At-will employment is a common arrangement that has pros and cons for employers and employees.
- At-will employment means an employer can fire an employee for any reason (providing the reason isn't illegal), without warning and without having to disclose just cause for doing so. It also means employees can quit their job without notice or explanation.
- At-will employment offers businesses several advantages, like additional flexibility, but it presents some disadvantages, such as sudden staffing shortages.
- Almost every U.S. state recognizes at-will employment, but there are exceptions and situations where "at-will" doesn't apply.
- This article is for business owners who want to learn the pros and cons of at-will employment, including strategies for hiring and terminating at-will employees.
There are two types of employment arrangements in the United States: at-will or just cause. The differences between the two types of arrangements refer to the reasons needed to fire an employee. At-will 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.
What is at-will employment?
At-will employment is the default employment status in almost all U.S. states and the District of Columbia. Unless your employees have signed an agreement or contract that indicates employment isn't at-will, they are considered to be at-will employees.
At-will employment works both ways though. Just as employers can terminate employment without disclosing the cause or reason for the firing, employees can leave their job without providing a reason and without notifying their employer in advance. They can even leave without saying they're quitting their job.
Key takeaway: At-will employees can be fired without reason or notice; conversely, at-will employees aren't obligated to give advance notice (or any notice) or reason for leaving a company.
Which states have exceptions to at-will employment status?
Nearly every U.S. state and the District of Columbia recognize at-will employment. Montana is the exception; there, employers can only terminate an employee without cause during an initial probationary period.
However, several states recognize exceptions to at-will employment ‒ situations in which at-will doesn't apply. Common exceptions to at-will employment are as follows.
- Unionized jobs. Collective bargaining agreements may exempt union workers from at-will employment.
- Employer retaliation against union members. At-will employment doesn't apply if a business terminates employees for union action, like going on strike.
- Contract-basis employment. Contract workers may have a formal agreement with their employer that exempts them from at-will employment.
- Employee action protected by public policy. In most states, employers can't terminate at-will employees for taking an action that's protected by public policy, such as whistleblowing or reporting unsafe or illegal activity. This exception doesn't apply in Alabama, Florida, Georgia, Louisiana, Maine, Nebraska, New York, Rhode Island and Florida.
- Employer implication that an employee has a contract. Depending on several factors, it's possible that an employee won't have at-will status if there's an implication that a contract exists. For example, this might apply when there is a clause in an employee handbook that termination can only happen for just cause. Another example is if new hires are told verbally that the company never terminates workers. This holds true in all but 14 states: Arizona, Delaware, Florida, Georgia, Indiana, Louisiana, Massachusetts, Missouri, Montana, North Carolina, Pennsylvania, Rhode Island, and Virginia. "Only New York (unilaterally) recognizes the implied contract of employment exception to at-will employment," said Tamika Hardy, a partner in the employment and labor practice group at Rivkin Radler LLP.
- Employer breach of good faith. Employers have certain obligations to employees (for instance, paying earned commissions and bonuses) in keeping with what's known as the "implied covenant of good faith." In Alabama, Alaska, Arizona, California, Delaware, Idaho, Massachusetts, Montana, Nevada, Utah and Wyoming, at-will employment doesn't apply if an employer has committed a breach of good faith or fired an employee to avoid meeting their obligations.
- Discrimination. At-will employment also doesn't apply ‒ anywhere in the U.S. – if employees are fired due to discrimination based on race, gender, religion or sexual orientation.
- Employee refusal to commit an illegal act. This exception applies in every U.S. state.
There are no exceptions to at-will employment in Alabama, Florida, Georgia, Louisiana, Nebraska, Maine, New York and Rhode Island.
Key takeaway: At-will employment is recognized in all but one state, Montana. However, in many states, exceptions apply.
What are the pros and cons of hiring at-will employees?
It is important to have a clear understanding of the pros and cons that go along with at-will employment – for both business owners and employees.
Pros of hiring at-will employees
- Faster, easier termination process. Firing employees who are under contract to your business typically involves multiple discussions, complicated negotiations and delays. But since you don't need to tell at-will employees why they're being fired (though you may want to), it's easier to get rid of poor performers (and other problem workers) without backlash about whether you have the right to terminate the employee or worry about contract breaches. Hiring at-will is especially helpful in quickly getting rid of employees who are causing serious difficulties. For example, Hardy said they had a client who received an employee complaint claiming that a co-worker was harassing her due to her race. "Because the alleged harasser was an at-will employee, the employer was able to conduct a swift investigation and terminate (that) person without liability, even though the alleged harasser's conduct didn't rise to the level of an actionable harassment claim," Hardy said. An employer also isn't obligated to tell at-will employees about their termination in advance, so they can be gone the day they're dismissed.
