Welcome back! Last week’s post provided an overview of employment contracts. This week, The Emplawyerologist focuses on one of the sub-topics, employment-at-will– specifically how employers can avoid creating implied contracts and preserve employment-at-will status.
Remember: Employment-at-will allows both employer and employee to end the employment relationship any time for any lawful reason or no reason at all. Every state except Montana presumes employment-at-will. An employee can, however, rebut this presumption by showing, a) clear written statements in a contract, (e.g. a two-year term of employment, or firing for “just cause”; or b) proving existence of an implied contract, which is created by oral or vague written statements and behavior that lead the average person to believe s/he has a degree of job security. Whether a belief is reasonable depends on specific circumstances. The employer must then meet certain obligations, such as following a disciplinary procedure, allowing some time to re-evaluate the situation, or waiting until the expiration of a fixed term before it can fire the employee. Currently, at least 38 states recognize implied employment contracts. Examples of oral statements that create an implied contract, eliminating employment-at-will include:
“You will be here as long as you meet or exceed your quotas”, or
“ Do your job, and you will be with the company for years” or
“ Employees are not fired for first violations”.
An employer’s course of behavior, such as consistently giving three written warnings before firing an employee for bad performance or misconduct often creates an implied contract that s/he will always follow the same procedure before firing. Not doing so is then a breach of an implied employment contract. Employee handbook provisions, including those on disciplinary procedures, are often enough to change employment-at-will status.
Yikes!!!!! Behavior, oral statements and handbook provisions can create implied enforceable contracts that wipe out employment-at-will???Are you stuck with an employee you feel is not a fit for your business? Must you now prove beyond a doubt that s/he is guilty of misconduct or cannot do his/her job? What do you do? Do away with handbooks? Stop talking to employees? Act arbitrarily so that there is no consistent course of dealing that creates an implied contract? For many reasons you should still use employee handbooks. Acting arbitrarily puts you at risk for other employment law violations. Not speaking to your employees is not feasible. How do you preserve employment-at-will? In short: Create circumstances where no reasonable employee could think that policies and procedures in a handbook or oral statements confer on him or her a right to job security or other ancillary benefit. How do you do that?
First, remember last week’s discussion: use a written employment contract, explicitly stating all employment is at-will. Also, consider including a statement that in the event of a conflict between the contract and any other documents or statements, the employment contract controls. Next, include in your handbook at least one prominent, unambiguous disclaimer. If it is buried in the middle of the handbook, or written in small print, and if the average person would need an attorney to understand it, then a court is likely to invalidate it. You may then be stuck with an implied contract that restricts or forecloses you from terminating an employee. For example, you should not use this disclaimer:
“The terms and procedures contained therein are not contractual and are subject to change and interpretation at the sole discretion of the Company, and without prior notice or consideration to any employee”.
This is actual disclaimer language that the Supreme Court of New Jersey in invalidated in 1994 in Nicosia v. Wakefern Food Corp. In contrast, the Idaho Supreme Court in 1994 Mitchell v. Zilog, Inc. upheld this one:
While in the normal course of events, (Company) intends to follow the practices set forth in these materials and other (Company) publications, certain situations may occur in which (Company will not follow the procedures outlined. In such situations, (Company) has and shall continue to have the power to take appropriate action, including but not limited to:
1. Changing compensation and working conditions, and/or
2. Termination of employees with or without cause.
See the difference? Would you have understood in the first statement that the handbook is not an enforceable contract, and preserves employment-at-will? How about the second one? Better, right? Note how the second disclaimer reserves the right to unilaterally modify the terms of employment.
So let’s recap. To preserve employment-at-will, employers, whenever possible, should:
1. Use a written employment contract, clearly stating that: a) oral promises are not binding on the employer; b) subject to applicable federal and state law, only written statements signed by an officer/partner are binding, and c) the employee is employed at-will, and either party can end the employment for any lawful reason or no reason and d) in case of conflict between statements in the individual employee contract and the employee handbook, the employment contract controls.
2. Reserve the right, subject to applicable federal and state laws, to unilaterally modify handbook terms.
3. When writing or describing written policies and procedures use words like “may” or “should”, rather than “shall” or “will”.
4. Include a very clear, prominent disclaimer at the very beginning or very end in all handbooks that they are not binding contracts, that the employer may opt not to follow the policies and procedures and that the employee remains an employee-at-will. Use bold or italicized print, capital letters, underlining or any combination thereof. Updated or additional policies or documents distributed separately should also include disclaimers.
Click here to read more about me, Janette Levey Frisch!
Disclaimer: Posts are for informational purposes only and are not legal advice and do not create an attorney-client relationship. Always consult with competent local employment counsel on all employment law issues.