Checklist: Terminating the employment of an at-will employee (USA)

Introduction

This checklist will assist in-house counsel and private practitioners to understand the at-will employment relationship. This checklist sets out the key issues and steps to consider when determining whether and how to terminate the employment of an at-will employee.

This checklist addresses the following steps:

1. Understand the concept of at-will employment
2. Understand the limitations on the termination of at-will employees
3. Determine the reason for the termination of an at-will employee
4. Ensure compliance with employer requirements following the termination of at-will employees

This checklist can be used in conjunction with the following How-to guides:

Overview of US employment law, How to draft an employment contract , How to draft the key provisions of an employee handbook and How to comply with the unemployment insurance program

Step 1 – Understand the concept of at-will employment

Step 2 – Understand the limitations on the termination of at-will employees

Step 3 – Determine the reason for the termination of employment of an at-will employee

Step 4 – Ensure compliance with employer requirements following the termination of at-will employees

General notes

Generally speaking, at-will employees may be terminated at any time for any cause, or no cause at all. However, certain legal protections are afforded to at-will employees. For example, if the terminated employee is part of a protected class (eg, disability) the termination cannot be attributable to the disability. In addition, when terminating an at-will employee, the terms of an employment contract or collective bargaining agreement need to be taken into consideration by an employer. Even where no written contract exists, other protections may be available to the employee, such as implied contract terms, good faith, and matters of public policy.

If the employer terminates an employee in violation of any of the protections available, they may be subject to wrongful termination claims. Other claims may also be levied upon the employer for tortious conduct, such as defamation.

Even if the termination is lawful, the employee may still be entitled to benefits such as unemployment compensation, and the continuation of health care or other insurance.

Legal framework

The legal framework for terminating at-will employees is grounded in state common law, although many federal provisions must be taken into account as well. The relevant federal laws are discussed in this checklist.

Key considerations

Key considerations include understanding the nature of employment contracts, as well as the appropriate reasons and procedure for terminating an at-will employee. Employers should examine state laws in the states where the organization conducts business, as well as any federal laws that may apply to the termination of a given individual employee.

Step 1 – Understand the concept of at-will employment

1.1 Understand the definition of at-will employment

At-will employment is an employment relationship that, absent express agreement between the parties (employer and employee), either party may terminate at any time, for any cause or for no cause at all.

Under US law, an employment relationship is, at its root, a contractual agreement. Unless there is an express agreement between the parties to the contrary, most courts have held that there is a rebuttable presumption that an employment agreement is at will (see, eg, Devany v Brockway Dev, LLC, 72 AD3d 1008, 900 NYS2d 329 (App Div, 2d Dept 2010)).

However, in virtually every US jurisdiction, the power of an employer to terminate an employee is limited, either by statute or some other doctrine.

At-will employment is a state-law issue. Different jurisdictions may impose different rules and limitations regarding at-will employees.

1.2 Understand the legal landscape relating to at-will employment

Every US jurisdiction has developed statutes and doctrines to ameliorate the harshness of the at-will doctrine, under which employers can terminate employees for any reason or no reason at all.

In addition to the state-law framework, a series of federal laws limit the power of employers to dismiss employees unilaterally. These laws typically prohibit discrimination in employment.

1.2.1 Governing agencies

Employment in the United States is governed mostly by state law, and employment relations are regulated by a mix of state and federal agencies.

Every state has a department that regulates employment and labor relations, although the names of these departments vary from state to state. In Colorado, for example, it is the Department of Labor and Employment, but in Florida, it is the Department of Economic Opportunity. Several federal agencies also regulate employment relations in one way or another. The most important is the Equal Employment Opportunity Commission (EEOC). Others include the Occupational Safety and Health Administration (OSHA), the Employee Benefits Security Administration (EBSA), and the Wages and Hours Division (WHD) of the Department of Labor.

