Why At-will Employment Is Dying

May 1, 1996
Employers these days can't terminate an employee without feeling a little nervous—and for good reason. Wrongful termination suits abound. Anymore, we need a stack of documentation and a series of disciplinary actions before we can even consider firing an employee. We need to check and recheck our tracks to ensure everything has been covered. The whole process can take up to a year, forcing us to focus our time and energy on our poor employees instead of our promising ones.

Yet most states have some sort of at-will history, allowing the termination of employees at any time, for any reason. Why then all the fuss over justifying a termination? To be blunt, it's because at-will employment is on its last leg. Ironically, it's the very laws designed to give employees an even break that have left employers at a disadvantage. Christopher Bouvier, senior labor counsel for San Francisco-based ABM Industries, details at-will employment's erosion and offers advice on terminating employees safely.

To start out, can you give a definition of at-will employment?
Employment at will is supposed to mean that either the employer or the employee can terminate the employment relationship at any time, for any reason. That was the traditional American definition.

What's at-will employment's history?
The American concept of at-will employment dates back to the mid-19th century, rising primarily out of English common law. In the old days, the view was that an employer had the absolute right to choose its employees. And employer attitudes around the turn of the century were that you can terminate an employee for any reason you want. That was the way it was. It was accepted without question at that time and well into the 20th century. So that's [the notion] it comes from: The right of capital to discharge labor was absolute.

In the United States, how was it handled—was it covered by legislation?
It depends on the state. California, for instance, has a labor code. It has been codified at least since the 1870s that an employer has the right to terminate an employee at any time, for any reason, and likewise, an employee may leave at any time. Other states have similar statutes. It may not be written in law and not passed by the legislature, but it has been decided by case law—the decisions of the courts have recognized that right. I'd say most states recognize at-will employment.

How did the spirit of at-will employment begin to erode?
In my opinion, the first major assault on employment at will was the development of labor laws in the early 20th century—the 1930s—which culminated in the current National Labor Relations Act. That act was attempting to strike a balance between the rights of labor and capital. One of the things Congress did was to protect an employee's right to organize or be part of a union. It became unlawful at that point for an employer to terminate an employee because he or she had pro-union sentiments or union support. I believe that's where you saw the first limitations on an employer's right to discharge at will.

Did this sentiment snowball?
Federal labor laws basically cultivated labor unionism to an extent and allowed it to grow. Labor unions then were able to negotiate contracts that included protections for the right of discharge too. In other words, employers and unions would negotiate collective-bargaining agreements, and it became fundamental practice over the years that those agreements actually would have a clause in them that prevented discharge without good cause. The opposite of employment at will is no right to discharge unless good cause is proven by the employer. These protections began to appear in collective-bargaining agreements.

And this loss of at will expanded throughout unionized companies?
Yes, it did. Having the strength to bargain with employers, unions were able to negotiate these contractual limitations that said you can't fire any union member unless you have good cause—and, of course, whether you had good cause would be decided by an arbitrator. This was in the 1940s and 1950s, and at that time it only applied to union employees. There was a 40-year period in which unionized America was winning more and more job protection. The concept of at-will employment was almost completely absent from unionized America by the 1960s. You couldn't fire a union member unless you could prove that he or she deserved to be fired.

What was happening within the nonunion workforce?
In nonunion America, the concept of at-will employment was going strong. You could be fired at any time for any reason. There was a rather large segment of the workforce that was non-union, and those employees virtually had no protection against discharge. So there was a dichotomy. But with all these lawsuits now, we're seeing the demise of at-will employment in the nonunion setting. The concept germinated in nonunion America by the fact that [eradicating at-will employment] was not unheard of anymore. It had been present in the labor community for a long time.

So it was simply a case of the non-union workforce following the example set in union America?
Not entirely. I'd say, personally, that Title VII of the Civil Rights Act was the beginning of the end for at-will employment in nonunion America—that was in 1964. It didn't specifically eliminate at-will employment. But what it did was say it's unlawful for an employer to terminate employees or to affect negatively the terms of employment because of an employee's race, sex, national origin or religious beliefs. Before Title VII became law, if an employer didn't like the fact an employee was, for example, Jewish, it could terminate that employee and really not face any problems. Then all of a sudden, you had an entire federal law that made it [illegal] to fire an employee because of one of his or her immutable characteristics, such as skin color or heritage.

This obviously was a much-needed law with excellent intentions—how did it become a stepping stone for the elimination of at-will employment?
Although Title VII said nothing about at-will employment, it suddenly provided a certain level of protection for an entire class of workers. Previously an at-will employee could be fired for any reason or no reason at all. Title VII allowed you to terminate an employee for any reason that wasn't unlawful. So basically it became wise for employers to start having policies and documenting actions to protect themselves from any claim under Title VII. In 1967, Congress amended it to protect people older than 40: the Age Discrimination in Employment Act (ADEA). So that was another federal law that was in effect limiting the employer's right to discharge an employee at will—union or no union. Then in the 1970s, states individually started passing their own fair employment laws that mirrored Title VII. The majority of states now have laws against discrimination in discharge.

Would you say the mindset toward employment was changing during this period?
The long-standing job protections for union employees combined with the protections of Title VII began to impact the thinking of employees, juries and judges. A mindset over time developed that employees couldn't be fired without a good reason and without a lawful reason. So that's the statutory erosion. At-will employment has eroded to the point of almost being extinct.

