Labor and Employment

Does Your Employee Handbook Compromise At-Will Employment?

By Lisa Guerin, ​J.D., Boalt Hall at the University of California at Berkeley
Does your company's employee handbook compromise your right to fire employees at will?

Most employees in the United States work at will, which means they can quit or be fired at any time, for any reason that is not illegal. For example, your company may not fire at-will employees in violation of workplace rights laws, such as those prohibiting discrimination and retaliation. Otherwise, however, you may fire at-will employees with or without cause, and with or without notice.

However, your company can undo its right to fire at will with a poorly written employee handbook. Read on to find out what your handbook should—and should not—say about job security for employees.

Contracts and At-Will Employment

An employee’s at-will status can be changed by a contract. If, for example, your company is trying to land a highly qualified applicant to take your start-up to the next level, you might need to provide some job security in an employment contract to sweeten the deal. In this situation, the contract might specify a term, such as two years, during which the employee can quit or be fired only for limited reasons specified in the contract (called “good cause”). This gives the employee time to learn the job and gives your company the assurance that the employee will stay for at least two years. (For more on this topic, see our article on the pros and cons of employment contracts.)

Although written employment contracts are the most obvious way to limit your right to fire at will, you can also create a contract orally by making promises of job security to the employee in person. You can also create a contract by implication, through the words and actions you use with an employee. This is how your employee handbook can get your company into trouble: Careless language in your employee handbook can create an implied contract that employees will be fired only for good cause, even if that is not your intention.

How Employee Handbooks Can Create Implied Contracts

Many, but not all, states recognize implied contract claims arising from language in an employee handbook. In states allowing these claims, the following types of provisions have led to trouble:

  • Progressive discipline policies. If your discipline policy says that employees will be fired only for certain misconduct, and only after receiving the benefit of each step in your company’s disciplinary system, you can be required to live up to that promise. For example, an employee who is fired for a reason that doesn’t appear on the list, or without first receiving a verbal warning and a written warning, could sue the company for breach of contract.
  • A probationary period. Some handbooks refer to new employees as “probationary employees” during the first few months of employment. Employees who successfully complete the probationary term then become “permanent employees.” A court could interpret this to mean that permanent employees have earned job security and can no longer be fired at will. (For more information, see What Is a Probationary Period and How Does It Work?)
  • Assurances of job security. If your handbook promises job security to those who are doing good work, it might prevent you from firing employees at will. For example, statements that your company doesn’t fire employees without good cause, or that hardworking employees will always have a home at your company, could be interpreted as a promise not to fire employees without good cause.

An employee’s breach of contract case will be stronger if these written policies are accompanied by statements from company representatives about job security. For example, if the hiring manager says during interviews that the company never fires anyone without a good reason, or the CEO assures employees that the company will not lay off anyone who is performing well, the employee will have more ammunition in court.

Best Practices for Avoiding Implied Contracts

Fortunately, your company can take steps to preserve its right to fire at will by:

  • Using an acknowledgement form. Your company should require employees to sign a document acknowledging that their employment is at will and specifying that at-will employment can be altered only by a written contract signed by a certain representative of the company (for example, the CEO). Courts routinely find that such an at-will acknowledgment form defeats most other evidence that an employee might not work at will.
  • Including an at-will disclaimer in your employee handbook. Your handbook should have a provision clearly stating that employment is at will and that nothing in the handbook is intended to create an implied contract for continued employment.
  • Avoiding any promises of job security. You should avoid language that could be interpreted to promise job security in the handbook’s disciplinary policy, performance and raise policies, layoff policy, probationary policies, and so on. You should also explicitly reserve the right to fire employees at will.

A local employment attorney can help you draft your employee handbook (and an acknowledgment form) in a way that will preserve your company’s right to fire at will.

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