Equal Employment Opportunity Commission (EEOC)

The EEOC is an independent agency of the federal government that is responsible for enforcing federal laws to protect employees against discrimination based on race, color, national origin, religion, and sex, in hiring, firing, and promotions. If there are allegations that an at-will employee was terminated for discriminatory reasons, the EEOC could become involved.

Employee Benefits Security Administration (EBSA)

The EBSA is an agency of the US Department of Labor (DOL) that offers employers information and assistance regarding benefits and health care programs. The agency is responsible for administering and enforcing the Employee Retirement Income Security Act of 1974 (ERISA). The EBSA may provide guidance regarding a terminated employee’s right to pension and health care benefits.

1.2.2 State-by-state variability in at-will employment

No two US states follow the same rules regarding at-will employment, although there is a certain degree of similarity. Montana is the only state that does not follow the at-will model. In Montana, an employment termination must be for good cause, unless the employee was in a probationary status with the employer at the time of termination (see Mont Code section 39-2-904).

1.3 Understand the impact of employment contracts on at-will employment

The contractual nature of the employment relationship means that parties are within their rights to negotiate exceptions to the at-will rule.

1.3.1 At-will employment agreements

An at-will employment agreement means that an employer can terminate an employee at any time for any reason (other than an illegal one), or for no reason at all.

1.3.2 Modifications of at-will provisions

An employment agreement is much like any contract. It can be modified in any way that does not violate a law. Parties will seek terms in those agreements that most benefit them. An employee, for example, might seek a term that forbids the employer from terminating the employee without first fulfilling certain conditions.

1.3.3 Cause for termination provisions

A cause for termination provision can be drafted in an employment contract in any number of ways. The underlying notion of such a provision is that it lays out the express conditions an employer must meet in order to terminate an employee. Employers should be aware that, although not employment contracts, employee handbooks that include disciplinary provisions may be used against the employer as evidence of improper termination if those provisions are not followed. To prevent this, employers should carefully word their handbooks to not require all disciplinary actions need to be satisfied before termination.

For further information about employment contracts, see How-to guide: How to draft an employment contract.

1.3.4 Collective bargaining agreements

The National Labor Relations Act of 1935 established the right of employees to form unions and engage in collective bargaining. Employers may only terminate employees protected by a collective bargaining agreement if they follow the provisions of that agreement.

Many collective bargaining agreements give the employee the right to challenge their termination, and to have that termination reversed. The standards and the process required to reverse a termination will be defined in the collective bargaining agreement at issue. For example, this may include the filing of a formal employee grievance, a defined employer response period, and a hearing.

Step 2 – Understand the limitations on the termination of at-will employees

2.1 Understand the definition of wrongful termination

A wrongful termination is the termination of an employee’s employment in a way that breaches an employment agreement or violates some local, state, or federal law or policy. Examples of wrongful termination can include firing based on discrimination, firing in violation of federal or state law, or firing of an employee who refused to conduct an illegal act (see USA.gov webpage: Wrongful termination).

2.2 Understand the limitations to the at-will employment doctrine

There are three fundamental types of limitation on termination of at-will employees:

• public policy;
• implied contract; and
• the implied covenant of good faith and fair dealing.

One court summarized the issue succinctly when it stated ’It is axiomatic that an at-will employee may be discharged at any time with or without cause, unless there is a clear and compelling public policy against the reason advanced for the discharge, or unless the at-will relationship has been modified.’ Boynton v. ClearChoiceMD, 2019 VT 49, 210 Vt. 454, 216 A.3d 1243, citing Ross v. Times Mirror, Inc., 164 Vt. 13, 23, 665 A.2d 580, 586 (1995).

Not every jurisdiction, however, treats these doctrines in the same way and no jurisdiction embraces all doctrines.

In addition, there are exceptions to at will employment (see USA.gov webpage: Termination guidance for employers). It does not include employees who work:

• Under a signed contract
• According to a union's collective bargaining agreement
• In the public sector

It is best practice for employers to familiarize themselves with the standards in each jurisdiction in which they do business.

