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 job, but that can get your company in legal trouble if you ever terminate an employee.
- Always call jobs full time or part time.
- Have a probationary period policy in place. This allows you to terminate with or without cause for any non-discriminatory reason.
Additionally, 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 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.
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.
Passed in 1987, the Montana Wrongful Discharge from Employment Act essentially abolished the at-will employment doctrine in the state, requiring just cause for nearly all employee terminations. Since then, the Montana Legislature has made significant changes to this law that small businesses must know.
Under the original law, Montana employers could only terminate employees at-will during the probationary period, which was set at six months. After that probationary period, employers could only terminate employees for just cause.
Under the new changes to this law, however, several key items have changed:
- The probationary period is now at least one year, and companies can set it up to 18 months or more, if an employee has taken a leave of absence
- Just cause now includes termination of employment for repeated violations of a company policy
- Courts now give companies the “broadest discretion” when terminating a managerial or supervisory employee
In New York City, the Just Cause Bill requires fast food employers to terminate employees only for just cause. The law also requires employers to engage in progressive disciplinary procedures and prohibits fast food employers from significantly reducing employees’ hours by more than 15% of their regular schedule.
The law does provide for an exception if an employee is terminated during their probationary period, which ends 30 days after the start of their employment. Despite this exception, this law may be challenged.
Overcoming a Charge of Discrimination
Employment at-will can also provide your company with a solid legal defense. If a former employee sues you for wrongful termination, you could rely on the at-will employment doctrine to protect you.
While not required in every state, it’s a good business practice to have “just cause” to terminate an employee. Besides helping overcome a charge of discrimination, it can also boost employee morale by showing your team that you’re fair and reasonable, but will take action if an employee isn’t carrying their weight.
Be careful how your managers act leading up to an employee termination. Small businesses can be found liable for terminating an employee without just cause if it’s clear an employee was put on a performance improvement plan that was set up for them to fail.
For example, say you put an employee on a performance improvement plan for documented instances of poor work performance. You give the employee 90 days to meet a project deadline and improve their overall performance, but after 30 days, you move up the project deadline and then terminate the employee when they don’t meet the new target. Absent other details, your company probably could not show just cause for this termination and would face legal action.
Documenting employee performance issues is important. Having a paper trail of an employee’s poor work performance and the steps your company took to help them will legitimize your decision to terminate employees.
Common examples of just cause include terminating an employee for:
- Poor work performance
- Threatening or harassing other employees
- Financial hardships within the company
No matter what state you’re in, even with at-will employment, terminating an employee who routinely violates company policy or shows poor work performance is less legally tumultuous when you have documentation to back up the termination. Nothing can stop a former employee from suing your company, but having evidence that the termination was legal, and you had just cause to do so will help you overcome any legal challenges.