At-will employment laws in the United States regulate how and when employers and employees can end their relationship. They dictate that employers can terminate employees at any time without giving a reason.
Let’s explore what at-will employment is, why it’s in practice, and the exceptions that affect its application. Learn about the benefits and drawbacks for employers and employees, plus practical compliance tips.
What is at-will employment, and how does it work?
At-will employment is the default legal framework for employment relationships in the United States. Without an employment contract or collective bargaining agreement (CBA) that says otherwise, at-will is the default.
In at-will states, the employer or the employee can terminate employment at any time, for any reason, without advance notice. Employees can quit at any time without repercussions. The catch is that from an employer perspective, the termination can’t violate federal, state, or local labor laws and anti-discrimination protections.
In practice, at-will employment gives employers flexibility to:
- Terminate an employee without following a standard protocol.
- Act quickly as business conditions change.
- Alter the terms of employment, such as wages, benefits, and time off, without notice.
Most US states use at-will employment, but specifics of the law vary by state. This makes it important for employers who operate nationwide to understand local differences.
What states are not at-will employment?
At-will employment is standard across the United States excluding Montana. Instead of the pure at-will doctrine, Montana’s Wrongful Discharge from Employment Act requires employers to have “good cause” to fire an employee after a probationary period.
If your business operates across state lines, it’s important to know that exceptions to at-will employment law exist. Blanket nationwide policies won’t work when you want to terminate an employee. You’ll need to adhere to local regulations.
Here are the most common at-will employment exceptions you should know to ensure compliance.
Public policy exception
Most states acknowledge the public policy exception, which says that you can’t terminate an employee if the termination violates established public policy. For example, you can’t fire an employee for filing a workers compensation claim or refusing to break the law.
Employees also have the right to report illegal activity, known as whistleblowing, and perform jury duty when asked.
Implied contract exception
Many states recognize this exception, which says that an employer can create an implied at-will contract through their words or actions. If during the interview process, in an employee handbook, or any other time, you make oral or written assurances that guarantee job security as it connects to job performance or code of conduct, courts may find that a terminated employee was wrongfully discharged.
Implied covenant of good faith and fair dealing
A smaller number of states, such as California and New York, say that employers and employees have a responsibility to act in good faith. That means an employer can’t fire an employee to avoid a financial obligation. Examples include letting someone go right before a benefit such as healthcare kicks in, firing an older employee who has retirement funds about vest, or terminating a salesperson just before a big commission check.
Employment contracts and CBAs
A written employment contract or CBA overrides at-will status. Employment contracts usually define what constitutes “cause” for termination and outline progressive steps prior to dismissal. Similarly, CBAs establish “just cause” termination standards for a unionized workforce.
Benefits and drawbacks of at-will employment
At-will employment provides flexibility for employers and employees—while reducing legal complexity for companies. But it also comes with drawbacks. Here are some pros and cons to consider.
Benefits of at-will employment
The main benefits of at-will employment focus on streamlined business operations:
- Flexibility for employers and employees: If business conditions change, employers can act fast by reducing their workforce with less red tape. Under at-will employment, employees can move more quickly to pursue new opportunities. For example, they don’t have to adhere to a two-weeks notice standard if they want to take a new job.
- Efficiency in hiring and firing: At-will employment streamlines the hiring and firing process so HR departments can run more smoothly. It eliminates the need for strict protocols around addressing performance issues.
- Reduced legal complexity: As long as you don’t violate established labor laws, such as workers compensation and discrimination protections, at-will employment can reduce objections as to whether or not there was “just cause” when terminating employees.
Drawbacks of at-will employment
While at-will employment can benefit your HR and legal teams, it can have negative effects on the employment relationship:
- Job insecurity for employees: Without a written agreement or an implied contract through verbal assurances, some employees may fear sudden job loss. They might worry that if business slows or they have a small workplace conflict that their job is in jeopardy.
- Low morale and retention challenges: Job insecurity could lead to low morale and high turnover. When an offer comes along that offers clearer security, top talent might be tempted to leave. This can hurt productivity and, over time, lead to increased recruitment and onboarding costs.
Compliance tips for at-will employment
At-will employment doesn’t mean employers can hire and fire whenever they want. They still have an obligation to follow local employment laws and treat employees fairly.
Here’s how companies protect their reputations and avoid legal problems:
- Document performance issues: Even though at-will employment doesn’t require “cause” for dismissal, you can still face wrongful termination after you fire an employee. It’s good practice to document events leading up to a firing and provide clear reasons for termination to avoid wrongful discharge claims. Maintain consistency across employees when managing these protocols.
- Clarify at-will status in handbooks and contracts: To prevent the implied contract exception for kicking in, make sure employee handbooks, employment agreements, and offer letters clearly indicate the at-will employment relationship.
- Train managers on legal limits: If a manager says the wrong thing when letting an employee go, you could face a wrongful termination lawsuit. Train your team to avoid mistakenly creating implied contracts. Make sure everyone understands local, state, and federal laws and exceptions on issues such as harassment, discrimination, and retaliation.
- Use expert guidance: It’s not easy to navigate the intricacies of 49 states. To stay informed, use solutions like Oyster’s US professional employer organization (PEO) to navigate compliant domestic hiring and state-specific requirements. Teaming with a partner that knows local labor laws can also help you apply at-will employment fairly and legally nationwide.
Stay compliant with Oyster
Managing at-will employment across state lines while complying with federal law takes work. If you’re hiring in the United States, using a PEO can help you navigate state-specific requirements. Oyster’s US PEO helps you stay compliant by managing domestic and global hiring—including payroll, benefits, and local employment laws.
If you operate across international borders, implementing the right policies on termination while adhering to local discrimination, wrongful termination, and other labor laws becomes even more complicated. Using Oyster as your employer of record (EOR) helps you hire and manage talent overseas with ease.
Explore Oyster’s PEO and EOR solutions today to manage everything from recruiting to onboarding to terminations—no matter where your company does business.
About Oyster
Oyster is a global employment platform designed to enable visionary HR leaders to find, engage, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.
Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.