2.2.1 Public policy exception

Under this doctrine, an employer who terminates an employee because that employee engaged in an activity that is a well-established and accepted activity under public policy is exposed to civil action and, potentially, to other causes of action under state and federal law. Public policy exceptions have been adopted by most US states.

There are a wide range of public policies that this doctrine might cover. For example, it precludes an employer from terminating an employee for filing a worker’s compensation claim, reporting an EEOC violation, or lodging other such grievances. In one case, the court held that the employee had a claim for wrongful termination where it was alleged that the working conditions were unsafe (see Espinoza v W Coast Tomato Growers, LLC, Case No: 14-CV-2984 W (KSC) (SD Cal Aug 24, 2016)). The court noted that:

[t]he elements of a claim for wrongful discharge in violation of public policy have been held to require: ‘(1) an employer-employee relationship, (2) the employer terminated the plaintiff’s employment, (3) the termination was substantially motivated by a violation of public policy, and (4) the discharge caused the plaintiff harm.

The court went on to state that there were:

four categories of employee conduct subject to protection under a claim of wrongful discharge in violation of fundamental public policy: (1) refusing to violate a statute [citations omitted]; (2) performing a statutory obligation [citation omitted]; (3) exercising a statutory right or privilege [citation]; and (4) reporting an alleged violation of a statute of public importance.

While these general principles would likely apply in any case, the rules may vary from state to state. The specifics in the states where the business operates should always be considered in advance of terminating any employee.

For further information about whistleblowing, see How-to guide: How to develop a whistleblower policy and reporting program.

The public policy exception would also apply if an employer terminated an employee for carrying out civic duties such as reporting for jury duty, joining the military reserve, or joining the National Guard.

Implied contract exception

In the absence of a written employment contract, some states will acknowledge the existence of an implied contract under certain circumstances. If an employer makes a verbal representation to an employee (or prospective employee) that it will abide by certain terms, employees may be able to successfully argue that their reliance on such representations resulted in an implied contract. Likewise, courts in some states have found that written clauses in employee handbooks that relate to employee conduct and discipline may be construed as implied contracts.

Under Colorado law, for example, it has been held that an employee asserting a contract claim based on an employee handbook is required to show that the employer’s words or actions ‘manifested to a reasonable person an intent to be bound by the provisions’ of the handbook. See, Romstad v City of Colo Springs, 650 Fed Appx 576, 580 (10^th Cir 2016). However, where ‘the handbook contains such clear and conspicuous disclaimers, the handbook will not be construed as a contract.’ See, Defazio v Starwood Hotels & Resorts Worldwide, Inc, 554 Fed Appx 692, 693 (10th Cir 2014).

For further information, see How-to guide: How to draft the key provisions of an employee handbook.

Implied covenant of good faith and fair dealing

Under this doctrine, each party to an employment agreement (either written or where an implied contract can be established) has a duty of good faith and fair dealing to the other party. Where the doctrine applies, each party has a duty not to engage in any activity that would hinder the other party’s fulfilment of the contract. Such activity includes the employer’s actions in terminating an employee in order to prevent the employee from vesting or accruing a right or benefit, or to prevent an employer from retaliation against an employee when that employee fulfills an obligation required of the employee under the contract (see, Restatement of Employment Law, 2nd Edition, 2.07).

Montana is a notable exception to the general rule that employees are at-will. In Montana, employers generally need ’just cause’ to terminate an employee after that employee has worked for the employer for an initial probationary period.

2.3 Understand the potential tort-based claims relating to the termination of at-will employees

Wrongful termination might give rise to several causes of action including in tort, contract law, and discrimination law.

