Understanding Termination

From: Staffing

Understanding Termination


In all U.S. states, with the exception of Montana, employment relationships are presumed to be “at-will.” This means that in an employment relationship for no specific duration, an employer may terminate an employee at any time, for any reason (except an illegal one), or for no reason at all. Similarly, an employee is free to leave a job at any time for any or no reason with no adverse legal consequences.

Modification by Contract

The at-will presumption is a default rule that can be modified by contract. For example, a contract may provide for a specific term of employment or allow termination for cause only. Union contracts generally have provisions that prohibit termination except where there is just cause. Just cause termination must be based on reasonable grounds, with a fair and honest cause or reason, regulated by good faith. Termination based on just cause may be based on one of the following two categories:

  • Misconduct. Misconduct includes, but is not limited to, the following:
    • Theft.
    • Workplace violence.
    • Intoxication at the workplace when required to work.
    • Bringing firearms to work.
    • Engaging in sexual or racial harassment.
  • Unsatisfactory performance. Examples of unsatisfactory performance amounting to just cause have included the following:
    • Excessive absenteeism.
    • Poor work quality.
    • Failure to meet numerical production standards.

Serious misconduct is often subject to immediate dismissal, even under a union contract. However, unsatisfactory performance generally will not result in discharge until the employee has progressively been a discipline problem, been notified of the persistent problems, and failed to improve.

Some written employment contracts may specifically limit the circumstances in which an employee may be terminated. In some circumstances, a contract may imply that the employee may only be terminated for good cause. A valid, good cause termination or discharge must be based on a justifiable reason. For example, good cause termination may be established when based on the following:

  • Unreasonable and excessive absenteeism.
  • Recurring and incurable discipline problems.
  • Corporate restructuring which requires layoffs.

Written employment contracts that specifically limit the circumstances in which an employee may be terminated are enforceable in court.

Common-Law Exceptions to Employment-at-Will

Over the years, courts have carved out exceptions to the employment-at-will doctrine. The three major common law exceptions are:

  • Public policy.
  • Implied contract.
  • Implied covenant of good faith and fair dealing.

Important: Not all of the exceptions are recognized by all jurisdictions. Review your state information here.

The Public-Policy Exception

The most widely recognized common law exception to the employment-at-will doctrine protects employees against adverse employment actions that violate a public interest. The employee actions protected by the public-policy exception generally fall into one of the four following categories:

  1. Refusing to perform an act prohibited by state or federal law. For example, an employee refusing to commit perjury at a trial.
  2. Reporting a violation of the law or engaging in other whistleblower activities. For example, reporting an employer’s health and safety violation or fraudulent accounting practices.
  3. Engaging in acts that are in the public interests. For example, joining the National Guard, performing jury duty, or complying in an investigation of the employer.
  4. Exercising a statutory right. For example, filing a workers’ compensation claim.

States that recognize the public-policy exception vary significantly in how broadly or narrowly it is construed. The majority of states accept only public policy expressed in state constitutions and statutes. As a result, many states have codified their public-policy exception by adopting antiretaliation provisions to their employment-related statutes (i.e., wage and hour, occupational safety and health, workers’ compensation, unemployment insurance, employment discrimination). A minority of states allow additional sources that may include administrative rules and regulations, professional codes of ethics, and broader notions of public good and civic duty.

Employers must be aware of discharges in violation of public policy because the lawsuits are often treated similarly to personal injury cases. In these cases, plaintiffs may recover additional compensation for mental anguish and punitive damages. The purpose of punitive damages is to punish the defendants for overt or intentional wrongdoing by awarding additional damage amounts to plaintiffs that greatly exceed the actual economic damages of lost wages and benefits.

The Implied-Contract Exception

The implied-contract exception to the employment-at-will doctrine is recognized in a majority of states. Under the implied-contract exception, oral or written assurances given to an employee regarding termination may create an implied contract prohibiting termination except for certain circumstances.

Implied contracts are inferred from the conduct of employer and employee. For example, an implied employment contract may be based upon the length of employment and indicators of job security an employee has received. Indicators of job security include promotions and bonuses, which indicate an employee has been doing a good job and has a right to feel secure in a job.

Even when employers made no specific promises, juries have determined that an implied contract existed, suggesting that employees would not be discharged except for good cause. Often, courts decide that such a promise exists even where the parties themselves clearly did not actually intend to create a contract. Frequently, juries must decide whether the employer had created a reasonable expectation that an employee would be discharged only for good cause.

The following list demonstrates the types of evidence juries have considered in determining whether an implied employment contract was created between the employer and employee:

  • Employee handbooks that establish an initial employee probationary period.
  • Disciplinary policies that state employees will be discharged only for particular offenses.
  • Progressive disciplinary policies that allow employees chances to improve their performance where, in fact, the employee was not given such a chance.
  • Handbooks or records that state fairness or special consideration will be given to employees because of longevity or seniority.
  • An employee’s work history, which reflects regular merit raises, good performance evaluations, praise, and promotions.
  • The employer’s practice of discharging employees only for good cause.
  • An industry-wide practice that employees are treated fairly or terminated only for good cause.

