Most employees in this country work at will. Your company doesn’t need “just cause”—or even a good reason—to fire an at-will employee. At-will employees are also free to resign at any time. However, this general rule is subject to a handful of exceptions. For example, you may not fire an employee at any time if that employee has an employment contract limiting your right to fire. And you may not fire an at-will employee for reasons that are illegal, including discrimination and retaliation.
In every state but Montana, employment is presumed to be at will unless the employer and employee have agreed to something different. If your company has entered into a contract with an employee that limits your right to fire, that employee is no longer an at-will employee. Employment contracts can be formed in three ways:
- Written contracts. A written contract is a document setting out the terms of the employment relationship between your company and the employee. If an employee has a written contract that spells out the circumstances in which the employee can be fired, you must abide by the terms of the contract. Otherwise, the employee can sue the company for breach of contract.
- Oral contracts. An oral contract is an agreement that is spoken rather than written. For example, let’s say the hiring manager tells an applicant, “We ask employees to commit to a six-month probation period, during which we will provide training and fire employees only for good cause.” If the employee accepts the job on these terms, a binding oral contract has been created.
- Implied contracts. An implied contract is neither written nor explicitly spelled out orally, but is instead inferred from statements and actions. In some states, an employer may create an implied contract by making general statements—whether in employment documents or aloud—promising job security or otherwise indicating that employees will not be fired without good cause. For example, if a company’s employee handbook has a discipline policy stating that employees will be fired only for certain types of misconduct or performance problems, the company might be bound to fire only for those reasons.
Your company might have a good reason for offering a particular employee job security through an employment contract. For example, you might want a senior employee to agree to stay with the company through an ownership transition, or you might have to make an exception to your at-will policy to land a particularly attractive candidate.
Typically, however, companies do not want to compromise their right to fire employees at will. Even though rational managers fire employees only for good reasons, an at-will policy means you won’t have to prove those reasons in court if an employee sues the company. That’s why many companies protect their at-will rights by stating in handbooks and other employment documents that employment is at will. An employment lawyer can help your company make sure its employment documents protect its right to fire at will.
If an employee works at will, you can terminate the employment relationship for any reason that is not illegal. This includes reasons unrelated to the employee’s performance, such as the company’s need to downsize, its decision to outsource the employee’s job, or a merger with another company that makes the employee’s job redundant. You may also fire an at-will employee for poor performance, violating company policy, being a poor fit, irritating coworkers, being difficult to work with, and so on.
If an employee has a contract and can be fired only for good cause, you can still end the employment relationship. However, you must have a legitimate, business-related reason to fire the employee—and you should be prepared to prove it in court, if necessary. Before firing an employee who has a contract promising job security, you should talk to an employment lawyer to make sure you have a documented, legally sound justification for the termination.
You may not fire an at-will employee for illegal reasons, including:
- Discrimination and harassment. You could face a lawsuit if you fire an employee for discriminatory reasons (for example, because the employee is Latino or requests an accommodation for a disability) or because the employee complains, whether within the company or to a government agency, about discrimination or harassment. (See Discrimination Lawsuits for more information.)
- Whistle-blowing and retaliation. It is illegal to fire an employee for complaining about violations of employment laws, including violations of wage and hour laws, workplace safety laws, or labor laws. Employees are also protected from termination for reporting other types of illegal activity, such as shareholder fraud or violations of consumer safety laws.
- Taking legally protected leave. You may not fire an employee for taking family and medical leave, military leave, or other time off guaranteed by federal or state law.
- Refusing to act illegally. Most states allow employees to sue for violation of public policy if they are fired for refusing to do something illegal, like lie on company tax forms.
This is not an exhaustive list. An experienced employment lawyer can help you figure out whether you will be facing potential legal liability for firing decisions.