2.3.1 Actions in tort

Defamation

When terminating an employee, employers should be wary of making statements that might be interpreted as defamatory. Generally, to win a defamation lawsuit, the plaintiff must prove that:

• someone made a statement;
• the statement was published;
• the statement caused the plaintiff injury;
• the statement was false; and
• the statement did not fall into a privileged category.

Note that ‘published’ only requires that a third party must have seen, heard, or read the defamatory statement. Employers should, therefore, be cautious in making statements about terminated employees or the reasons for the termination.

Distress

An unlawful termination might give rise to a claim of intentional or negligent infliction of emotional distress. This tort is defined as the defendant acting unconscionably with the intention of causing the plaintiff to suffer severe emotional distress, for example, vocally issuing the threat of future harm to a plaintiff.

Interference with a contract

A far more substantive tort action would be a claim of tortious interference with a contract.

2.3.2 Other potential claims

State and federal statutes also allow certain claims if the employee has faced discrimination or other violations of law.

Promissory estoppel

A claim of promissory estoppel may arise when an employee has relied, to their detriment, on representations of the employer.

Discrimination

Under the EEOC, the Commission may attempt to resolve discriminatory acts in an employee’s favor, after which an employee may sue the employer in federal court.

Retaliation

An employer may terminate an at-will employee for any reason except an illegal one. A retaliatory termination for reporting a crime or a violation of state or federal law (such as OSHA or EEOC violations) is a wrongful termination.

Good Cause Rule (Montana Wrongful Discharge from Employment Act of 1987)

As pointed out above, Montana does not follow the at-will model. In Montana, an employment termination must be for good cause, unless the employee was in a probationary status at the time of discharge.

2.4 Understand potential employer notice requirements

As a rule, employers do not need to provide advance notice to at-will employees prior to terminating their employment. One exception to the no-notice rule is if an employment agreement or collective bargaining agreement requires any sort of notice. In such an instance, the notice period is dictated by the agreement.

2.4.1 Worker Adjustment and Retraining Notification Act (WARN) requirements

The Worker Adjustment and Retraining Notification Act of 1988 requires certain employers to provide advance notice of plant closings or mass layoffs, even if the employees concerned are at-will employees. The employer must provide 60-day notice to employee representatives and to the state prior to closure of a plant or mass layoffs. The act applies to employers of 100 or more employees.

Step 3 – Determining the reason for the termination of employment of an at-will employee

An employer may terminate an employee for any reason that is not a violation of the law. There are many causes for termination of an at-will employee that are generally or widely accepted.

Even though an employer does not need to have a ‘valid’ reason to terminate employment, it is important for an employer to identify a reason for termination. Many jurisdictions require that a terminated employee be given written notice of their termination, and that notice will include the reasons for termination. See, for example, Connecticut Department of Labor Form UC-21A. The reason for termination will help to determine a former employee’s eligibility for unemployment benefits and may also help the employer to defend a claim based on an alleged unlawful termination.

3.1 Termination for convenience

It is generally accepted that, absent a written employment agreement to the contrary, an employer may terminate an at-will employee if such a termination is in the employer’s best interest. The determination of ‘best interest’ is subjective, and is wholly within the judgement and discretion of the employer.

3.1.1 No reason

An employer need not provide a reason to the terminated at-will employee as long as that termination is not a violation of state or federal law, such as an act of employment discrimination. Some jurisdictions require employers to provide the unemployment insurance agency with a reason for the termination, to allow the agency to make an initial determination of eligibility for unemployment compensation. The reason does not need to be set out in detail, and as long as the reason does not violate state or federal law, the reason does not have to meet some standard of being a ‘good enough’ reason.

3.1.2 Poor culture fit

An employer may not terminate an employee based on race, color, national origin, religion, sex, age, disability, or other category protected by equal opportunity law. Otherwise, a poor cultural fit generally is accepted as a cause for termination. An example of such a poor cultural fit might be an employee who does not believe in the core goals of the organization.