You say statutory erosion—was at-will employment under attack in other areas also?
Starting in the 1960s and 1970s, there were other concepts that came up that further limited an employer's right to discharge at will. One of the first ones was a public-policy exception to employment at will. That's where an employer's right of discharge is limited by concerns of public policy. The classic example: An employee refuses to commit a crime at the employer's instruction. The employer says, "Oh yeah? Well you're fired." That's a public-policy violation. The courts over time have said you can't have an employer having the right to fire an employee for reasons like that because it affects public policy.

You've mentioned damage awards and juries. Where do they fit in with the erosion of at-will employment?
Many legal theories allow terminated employees to seek a jury trial, and permit recovery of more than lost wages and reinstatement. A plaintiff in an employment case can often recover compensatory damages for his or her emotional harm, punitive damages in outrageous cases, and his or her attorney fees, which often exceed $100,000. After 60 years of increased employment rights, jury members tend to expect that an employee can't be terminated without good reason, and they'll award large damages if their sense of fairness is offended. The possibility of jury verdicts with large monetary awards makes employment cases attractive to plaintiff attorneys.

In the 1980s, wasn't there an explosion in the area of employee contract rights?
The courts acknowledged an implied covenant of good faith and fair dealing between employers and labor, which was very popular among all of the states between 1980 and 1988. It said that an employer couldn't discharge an employee in "bad faith." In bad faith would mean to terminate the employee for arbitrary or unfair reasons without any real basis in fact or law. Many employees succeeded in obtaining large damage awards, which made these cases very desirable to plaintiffs' attorneys. This particular claim is less widely used now because several courts eliminated the availability of punitive and compensatory damages.

What other developments were happening during this time period?
Another development that was going along side by side with the good faith and fair dealing covenant was the right of employees to prove the existence of implied contractual terms that limited the right of the employer to discharge at will.

How would they do that?
Let's say I worked for a company for 20 years and during that time I'd been promoted from a stock boy in the mail room all the way up to the head of a division. I'd been given awards and raises, commendations and promises from my employer about my future with the company. Over time there's going to be enough evidence accumulated for me to show that even though there's not anything written down on paper, I have a contract, and they can't terminate me unless they have good cause for doing so.

That's another exception to the at-will doctrine?
Yes, it is. They can say that over this period of time, because of all the things that my employer has said to me and because of all the things said about my future, I had a reasonable expectation that I couldn't be fired without good reason. So even though there are state laws that say you can fire any employee for any reason, employees can overcome that law. You can look anywhere you can possibly think of for statements by the employer: awards, commendations, longevity of employment, raises, verbal promises by your boss, or the most popular—employee handbooks.

Handbooks are a big trouble spot?
They were a fertile area of litigation in the 1980s, and they still are. In implied-contract litigation, the lawyers for the plaintiffs would subpoena employee handbook materials and cull through them to find whatever evidence they could to show an implied contract. At trial, they'd take the first page of the employee handbook where [a firm] talks about how it looks forward to a long, profitable relationship and wishes the employee a future with the company. The lawyers would blow this up 10 times and stick it in front of the jury. All those laws—Title VII, ADEA and other labor laws—have an impact on everyone's mindset, on the jury as well as the judiciary, who are deciding these appellate cases. At this point they've had 40 years with the concept of employment rights, and it's reasonable to both juries and judges that employees should have some kind of protection and shouldn't be treated arbitrarily. All of a sudden, a lot more of the legal theories became a lot easier to swallow, when 50 years earlier they were completely foreign concepts.

Where will all this go?
The trend continues. We have the Family and Medical Leave Act, the Americans with Disabilities Act, the continued development of torts in contract claims and the public-policy claim. There's still a tiny element of at-will employment still alive, but for the most part employers, just to be safe, have been forced to develop policies that are fair and equal and consistently applied; they have to document employees' histories. From a lawyer's point of view you still could argue that at-will employment exists under very limited circumstances. But, just to protect themselves, employers are required to be careful in how they treat employees. The result is that it's really difficult to terminate any employee unless you can show you had a legitimate reason to terminate him or her. I wouldn't want to declare at-will employment completely dead, but it's lying on the ground gasping for breath.

Any suggestions for employers?
The safest thing for employers to do is to have uniform employment policies that also are uniformly applied and well publicized to employees. It is extremely important to maintain good documentation about specific treatment of specific employees, so that when the inevitable challenge to your termination decision comes, you're able to show the employee was treated fairly, that he or she knew about the rules, and that he or she received due process and fair warning about what the consequences would be for failure to follow the rules. You need to show you gave employees a fair opportunity to perform well before you finally terminated them. Documentation has, of course, become critical because otherwise you won't have anything to show when your judgment is questioned.

Is it getting hard to run a business these days?
Yes, it certainly is. Because of the constant enactment of laws and continual judicial activism, it requires a high level of sophistication for a businessperson just to maintain and manage employment relationships. And without that level of sophistication, you have huge areas of liability that really can hurt a fledgling business. It's difficult to keep up with all the developments that come around.

Personnel Journal, May 1996, Vol. 75, No. 5, pp. 123-128.