When an employee is hired "at-will," that means that either the employer or the employee can end the employment relationship at any time and for any lawful reason—or no reason at all—without incurring liability.

Practically every employer is familiar with this definition already, since the vast majority of employees in America fall under the at-will category. However, some employers may be less familiar with the complexities that that are involved in an at-will employment relationship, which in the worst case could lead to an expensive lawsuit. Even with an at-will employment relationship, there are restrictions and limitations on when an employer may terminate an at-will employee.

Legal Exceptions to At-Will Employment

The statutory exceptions to at-will employment are better known, and generally have established laws on both a federal and state level. These are two of the most common:

  1. Illegal Discrimination: Making any employment decisions on the basis of race, gender, age, disability or veteran status is strictly prohibited by both state and federal statutes. Some states also outlaw making decisions based on sexual orientation.
  2. Retaliation for Legally Appropriate Activities: Federal and state laws offer protection to employees who are fired in retaliation for pursuing legally proper activities. These activities include filing for worker’s compensation, entering discrimination litigation, union involvement, claiming overtime and whistle-blowing. *A note about whistle-blowing: while public employees are better covered, only seventeen states have laws in place to protect whistle-blowers in the private sector. However, several federal and state laws offer whistle-blower protection in regard to specific issues such as environmental preservation, fraud and workplace safety.

Here's a useful article that should help you protect your business: 2 Easy Ways to Avoid Getting Sued by Your Employees for Failure to Pay Overtime.

“Common Law” Exceptions Created by the Courts

Courts across the country have determined various common law exceptions to the at-will presumption, and these exceptions tend to be less well-known than the statutory exceptions described above.

While many common law exceptions are more difficult for employees to prove in court, it’s a good idea to be aware of them in order to avoid any potential for liability:

  1. Violation of State Law: Most states protect an employee’s right to refuse committing an illegal action as well as an employee’s right to report an employer’s illegal activities. For example, an employee can refuse to lie under oath at an employer’s request, and they have the right to report illegal activities performed by the company.
  2. Public Interest: An employee’s right to perform civic duty (e.g.: serving in the National Guard or performing jury duty) is also protected by the majority of states and should never be grounds for letting even an at-will employee go.
  3. Implied Employment Contracts: Implied employment contracts are recognized in 41 states in the U.S., and they may compromise the ability of an employer to let an at-will employee go without having good cause. The contract can be created through verbal or written assurances, such as speeches or employee handbooks. It may be created when an employer mentions fixed employment or states that an employee will only be let go for a cause. Implied employment contracts are difficult for former employees to prove in court, and promises of permanent or long-term employment are usually thrown out. That being said, companies can add an extra layer of protection by putting a disclaimer in written documents stating that their policies do not equate to contractual rights and that they reserve the right to modify their policies at any time.
  4. Implied Covenant of Good Faith: A small amount of states recognize liability in circumstances when an employee is let go out of malice or for an unjust cause (e.g.: firing a salesperson right before he or she closes a large commission). There have been very few cases in which the employer is held liable under this covenant, with the exception of Montana (see below), but it should nonetheless be considered before making a decision to terminate.
  5. If You’re in Montana: Due to a series of court cases that expanded on the Good Faith Covenant and led to the Montana Wrongful Discharge From Employment Act of 1987, Montana maintains a unique position in terms of at-will employment. The act prohibits employers from terminating employees without “good cause”; it requires that they give a probationary period before firing, granting employees the right to challenge their termination.
  6. Promissory Estoppel: Promissory estoppel is difficult to prove, and some courts outright reject it due to the provisional nature of an at-will agreement. However, in some rare cases, employers may be estopped (i.e.: prevented) from terminating an employee (or, in turn, be held liable for damages as a result of such termination) if the employee can prove 1) that the employer clearly promised employment, 2) that the employee reasonably relied on this employment, and 3) that the employee was injured as a result of the termination.

Things to Keep in Mind

Many of the exceptions mentioned here vary from state to state. Be sure to research your state’s applicable laws. Another thing to remember is that the presumptions of at-will employment can be modified via an employment contract; for example, oftentimes high-level employees and unions negotiate with employers to include a required cause for termination or to set a specified term for employment.

With over half the employees in America falling in the “at-will” category, a little extra understanding goes a long way towards preventing costly litigation for all parties.