Since the late 1800s, absent a contract specifying otherwise, an employment agreement generally has been regarded in the United States as being terminable at will by either employee or employer. In practice, the doctrine primarily inured to the benefit of the employer, who was able, according to one court, to discharge or retain employees with any or no cause. This extreme characterization began to erode shortly before the 1950s, although employment at will remains a viable doctrine and the basic law in a majority of the United States.
Several factors limit the reach of the employment at will doctrine. For example, in the public sector, most employees have a constitutionally protected right to notice and a hearing, embodied in civil service regulations, before they may be terminated. Most collective bargaining agreements contain provisions that a covered employee may be terminated only for good cause and frequently require arbitration requiring the employer to prove the existence of good cause. Generally, employees may not be terminated for any discriminatory reason such as those proscribed by Title VII or other federal or state antidiscrimination statutes. Finally, almost all of the states have imposed some limits on the doctrine through legislative or judicial (common law) intervention. Three areas of statutory and common law exceptions to employment at will, especially developed since 1980, are summarized in the following sections.
Violation of Public Policy
This exception, the most significant limitation, is based on tort law providing a cause of action that a discharge is wrongful if it violates some well-established public policy. Although some form of public policy exception is recognized in nearly all states, exactly what constitutes a public policy varies widely. Most commonly, it must be proved that termination was because of retaliation, malice, or bad faith. Many states require that a public policy be expressly stated in a statute or be derivable from some constitutional provision. These cases frequently fall into one of four categories—for example, it is a violation of public policy if an employee is terminated for (a) refusing to violate a statute (commit perjury); (b) performing a statutory duty (jury duty); (c) exercising a statutory right (filing for workers’ compensation); or (d) reporting a statutory or regulatory violation (by the employer). Courts in other states have been more willing to find an exception where policy is found to be fair and in the public interest. Thus, discharge of an employee who cooperated with law enforcement authorities investigating criminal activities of a coworker was held to violate public policy. In another case, a court held that it was a violation of public policy to discharge an armored truck driver who left the vehicle to save the life of a woman being threatened by an armed bank robber.
On the other hand, it must be stressed that a counterexample may be proffered for each of the foregoing cases. For example, at least one state has held that it was not a violation of public policy when an employee was terminated in retaliation for filing for workers’ compensation.
Covenant of Good Faith and Fair Dealing
An implied duty of good faith and fair dealing in the manner of performance and enforcement generally is taken to be part of every contract (not employment contracts only). For example, dismissal of an employee to deny payment of a sizable bonus that was due for concluding a substantial sale to a client was held to violate the covenant. Again, other courts have held otherwise, and less than a third of the states recognize the covenant as an exception to the at-will doctrine. Of those, many allow only the damages awardable under a claim of breach of contract.
Breach of Implied Contract
Courts have shown an increasing receptivity to finding implied promises of employment security that are contractually binding. Typically, such promises are found in oral representations during applicant interviews or by supervisors, or in employee handbooks and personnel manuals. More than half of the states recognize this exception to employment at will. For example, an implied contractual commitment to job security was found in the policy manual of an employer that stated that it was the employer’s policy to retain the services of all employees as long as their job performance was effective and efficient. In addition, the manual explicitly defined different types of termination; the definitions of disciplinary discharge and discharge because of performance were held clearly to imply discharge only for good cause. Employers may avoid such implied promises by well-drafted and conspicuous disclaimers, preferably acknowledged by the employee receiving the handbook or manual, a measure that is increasingly followed.
Because of the extreme variation among the states as to how the employment at will doctrine shall be interpreted, employers must be vigilant in keeping abreast of legislative and common-law developments in their jurisdictions. A Model Employment Termination Act (META) was proposed by the National Conference of Commissioners on Uniform State Laws in 1991 that would limit involuntary termination only to circumstances where there was good cause, but it has not been widely adopted or followed. Consequently, only the United States remains as a major industrial democracy that permits the termination of employees without valid reason.
- Ballam, D. A. (2000). Employment-at-will: The impending death of a doctrine. American Business Law Journal, 37, 653-687.
- Lindemann, B., & Grossman, P. (1996). Employment discrimination law (3rd ed., Vol. 1). Washington, DC: Bureau of National Affairs. (See Chap. 26, § III: Contract and tort causes of action that limit the “employment-at-will” doctrine. See also the 2002 Cumulative Supplement.)