3.1.3 Downsizing

Generally, downsizing is considered an acceptable reason to terminate any at-will employee, as long as the decision on which employees to terminate as part of a downsizing is not made in violation of state or federal discrimination laws.

3.2 Termination for material breach under express terms of the employment contract

Generally, it is considered permissible to terminate an employee who is in violation of the terms of an employment contract. However, the employment contract, company policy, or standing company practice may provide an employee with a certain amount of time to cure any violations of the terms of the contract.

An employment contract may include notice periods, cure provisions, or progressive disciplinary steps that must be followed before an employee may be terminated. Failure to adhere strictly to these contractual terms will expose the employer to claims for breach of contract, even if the employee's conduct is such that it would normally justify termination. Employers should document thoroughly the nature of the employee’s breach, the attempts made to allow the employee to cure it, and the decision-making process that led to termination. This documentation will be vital for defending against any legal challenges to the termination.

3.3 Termination for poor performance or excessive absences

Poor performance or excessive absences are widely accepted reasons to terminate an at-will employee, presuming that the employee is not protected by a state or federal statute (eg, disability, Family and Medical Leave Act, etc).

Even when an employee is at-will, and poor performance or excessive absences are the basis for termination, employers should still exercise caution and ensure consistency in their approach. Employers should always have clear policies regarding performance expectations and attendance, and should set out a process for providing employees with notice of deficiencies that will provide them with a meaningful opportunity to correct those deficiencies and improve their performance. It should also be a routine practice to document all relevant communications and performance evaluations. Policies such as these will assure employees that the processes will be fair and transparent, and will also help to mitigate the risk of a wrongful termination claim, particularly if the employee later makes allegations of discrimination or retaliation based on a protected characteristic or activity.

3.4 Termination for providing false or misleading information during the job application process

Generally, providing false information during a job application is a permissible reason to terminate an at-will employee if the false information is learned after the employee has been hired. This is especially true if the false information is essential to the decision to make an employment offer to the employee, such as a false statement that the employee holds an occupational license that qualifies them to perform the job.

3.5 Termination for theft or misuse of employer property

Theft or misuse of an employer's property is serious misconduct and is universally recognized as a legitimate, non-discriminatory reason for termination of employment. Theft or misuse may include unauthorized removal or retention of company assets, intentional damage to the employer’s property, misuse of company equipment or resources for the employee’s personal gain, and unauthorized disclosure of the employer’s proprietary information or trade secrets. Any employee handbook or policy must define clearly what constitutes theft or misuse, and must outline the disciplinary actions that will be taken. Theft or misuse will generally warrant immediate dismissal, but in some circumstances, it may be prudent to suspend (rather than terminate) the employee and conduct a fair and thorough internal investigation of the misconduct. This will mitigate the risk of wrongful termination claims based on some procedural unfairness or unlawful discrimination.

3.6 Termination for substance use on the job

Many companies enforce a zero-tolerance policy for use of alcohol and illegal drugs in the workplace, and it is accepted as good cause to terminate an at-will employee. In the absence of an explicit policy, an employee whose substance use poses a safety risk, or interferes with their job performance, also presents good cause for termination.

To be protected by the ADA, a person must not only be an individual with a disability, but must be qualified. Basically, qualified means that the individual possesses the requisite skill, experience, education and other job-related requirements of the employment position and who, with or without reasonable accommodation, can perform the essential functions of such position.

3.7 Termination for other misconduct

Employers are required to adhere to the workplace health and safety standards set forth by Occupational Safety and Health Administration (OSHA) and relevant state agencies. Employers may also set their own, more stringent, health and safety standards. Generally, violations of clearly posted and enunciated standards are permissible reasons to terminate an at-will employee.

