All our employees sign an at-will acknowledgment when they are hired. Doesn’t that mean I can fire an employee whenever I want, for any reason or no reason? I’m being told that I have to have documentation and justification. If they’re at-will employees, why can’t I just fire them? —Carl B., San Jose
Carl, your question rings with the frustration voiced by the majority of at-will organizations, large and small. After all, what is ambiguous about the at-will doctrine? Employees are hired for no specific time period, with no contractual relationship, and employment can be terminated by either party, for any or no reason, with or without notice, unless specifically prohibited by law. These last five words are the cause of the vexation and the reason you need to be cautious whenever terminating an at-will employee.
Limitations to the At-Will Doctrine
Even though most employees are at will, employers must realize that there are many exceptions to this legal doctrine. First, there are state and federal laws that protect employees against adverse job actions based on their protected status. Obviously, terminating an employee is an adverse action. In addition, U.S. courts have enhanced job security for “common-law” exceptions, such as public policy (e.g., whistleblowing and exercising legal rights) and implied contracts (e.g., handbooks, offer letters, and oral promises).
Protected Status
If an employee charges that a termination decision was based on his or her protected status, such as race or religion, it falls to the employer to prove otherwise. Proving that the decision was not based on such a factor, in general, will require documentation.
These types of claims are growing with the ever-expanding protected status categories. In California, they include: race, ethnicity, color, national origin, religious creed, age, ancestry, marital status, sex, gender, medical condition, physical or mental disability, age, sexual orientation, registered domestic partner status, and military status.
Public Policy
If an employee has exercised a legal right, such as filing a workers’ compensation claim, and shortly thereafter is fired, there is a high probability that the employee will claim that the termination was based on exercising that right. Courts have recognized enhanced job protection in such cases. Another example of exercising a legal right is taking certain leaves. Terminating an employee immediately following (or during) a job-protected leave, such as leave taken under the Family and Medical Leave Act, would be highly risky and subject to challenge. These situations require significant substantiation (documentation) before a termination.
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Another category of workers protected by public policy is whistleblowers—employees reporting illegal activity or activity they reasonably believe is illegal. Reporting under Sarbanes-Oxley, a federal law that addresses corporate codes of ethics and disclosure requirements, would also fall into this enhanced protection category.
Implied Contract
If your organization has an employee handbook, uses employment agreements or offer letters, or has somehow promulgated, in written or oral statements, language that appears to give employees assurances that their employment is for a certain period or will not be ended without a disciplinary process, your termination decision may be subject to challenge for not adhering to this “contract.” For example, Taco Bell had to show good cause for terminating Michael Osogwin, who claimed breach of his employment contract. Although Osogwin had signed various employment documents with at-will disclaimers, a jury found that language in relocation agreements modified Osogwin’s at-will status and implied that termination could occur only for good cause. The penalty? A hefty $800,000.
Many company handbooks contain language regarding a disciplinary procedure. Although this is not necessarily a problem, it is important that there are disclaimers stating that the company may, at its discretion, choose not to follow such a procedure, and that the procedure is not meant to modify any employee’s at-will status. Otherwise, a jury might find that you were contractually obligated to follow the disciplinary procedure.
Don’t Give Up Your At-Will Disclaimers
You may be wondering at this point why any company would bother with at-will status, when it seems that employees can challenge terminations on so many fronts. However, there are very good reasons to assert your at-will employment relationships.
First of all, when your company includes solid at-will assertions in handbooks, offer letters, applications, promotion/transfer documents, disciplinary counseling documents, compensation agreements, or any documents or oral statements with employees regarding the terms and conditions of employment, your attorney can ask the court to throw out any lawsuit that challenges a termination.
In addition, plaintiffs’ attorneys recognize that it will be more difficult to obtain damages for wrongful termination or breach of contract claims when an employer has asserted the employee’s at-will status—and they may be more reluctant to take the case. On the other hand, if there is no at-will language, the plaintiff’s attorney can claim that employment terminations require just cause.
Conclusion
Employment terminations are difficult at best and often costly even if you’re not sued. Employers typically face lost productivity and expenses for recruiting, hiring, training, and so on. It therefore follows that avoiding legal challenges to your termination decisions is highly desirable. Good documentation is the key. It not only serves as justification if needed for legal reasons, but it may also prevent employees from believing they were unfairly or wrongly treated—and thus from filing a suit. Here’s the bottom line: arguing before a judge or jury that your decision to terminate does not need justification because you had an at-will relationship is not a good strategy. Consider your careful documentation a great investment in business risk management!
Diana Gregory, SPHR, is a senior human resources specialist at the Walnut Creek office of Administaff, a professional employer organization and human resources outsourcing firm.