motive successfully induces the employee’s dismissal. This tort is not recognized in all jurisdictions.
Intentional infliction of emotional distress. The Restatement (Second) of Torts defines this tort as extreme and outrageous conduct that intentionally or recklessly causes severe emotional distress. In many courts, even serious emotional and psychological abuse may not be outrageous enough to establish liability.
E. Promissory Estoppel
An employer could be estopped from firing an employer, or required to pay damages, if the employee can show the following:
- The employer made a clear and unambiguous promise of employment;
- The employee relied on this promise;
- The employee’s reliance was reasonable and foreseeable; and
- The employee was injured as a result.
Imagine an individual who receives and accepts a job offer, quits his current employment, and then relocates his family to the city where the new job is located. Before his first day with the new employer, he is terminated. An individual in this situation may have a promissory estoppel claim.
It is difficult for a plaintiff to prove all of the promissory estoppel elements, especially in an employment context. Some courts reject outright promissory estoppel claims made by an at-will employee by contending that an employee cannot reasonably rely on a promise of employment if the employment is at-will.
In any case, promissory estoppel provides only a limited remedy in comparison to a breach of contract claim. This is because damages are calculated based on the individual’s previous employment, and not on the promised employment.
III. Statutory Exceptions to the At-Will Presumption
In addition to the common-law exceptions outlined above, there are also several statutory exception to the at-will employment doctrine.
A. Illegal Discrimination
Federal and state discrimination statutes prohibit employers from basing employment decisions on an employee’s race, color, religion, sex, national origin, age, disability, or veteran status. Specific state statutes may also protect employees from discrimination based on other factors, such as sexual orientation.
It is important to recognize that discrimination statutes shield members of protected classes only from adverse employment actions made because of their membership in a protected class. In other words, an employer may fire Jane because she failed to perform the required functions of her job, but not because she is in a wheelchair.
1. Protections for an Employee’s Off-Duty Activities
A few states have enacted legislation to protect employees from adverse employment actions resulting from legal off-duty activities. In Colorado, CRS § 24-34-402.5 was originally known as the Smoker’s Rights Act, but actually protects any legal off-duty activities conducted away from the employer’s premises. North Dakota adopted a similarly broad statute. Legislation enacted by Indiana, New Jersey, Oregon, and South Dakota specifically prohibits employer discrimination against smokers.
There are limits even to Colorado’s expansive act. The legislation allows employers to constrain the lawful, off-duty activities of their employees when 1) the restriction relates to bona fide occupational activity; 2) is reasonably and rationally related to the employment activities and responsibilities; or 3) is necessary to avoid an actual conflict of interest or the appearance of one.
Retaliation is another statute-based exception to the at-will presumption. Federal and/or state laws prohibit employers from firing employees in retaliation for engaging in legally proper, necessary, or desirable activities. Example of protected activities include claiming minimum wage or overtime compensation, engaging in union activities, opposing unlawful discriminatory practices, filing for workers’ compensation, and “whistleblowing.”
While most states provide whistleblower protection for public sector employees, protection for private sector employees is more limited. Approximately seventeen states have enacted whistleblower statutes that protect private sector employees from adverse employment actions if they report an employer’s wrongdoing. Please see our compilation of state whistleblower statutes for citations and summaries.
Where there is no general state statute, private employees are left with a patchwork of federal and state statutes that address a wide variety of issues including workplace health and safety, environmental protection, accounting fraud, and discrimination, that also include whistleblower protections. The challenge for employees in these jurisdictions is to find a statute that applies to their particular circumstances.
IV. Montana’s Good Cause Rule
The Montana Wrongful Discharge From Employment Act of 1987 (WDEA) created a cause of action for employees who believe that they were terminated without good cause. Although similar legislation has been introduced elsewhere, Montana is so far the only state to have passed a law with such far-reaching effects.
A. Statutory Provisions
The statute prohibits discharge for other than good cause after a designated probationary period and gives the employee the right to challenge a termination in court or before an arbitrator. The statute also limits damages to up to four years of lost wages, including the value of fringe benefits, with interest. See Mont. Code Ann. §§ 39-2-901 through 39-2-915.
B. Legislative History
Beginning in 1982, the Montana Supreme Court made a series of pro-plaintiff decisions that expanded the good faith and fair dealing exception to the at-will employment rule. These decision created uncertainty for employers, and led them to advocate for a more consistent regime. In essence, Montana employers were willing to trade certainty and limitations on damages for constraints on their ability to fire employees at-will.
Although both common-law and statutory exceptions to the at-will rule exist, the presumption remains an important feature of the U.S. employment landscape. While an employee may be able to make a variety of claims, they can be hard to prove. In addition, not all claims are recognized in all jurisdictions and judicial interpretations of common law protections may be broadly or narrowly construed. Thus far, Montana is the only state to have completely eliminated the at-will rule.
Source: National Conference of State Legislatures, “At-Will Employment – Overview https://www.ncsl.org/ website. Accessed March 12, 2020. https://www.ncsl.org/research/labor-and-employment/at-will-employment-overview.aspx#:~:text=At%2Dwill%20means%20that%20an,with%20no%20adverse%20legal%20consequences.
© Copyright 2020. All rights reserved. This content is strictly for informational purposes and although experts have prepared it, the reader should not substitute this information for professional insurance advice. If you have any questions, please consult your insurance professional before acting on any information presented. Read more.
Leave a Comment