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At-will employment is a common arrangement that has pros and cons for employers and employees.
There are two types of employment arrangements in the United States: at will or just cause. The differences between the two refer to the justification needed to fire an employee. At-will employment gives an employer the right to terminate employees at any time, while just cause requires that employers have a valid reason for doing so. While businesses can benefit from an at-will arrangement, it’s not as simple and straightforward as it sounds.
It is important that both business owners and employees have a clear understanding of the pros and cons that go along with at-will employment.
Since at-will employment is the default option for most employers, there isn’t technically anything special you need to do when hiring employees. However, experts agree there are a number of steps business owners are better off taking during the hiring process.
Offer letters should clearly state that employment at your business is at will, with a short explanation of what that means, said Charles R. Cohen, partner at Cohn Lifland Pearlman Herrmann & Knopf LLP.
Joseph Maddaloni, Jr., partner and co-chair of the labor and employment practice group at Schenck, Price, Smith & King LLP, said all handbooks and policy manuals should clearly state that employment is at will, that either party is free to terminate the employment relationship for any or no reason, and that there is no guarantee of employment unless express or implied.
You should also clarify that the at-will policy cannot be modified or waived, except in a document signed by you or a specific person you’ve named to do so.
Creating a separate document labeled “At-Will Acknowledgement” or “At-Will Employment Agreement” is a good idea. Otherwise, terminated employees may claim that they couldn’t be fired because there was an implied contract.
“Mention that the employment is ‘at will’ everywhere possible, including the opening sentence,” said Amy McWaters, nonexecutive director at ICHM. “Elaborate that the nature of the employment remains ‘at will’ all the time and cannot be altered by new policies or actions of any entity.”
Even if you’ve never terminated an employee — and think it would take a lot for you to do so — don’t say this to interviewees or newly hired at-will workers.
“If an employer tells the worker during the job interview that ‘We never fire anyone around here, except for a good reason,’ it may (be construed as) an oral promise that the employee will have job security” and as an implied contract, said Steven Mitchell Sack, of The Law Offices of Steven Mitchell Sack.
Also, avoid making verbal statements that imply a full year of employment or more. “If you say things in the interview like, ‘This time next year, you could be managing this project,’ or ‘We give twice-yearly bonuses to top employees,’ it implies that the at-will employee will be around that long,” said Cusick.
As long as you are not violating the Civil Rights Act or other laws, there is nothing special that needs to be done. However, there are some best practices that could minimize headaches.
It’s never proper to terminate an employee for an unlawful reason, according to Cohen.
“Because the law isn’t uniform in all states, employers must be aware of the law or engage an attorney before going forward with the termination process,” Cohen said.
Ursula H. Leo, partner and head of the employment and labor law practice at Laddey, Clark & Ryan, said employers are best served by clearly explaining to employees their reasons for terminating their employment.
“Employers should be able to explain why they’re terminating an at-will employee — poor performance, attitude, etc., so that if an employee makes a claim of discrimination, they can refute it,” Leo said. “Performance issues should always be documented so an employer can go back and reference them if required.”
Document all efforts to warn employees about poor performance and related issues — like excessive lateness — and attempts to help them improve. Doing so can reduce the risk of a wrongful termination lawsuit being filed against the company.
Even though the law doesn’t compel giving a reason, it is still appropriate to tell employees the reason why you are ending their employment.
“The employee will receive unemployment unless the termination was for cause or some other disqualifying reason,” Maddaloni said. “An employer interested in limiting its exposure to unemployment claims will likely divulge the reason for termination, even with an at-will employee.”
Terminated at-will employees may try to retaliate by claiming they’re being treated differently than others who were previously terminated. If you terminate one employee for certain conduct, terminate the next employee who exhibits that same conduct, unless you have a documented reason for the lack of consistency, Leo said.
Federal and state labor laws protect at-will employees from wrongful termination. While exceptions apply, here are some common situations that could lead to a wrongful termination lawsuit:
Just because your team includes at-will employees doesn’t mean you can terminate them for any reason at all. Legal protections are still available for at-will employees, so understanding the rules surrounding how to hire and terminate at-will employees is critical. Additionally, while at-will employment provides additional flexibility to businesses that may need to reduce their workforce or want to part with underperforming employees, it also enables top talent to leave without notice, which could prove disruptive to operations. Before you decide to hire at-will employees, consider both the benefits and drawbacks, as well as your legal obligations as an employer.
Tejas Vemparala contributed to this article.