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At-will employment explained: What business owners should know

Updated: April 24, 2024

By: Jon Davis

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According to research from job board provider Betterteam, at-will employment accounts for 74% of the US workforce and describes the status of employees who work for companies without any type of contract. Though at-will employment is fairly common, both employers and employees should have a basic understanding of what the term means and how the laws operate.

 

While all 50 states and the District of Columbia have implemented an at-will employment policy in some form, there are exceptions to the rule. Let’s dive in and explore how the law works, what the exceptions are, and the best ways to avoid legal confusion when applying this policy to your small business.

What is at-will employment?

At-will employment is a legal concept in the United States that allows employers to terminate employees without warning, reason, or explanation. On the other hand, it also applies to employees who have the choice to end their employment for any reason — or no reason at all — without giving notice to the company they work for.

 

Unless there’s an agreement (or a union contract that changes the nature of the at-will relationship), your staff members are considered “at-will employees,” which means that either the employee or employer can end the employment relationship at any time.

 

The opposite of at-will employment is contract employment. Contract employees usually have clearly defined language in their contracts spelling out all the fine details related to job expectations — and potential reasons for termination.

 

However, there are still times when the rules are not clear cut.

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Exceptions to the rule — why you can’t terminate employees

Even when the employee is at-will, you must be sure that the reason for termination doesn’t fall under workplace discrimination. For instance, it’s never acceptable to fire an employee because of their race, religion, gender, age, ethnicity, or disability. This rule applies under all circumstances — whether the employment is at-will or not.

 

Aside from equal opportunity laws, there are a few other exceptions to at-will employment that prevent the termination of employees for any given reason. These include:

 

Public policy: This prohibits employers from firing an employee for performing duties that coincide with the state’s public policy or vice versa. For example, it’s not possible to terminate an employee for claiming workers’ compensation, when the law states that employees have the right to do so. Other protected actions could include:

  • Refusing to perform illegal activities
  • Taking legally protected leave from work, such as paid sick leave or FMLA
  • Requesting accommodations for a disability
  • Participating in a workplace investigation
  • Filing a discrimination or harassment suit

 

Implied contracts: Employers are prohibited from firing employees when an “implied contract” has been made between the employer and employee, regardless of whether there’s a legal document in place or not. This particular exception can be a little tricky — as it’s harder to prove or validate, and the burden of doing so lies on the employee. In some states, an employee handbook is considered an implied contract, while in others, a handbook is just seen as a set of generalized guidelines. Either way, it’s best practice to have your policies in writing and be consistent in implementing them throughout your business.

 

Good faith: Yet another exception that can be tricky to prove, “good faith” prohibits employers from firing employees for reasons motivated by malice, or to avoid their duties as an employer. For example, an employer cannot fire an employee to avoid paying for healthcare, retirement, or commissions.

 

State regulations

Keep in mind that not all states have enacted the exceptions outlined above. Some states may have implemented all three, while others may have none. Checking your state’s laws and rules can help you figure out which ones apply to you.

 

Now that we’ve covered some exceptions that impact at-will employment, let’s talk about some of the pluses and minuses.

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At-will employment pros and cons

For both the employer and the employee, there are benefits and drawbacks associated with at-will employment. Here’s a closer look.

 

Advantages of at-will employment for employers

  • When hiring at-will employees, you can let them go at any time without sharing a reason for the decision or establishing cause.
  • Additionally, you can take the step of firing an employee without any worry about breaking employment agreements.
  • At-will employment provides employers with the ability to be nimble and quickly reign-in labor costs when budget challenges arise or when belt-tightening is needed.
  • When hiring at-will employees, there’s no need to negotiate a contract.
  • As an employer, you also have more flexibility to meet evolving business goals and needs with at-will staff. Because there’s no employment contract, you can   change an employee’s job duties to help reach new company objectives.

 

Disadvantages of at-will employment for employers

  • On the flipside, employees have the right to leave without providing a reason for their departure. And if it happens suddenly (or unexpectedly) you could be racing to fill a position in short order.
  • When your small business relies too heavily on at-will employees throughout the organization, you could find yourself short-handed if multiple employees leave at the same time.
  • You may also find it challenging as an employer to attract the most talented or skilled workers when you’re offering at-will employment terms.
  • It may also be difficult to build a cohesive team when employees are regularly coming and going.

 

Read after learning about at-will employment

Once you’re up to speed with the nuances of at-will employment, you might find our breakdown of final paycheck laws by state to be a useful resource.

Some general guidelines to follow 

To help avoid confusion with your employees and to keep your business’s reputation strong, it’s a good idea to follow a few best practices with regard to the tenure of employees.

 

Generally, it’s better to let an employee know why they are being let go. While you may not be required to share the reasons, making an effort to part ways on amicable terms is always a good idea. Furthermore, in the age of social media and the growth of online review sites such as Glassdoor, former employees are only a few clicks away from writing about their experience, which can influence future job candidates — positively, or negatively.

 

Also, as we mentioned earlier, documentation is key. Having your employment guidelines written out in a handbook and being consistent in following through on them can help prevent disputes in the future. Taking this step also gives your employees something to refer to when questions arise. This includes stating clearly whether your employees are at-will, and whether exceptions might apply to them depending on the state.

Employee forms at your fingertips

OnPay is a great value and a significant time saver for my company. As a busy small business, having access to all the employee records and reports you need, right at your fingertips, makes it feel like we have a full human resources team.

 


— Mark Hewines, Arrow Industrial, Inc.

At-will employment comes with accountability

As you can see from all that we’ve covered, terminating an at-will employee isn’t as simple as it may appear. A variety of exceptions are applied throughout the country, and you still need to make sure you’re in compliance with federal laws.

 

When in doubt regarding at-will employment, try to follow best practices, and if you have questions, consult an attorney for legal advice.

 

This article is for informational purposes only and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors for formal consultation.

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Jon Davis is the Sr. Content Marketing Manager at OnPay. He has over 15 years of experience writing for small and growing businesses. Jon lives and works in Atlanta.