At-will Employment: Ultimate Guide for Small Businesses

Employment at-will allows employers to terminate employees without cause (meaning for any legal reason or no reason at all), provided that the termination doesn’t violate anti-discrimination or other employment statutes. It also allows employees to leave a company at any time, for any reason, provided there are no other restrictions on their employment. This gives both parties the freedom to act in their own best interests.

Employment at-will is the predominant standard in the US; however, some states have exceptions—with Montana not allowing it at all. We have provided a state-by-state guide on at-will employment below, but we suggest seeking the advice of an attorney to ensure you are following the correct laws in your state.

Staying compliant with federal labor laws means knowing when and how to terminate an employee—even if you have an at-will employment clause. This practice does not allow employers to end an employment relationship for just any reason. If challenged, an employer must be able to show they had a legal reason for the termination.

Maintaining Your At-will Status

Beginning with the interview process and continuing through hiring employees, you need to make sure you’re not making any long-term promises. This means following all employment laws when it comes to interviewing and remembering the following:

Never refer to a job as permanent. Many people use the term “permanent” when referring to a full-time or direct-hire job—but that can get your company in legal trouble if you ever terminate an employee.
Always call jobs “direct hire position” or “contract position” coupled with “full-time” or “part-time” for clarity.
While there is no legal requirement that you include at-will employment language in your company handbook or employee offer letters, it’s good practice to include at-will reminders in these documents.

Example of At-will Employment Statement in Company Handbook

Your employment with the Company is at-will. This means your employment is for an indefinite period of time and is subject to termination by you or by the Company, with or without cause, with or without notice, at any time. Nothing in this policy or any other policy shall be interpreted to modify or eliminate the at-will status of your employment with the Company.

More important is how your company operates day to day. Certain company statements and actions can undermine the at-will status of your employees. For example, if you routinely tell employees you need everyone on staff for an extensive project or you tell employees that you never envision them leaving the company, those statements could be perceived as overriding the at-will status of your employees.

Exceptions to Employment At-will

As with most legal matters, there are exceptions. Employment at-will is the overwhelming standard in the US, but some states allow for certain exclusions.

When a whistle-blower or employee is engaged in some form of protected conduct, an employer cannot terminate the employee at their whim. This exception came about in 1980 from a California Supreme Court case, Tameny v. Atlantic Richfield Co. In this case, an employee refused to engage in price fixing as their employer directed, and the judge ruled that the employee could not be terminated under the at-will doctrine because the employee was engaged in protected conduct.

While at-will employment allows companies to terminate employees with or without cause, the company must be able to prove that they did so without violating any statute. For example, Title VII of the Civil Rights Act of 1964 prohibits employers from discriminating against employees based on their sex, race, color, religion, or national origin. If a company terminates an employee for any of those reasons and does not have just cause, it could be liable for wrongful termination.

Here are some examples of common statutory protections:

A company cannot fire an employee because they are pregnant
A business cannot terminate an employee who plans to retire soon
A disabled employee cannot be terminated because they ask for accommodation
An employee cannot be terminated because they filed a workers’ compensation claim
A company cannot terminate an employee if the employee refuses to do an illegal act

All of these examples go against the nature of at-will employment. However, federal and state legislatures have determined that these scenarios should be protected from employment at-will.

Collective bargaining agreements often include terms and conditions on how and when an employer can terminate an employee. Some companies also routinely have employees sign employment contracts. Both of these agreements may include termination only for cause, essentially overriding the at-will doctrine.

Implied contracts, those not actually written down but assumed through company statements and actions, could give an employee the impression they would not be terminated without just cause. If you tell an employee that you need them to finish a two-year project and you simply couldn’t do it without them, that could be evidence of an implied contract. So, if you terminate that employee before the project is completed, they could sue your company.

While courts generally disregard lifetime or permanent employment language, it’s good practice, as we mentioned above, for you to always have an at-will clause in your offer letters and company handbooks. This alone won’t protect you, but it can—along with your actions—provide sufficient evidence that your employees are at-will.

Good faith means that all parties come together fairly, openly, and in agreement that they will not undermine one another’s rights. A covenant in good faith requires an employer to respect employees’ rights—and this applies to terminations as well.

Some states will also hold companies liable if they act in bad faith. For example, a company that terminates an older employee could act in bad faith if the company fired the employee to avoid paying retirement benefits. In states that adhere to the good faith exception to at-will employment, companies must be able to show a legitimate business reason for terminating an employee.

State Laws: At-will Employment

Every state is presumed to be an at-will employment state, except Montana. Additionally, while New York is an at-will employment state, it does have a special case regarding fast food workers. Click your state from the interactive map below to see which exceptions it follows, if any, and get a link to more information.

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