What Is At-Will Employment?

While at-will employment is a fairly common agreement between employers and employees in the U.S., it’s still good practice to understand what it means and how it may apply to your company. Below, learn what at-will employment is, the advantages of employment at will (for both employers and employees) and exceptions to this agreement.

 

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What does at-will employment mean?

At-will employment describes a working environment in which employers are free to terminate employees at any time, without cause, explanation or prior warning, provided it does not violate state and federal anti-discrimination laws. Similarly, employees can quit a job at any time without reason or notice.

 

Permitted in nearly all U.S. states, an at-will employment agreement is in contrast to education, labor and other professional sectors that organize through unions to uphold guidelines and protections for employees.

 

Benefits of at-will employment

At-will employment benefits both employers and employees in a variety of ways:

 

Advantages to employer

For employers, at-will employment offers flexibility to meet new goals in times of changing business needs or market demands. As an employer, not only are you permitted to terminate without cause, but you’re also able to change an employee’s job duties, lower their salary, change their benefits or adjust their paid time off at-will. The ability to make these adjustments can be especially valuable for small businesses unable to predict their long-term employment needs, or looking for ways to save costs by reducing headcount.

 

Additionally, employers are generally protected from legal action under at-will employment, provided they did not violate any of the employee’s legal rights. Minimize the likelihood of an employee taking legal action if terminated by asking all employees and new hires to sign a statement acknowledging the organization’s at-will status.

 

Related: New Employee Forms

 

Advantages to employees

With employment at will, employees also enjoy the flexibility of being able to leave a job at any time for any reason, whether it’s to accept a better opportunity, in response to a life change or any other circumstance. At-will employment policies often include a non-compete agreement, which means they can begin work for other companies immediately, without a waiting period or any other restrictions.

 

Exceptions to at-will employment

There are four general exceptions to at-will employment:

 

  1. Public policy: A public policy exception means that employers cannot terminate employees for something that would violate an existing federal or state statute. For example, public policy states that employees are permitted to file workers’ compensation claims if they’re injured on the job. Firing an employee for submitting such a claim is not permissible and would be considered wrongful termination. 
  2. Employment contracts: An employment contract is a signed agreement outlining the employee’s job duties, compensation, benefits and other related items. Employers are not permitted to terminate an employee without cause when such a contract is in place.
  3. Implied contracts: Implied contracts refer to unofficial agreements made between employers and employees at the time of hiring. This can be through a verbal conversation or misleading language in an offer letter or employee handbook. Although more difficult to substantiate than employment contracts, employees may pursue legal action against employers if terminated when an implied contract was in place.
  4. Good faith and fair dealing: The good faith and fair dealing exception requires that employers treat employees fairly when making termination decisions, whether a contract is in place or not. When a contract is in place, acting in good faith means that an employer terminates an employee only in accordance with the contract provisions and not without cause. Similarly, with an implied contract, this exception stipulates that the employer terminates an employee only when they have good cause. Examples of good cause include: gross underperformance, chronic lateness or absenteeism, insubordination, theft or an inability to fulfill the core job duties.

 

Related: How to Hire Employees: A Step-by-Step Guide

 

At-will employment across states

Despite variance across states, employment relationships in the United States are predominantly at-will (which isn’t the case in some foreign countries). Most of the differences between states relate to the at-will exceptions. For example, in Illinois the public policy, implied contract and covenant of good faith and fair dealing exceptions apply. This means that an employer can terminate an employee at-will only if it does not fall within those categories. In Florida, however, none of the exceptions apply. This means that employers can terminate or change the job duties of an employee at any time, provided it doesn’t violate federal or state anti-discrimination laws.

 

Similar to the diversity across organizations, states differ in their employment statutes related to unemployment insurance, fair working conditions, paid leave and more. Researching your state’s employment statutes and at-will employment exceptions before creating policies for your business can help ensure you’re properly informed and aligned to any legal requirements. Government websites are a good place to look for this information.

 

At-will employment FAQs

 

Do employees still have rights in an at-will organization?

Yes, at-will employees are still protected under federal legislation and thus are entitled to:

 

  • Safe working conditions
  • Fair compensation for duties performed
  • Freedom from harassment and discrimination
  • Protection from wrongful termination on the grounds of race, disability, gender, age and other factors
  • Unemployment insurance
  • Severance pay, if the company provides it

 

Employees are also protected under anti-retaliation laws, meaning companies cannot terminate employees as retaliation for complaining about workplace discrimination or harassment. This is true if the complaint is made internally or to the Equal Employment Opportunity Commission.

 

How do businesses communicate that they are at-will?

Many businesses communicate employment at will in offer letters and ask new hires to sign a statement acknowledging the at-will status before starting. It’s also a good idea to outline this information in your company handbook or policy manual.

 

Are at-will employers required to pay severance pay when terminating employees?

Although some at-will companies may choose to provide severance pay, it is not required by law. The Fair Labor Standards Act only requires that employees are paid for the time they worked prior to their termination and for any paid time accrued.

 

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