Step 4 – Ensuring compliance with employer requirements following the termination of at-will employees

4.1 Pay all wages due to terminated at-will employees

Final wages include all pay, back pay, commissions, and bonuses that are due, as well as pay for any accrued leave or compensatory time (ie, paid time off used by employers to balance out hours the employee worked beyond their regular schedule). States vary on when final pay is due, with some requiring final payment of wages on the day of termination. Penalties will often apply if timely payment is not made. For example, California law requires that when an employee is terminated, ‘the wages earned and unpaid at the time of discharge are due and payable immediately.’ If an employer does not make immediate payment, the wages of the employee will continue as a penalty from the date the wages were supposed to have been paid at the same rate until paid or until an action to collect payment is commenced up to a maximum of 30 days.

4.2 Determine whether terminated at-will employees are entitled to benefits

Former employees may be eligible for certain employer-provided or funded benefits after their termination.

4.2.1 Unemployment insurance benefits

Unemployment insurance benefits are governed by state law and paid by the state, and as such the standards vary from state to state. As a rule, employees who have been terminated are eligible for unemployment insurance only if the reason for their termination was a result of circumstances that were no fault of their own. If an employee quits voluntarily or is terminated due to some misconduct, they may be ineligible for unemployment insurance. If the employee quits voluntarily due to the actions or inactions of the employer, the employee may still be eligible for unemployment benefits. If denied benefits, the employee has a right to appeal that decision (see, eg, appeal process for Virginia).

It is an employer’s obligation to reply to all requests from the state’s unemployment commission when a terminated employee makes an application for benefits.

For further information, see How-to guide: How to comply with the unemployment insurance program.

4.2.2 Health insurance benefits

The federal government (through the Consolidated Omnibus Budget Reconciliation Act – COBRA), and some states, grant employees the right to continue their health insurance coverage after leaving employment. Employers are required to provide notice to eligible employees.

COBRA gives employees who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time under certain circumstances such as voluntary or involuntary job loss. COBRA applies to group health plans sponsored by employers with 20 or more employees in the prior year, who must offer terminated employees (and others) the opportunity for a temporary extension of health coverage (called continuation coverage).

4.2.3 Severance pay

Employers are not required to pay severance pay to terminated at-will employees unless it is part of an employment agreement, or where stipulated by a collective bargaining agreement.

4.3 Provide notice of the reason for termination upon request

Employers may be required by state law to provide a written explanation of the employee’s termination. This explanation may be brief. Its main purpose is to assist in determining an employee’s eligibility for unemployment benefits.

Additional resources

BLS.gov, ‘Employment at Will’
National Conference of State Legislatures, ‘At-Will Employment – Overview’
National Employment Law Project, ‘Hear Us: Cities Are Working to End Another Legacy of Slavery – “At Wil”’ Employment’
Society for Human Resource Management, ‘“Employment at Will” Isn’t a Blank Check to Terminate Employees You Don’t Like’
USA.gov, ‘Labor Laws and Issues’
Workplace Fairness, ‘Federal Agencies’

Related Lexology Pro Content

How-to guides:

Overview of US employment law
How to draft an employment contract
How to draft the key provisions of an employee handbook
How to protect trade secrets in the employment relationship
How to develop a whistleblower policy and reporting program
How to use arbitration agreements in employment
How to prepare for an Occupational Safety and Health Administration (OSHA) inspection
How to comply with the unemployment insurance program

Checklists:

Determining the difference between an employee and an independent contractor
Dealing with workplace injuries
Developing a Bring Your Own Device (BYOD) policy
Employee drug testing
Drafting a non-compete agreement

Reliance on information posted:

While we use reasonable endeavours to provide up to date and relevant materials, the materials posted on our site are not intended to amount to advice on which reliance should be placed. They may not reflect recent changes in the law and are not intended to constitute a definitive or complete statement of the law. You may use them to stay up to date with legal developments but you should not use them for transactions or legal advice and you should carry out your own research. We therefore disclaim all liability and responsibility arising from any reliance placed on such materials by any visitor to our site, or by anyone who may be informed of any of its contents.