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Payroll Tip – Relying on “At-Will” in Terminations Can Be Dangerous

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A payroll tip about relying on “At-Will” in employee terminations can be dangerous from HR Matters E-tips, an HR Policy & Compliance Expert since 1972.

If an employee is “at will,” you don’t have to tell him why you are firing him, right? Technically, yes, but if you handle terminations this way, you could find yourself facing a number of legal claims. Find out the five steps you should always take when terminating at-will employees.

QuickBooks payroll tipsHave you ever been tempted to terminate an at-will employee without providing him with a reason? Maybe you did not properly document the employee’s performance problems or are so fed up with his attitude that you feel like you have to take action immediately. After all, the “at-will” concept, simply put, allows you to terminate employees at any time, for any legal reason, or for no reason at all.

However, although courts generally have upheld this right, these rulings do not mean that you should casually terminate without giving a reason or without following normal policies and procedures. In fact, if you try to fire an employee by only invoking the at-will clause, you could easily find yourself defending against a discrimination or wrongful termination claim.

To help avoid these claims, you should first follow your normal discipline and termination procedures, whenever possible. You should think of your at-will clause really only as a last resort legal defense, one to be used when all else fails. To apply the at-will concept, you first need to understand what “employment-at-will” really means and what it protects. In addition, we will show you five steps to take before terminating employees.

What “At Will” Really Means

The at-will relationship refers generally to employees who do not have contracts guaranteeing employment for a specific period of time (such as one year). Under the at-will doctrine, you have the right to terminate those employees who are working without contracts at any time and for any legally permissible reason. At the same time, these employees also have a similar right to resign whenever they want. In other words, at-will employment is a somewhat harsh and impersonal legal concept that says both parties can terminate the relationship at any time.

However, an at-will statement does not really give you free reign to terminate employees for no apparent cause. There are two reasons for this. First, although every state except Montana recognizes the at-will employment relationship, either by court decision or by statute, most also restrict it in some way. Courts in a majority of states have placed limitations on the at-will application when they find that the employer’s policies actually form a contract that the employer did not follow. So, for example, in Brown v. Scott Paper Worldwide Co., 20 P.3d 921 (Wash. 2001), the Washington state Supreme Court decided that the handbook given a paper salesman, after he received a sales agreement containing an at-will clause, modified his at-will status. The handbook did not contain an at-will clause but instead promised specific treatment in specific circumstances. And, in Gaudio v. Griffin Health Servs. Corp., 733 A.2d 197 (Conn. 1999), the Connecticut Supreme Court determined that an employer was liable for breach of contract when it terminated an employee without just cause because the organization’s employee handbook stated that it would treat employees fairly and would terminate only for serious misconduct.

In addition, courts have restricted the at-will application when they have found that a termination violated some public policy, or that a “whistleblower” statute or statutory anti-retaliation provision has been violated, or that the employer’s action constituted a wrongful act (or, in legal jargon, a “tort”). The result is a patchwork of case law that varies from state to state, making it difficult for you to know when, or if, you can rely on the at-will nature of the relationship.

The second reason for caution is that many employees are specially protected under federal or state discrimination laws that preempt, or prevail over, the at-will status. Therefore, if you terminate a protected employee for “no reason” or without following your normal disciplinary process, you are quite likely raising a red flag that the termination was improper or even discriminatory. Thus, you may be provoking a legal challenge that might not otherwise have occurred.

What “At-Will” Protects

Based on the above discussion, you may think that the at-will concept has little value. However, a clearly written at-will statement is still a valuable tool to protect your policies and procedures so that they are not interpreted as inflexible legal contracts that must be followed exactly. In several cases, employers have been forced to follow their policies uniformly, without regard to differing circumstances.

Take, as an example, an employee handbook that does not have an at-will statement but includes a disciplinary policy stating the employer will follow certain steps before terminating an employee. In the absence of an at-will clause, a court can conclude that the disciplinary policy is a contract and that the employer must follow each step precisely before it can fire anyone. For example in Havill v. Woodstock Soapstone Co., 865 A.2d 335 (Vt. 2004), the Vermont Supreme Court determined that an organization’s personnel policies that detailed a process entitling an employee to two written warnings in a twelve-month period prior to termination for “willful or repeated violations, or exaggerated behavior not in the best interest of the company or its employees” established a “just cause” requirement for termination and created an implied employment contract that was breached when the employer terminated its employee without warning. The court said that the policy language showed the employer’s intention to be bound by its provisions since it contained no at-will disclaimer to the contrary.

Or, consider a policy that lists specific work rule violations that will result in immediate termination, without at the same time including an at-will reference stating that the list is not all-inclusive. A court in this situation could find that the employer may only terminate for the listed reasons.

Five Steps to Safer Terminations

So, if it is dangerous to base a termination solely on the at-will concept, how do you terminate a problem employee when a manager has not properly documented performance deficiencies? Your best bet is to follow your normal disciplinary process, even if that means taking extra time before you terminate the employee. For most employers this includes:

  1. Giving notice to the employee of the specific performance problems and the consequences of not improving.
  2. Establishing goals for improvement.
  3. Setting a reasonable time frame for meeting the goals (normally two weeks to thirty days).
  4. Following up to see if there is improvement.
  5. Terminating the employee if the goals have not been met.

To support your actions further, you should document the performance issues and the steps taken before terminating the employee. This record helps establish the fairness of your process and can help defend against any subsequent discrimination or wrongful discharge claims.

Of course, you may encounter circumstances where you feel you cannot take the time to follow your normal disciplinary procedure. In these cases, it is still better to discuss the specific problems with the employee and explain that they are the reason for the termination. If you simply invoke the at-will relationship and give no reason for the termination, the employee may assume that the true motive is related to discrimination or some other illegal act, and thus seek legal recourse.

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Download free Termination of Employment model policy including HR best practices and legal background, from the HR Matters Tools and Resource Center – you will be required to complete a short request form.

HR Matters E-Tips is a free service of Personnel Policy Service, Inc. 159 St. Matthews Ave., Suite 5, Louisville, KY  40207

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Nancy Smyth, Sunburst Software Solutions, Inc.
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I've been using and supporting QuickBooks products since the early 1990's. I've worked with thousands of contractors, assisting them with QuickBooks setup, Certified Payroll Reporting requirements, AIA Billing and Weighted-Average Overtime.


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