- More nimble operations and a better bottom line. At-will employment eliminates the burden of negotiating and renegotiating contracts at renewal time. This allows businesses to devote more resources to day-to-day operations that increase revenue. Freedom from contractual obligations also lets businesses quickly react or adapt to change. "For example, if you sign a two-year employment contract with someone and the business gets into crisis or outside forces (like the COVID-19 pandemic) create a need for layoffs before that time, you don't have to pay off the remainder of the contract," said Kevin Lee, CEO of JourneyPure.
- Increased focus on employee merit, rather than seniority. "This allows employers to promote workers who are productive and show leadership potential, even if they haven't been with the organization for long," said Matt Bertram, CEO of EWR Digital.
Cons of hiring at-will employees
- Employees who suddenly quit. When at-will employees quit without notice, you could find yourself scrambling to find their replacement.
- Difficulty attracting top talent. David Cusick, chief strategy officer of House Method, believes this could make it difficult for companies to hire top talent. "'I can fire you whenever I want' isn't a job perk to most candidates, nor is 'You can leave whenever you want' when they're trying to find stable employment," Cusick said.
- Employee reluctance to "tell all." At-will employees may hesitate to express their opinions or negotiate for benefits for fear of being terminated without warning. Edgar Arroyo, owner of SJD Taxi, said this could decrease a "company's productivity and [its] ability to make good business decisions."
Key takeaway: At-will employment makes dismissing employees easier and hastens their departure before they can make trouble, but it can also create difficulties like staffing shortages at inopportune times and difficulty finding talent.
Steps employers can take when hiring at-will employees
Since at-will employment is the default option for most employers, there isn't technically anything special you need to do. However, experts agree there are a number of steps business owners are better off taking.
Reference 'at-will' status in offer letters and employee handbooks.
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 can't be modified or waived, except in a document signed by you or a specific person whom you've named to do so.
Draw up an agreement.
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, CEO of The Hamper Emporium. "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."
Think before you speak.
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.
Key takeaway: Use offer letters, employee handbooks and acknowledgement documents to emphasize that workers' employment is at-will. Avoid saying anything to interviewees and new hires that implies otherwise.
What employers should do when terminating at-will employees
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.
Know the law.
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.
Document, document, document.
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 to help them improve. Doing so can reduce the risk of a wrongful termination lawsuit being filed against the company.
Share the reason for termination with the employee.
Even though the law doesn't compel it, it is still appropriate to give employees a reason behind 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.
Key takeaway: Familiarize yourself with applicable laws that govern at-will employment. Be candid in your reasons for and consistent when terminating at-will employees.
Can an at-will employee sue your business for wrongful termination?
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:
- Contract or agreement replaces at-will employment. The contract can be written or implied.
- Breach of good faith and fair-dealing practices. An at-will employee has the right to sue your company if you terminated him or her to avoid obligations like paying retirement or health benefits or a rightfully earned sales commission.
- Violation of public policy. Firing an at-will employee for requesting time off to vote is grounds for a lawsuit against your company.
- Employee claims discrimination. An at-will employee can sue a business for unlawful termination if it has violated civil rights and anti-discrimination laws or there's perceived discrimination based on race, religion, gender, marital status, sexual orientation, and the like.
- Employee was terminated in retaliation for another occurrence. Your business may face a lawsuit if, for example, an at-will employee was terminated after filing a sexual harassment charge against a co-worker.
- Employer fraud. Claiming that an at-will employee was fired for just cause – for instance, poor work performance – when that employee's file reflects that their performance was consistently excellent amounts to fraud.
- Employer commits defamatory act in connection with termination. An example of this is providing false and/or malicious references that make it difficult for a terminated at-will employee to find a new job.
Key takeaway: While you have the right to terminate an at-will employee whenever you want, there are circumstances that can result in a wrongful termination claim being filed against your business. This includes breaching good-faith practices, violating public policy, discrimination, retaliation for an employee's previous actions, fraud, or defamatory acts against the fired employee.