Employers must affirmatively and openly declare the applicable at-will employment policy to prevent claims of contractual rights and violations. All employers should regularly review company handbooks, policies, and procedures, even when only supervisory employees receive such material, to ensure express or implied contracts may not be assumed from the employer-provided information. Employers must make sure that these documents do not contain promises or obligations to which the employer is unwilling to commit. Employers should avoid words such as “will,” “shall,” and “must” when stating obligations towards employees.

The Implied Covenant of Good Faith and Fair Dealing Exception

A minority of states recognize an implied covenant of good faith and fair dealing exception to the employment-at-will doctrine. Under this exception, every employment relationship contains a covenant of good faith and fair dealing. This exception operates under the theory that one party to the contract must not act in bad faith to deprive the other party of the benefits from the agreement. On the contrary, employment decisions should be made on a fair basis, and employees who are similarly situated should be treated in the same manner. Similarly situated, in relation to employment, means employees in the same general job categories and with similar seniority and rank are similarly situated and must be treated as such.

Most good faith and fair dealing cases involve abusive or highly offensive discharges, including, but not limited to, the following types of discharges:

  • Termination of an employee to avoid paying a large sales commission.
  • Termination of an older employee to avoid paying retirement benefits.
  • Retaliation against an employee for refusing to become romantically involved with a supervisor.
  • Retaliation for publicizing or alleging wrongdoing on the part of the employer.

Judicial interpretations of this covenant have varied from requiring just cause for termination to prohibiting terminations made in bad faith or motivated by malice.

Additional Tort-Based Claims Limiting At-Will Employment

At-will employees may also bring claims against their employers for the following torts:

  • Intentional interference with a contractual relationship. Interference with contractual relationships involves allegations that individual supervisors or managers interfered with the contractual relationship between employees and their employer. An example of such a claim is where a supervisor knowingly communicates false information about an employee to higher management that results in the termination of the employee. Normally these claims are brought against supervisors or managers. This tort is not recognized in all jurisdictions.
  • Intentional infliction of emotional distress. The Restatement (Second) of Torts defines this tort as extreme and outrageous conduct that intentionally or recklessly causes severe emotional distress. In many courts, even serious emotional and psychological abuse may not be outrageous enough to establish liability. The claim of intentional infliction of emotional distress includes allegations of a purposeful and extremely abusive discharge of the employee. The employee would also claim the discharge was conducted in a degrading and humiliating manner.

    Employers can reduce emotional distress liability by any of the following methods:

    • Avoiding anger in administering discipline.
    • Requiring review of a contemplated disciplinary decision by another supervisor or manager who has no personal bias against the employee.
    • Applying common sense.
    • Documenting, signing, and dating every critical incident.

Promissory Estoppel

Promissory estoppel is an equitable remedy used by courts to protect a party where there is not an otherwise enforceable contract. Promissory estoppel intended to compensate an injured party who relied on a noncontractual promise to the party’s detriment. Promissory estoppel is used when there is no legal basis for the injured party to be made whole.

Under the doctrine of promissory estoppel, an employer may be prevented from firing an employee, or required to pay damages, if the employee can show the following:

  • The employer made a clear and unambiguous promise of employment.
  • The employee relied on this promise.
  • The employee’s reliance was reasonable and foreseeable.
  • The employee was injured as a result.

Consider the following example of an individual who receives and accepts a job offer, quits his current employment, and then relocates his family to the city where the new job is located. Before his first day with the new employer, he is terminated. Under this situation, the individual may be able to bring a successful promissory estoppel claim.

It is difficult for a plaintiff to prove all of the promissory estoppel elements, especially in an employment context. Some courts reject outright promissory estoppel claims made by an at-will employee by contending that an employee cannot reasonably rely on a promise of employment if the employment is at-will.

In any case, promissory estoppel provides only a limited remedy in comparison to a breach of contract claim. This is because damages are calculated based on the individual’s previous employment, and not on the promised employment.

Statutory Exceptions to Employment-at-Will

In addition to the common-law exceptions to the employment-at-will doctrine outlined above, there are also many statutory exceptions to the at-will employment doctrine.

The following are applicable federal laws that limit the employment-at-will doctrine:

  • Age Discrimination in Employment Act (29 U.S.C.A. § 621). Prohibits employment discrimination against employees ages 40 or older, bars retaliation against persons exercising ADEA rights.
  • Americans with Disabilities Act (42 U.S.C.A. § 12101). Prohibits employment discrimination against qualified persons with disabilities; bars retaliation against persons exercising ADA rights.
  • Bankruptcy Code (11 U.S.C.A. § 525). Prohibits employers from discriminating against or terminating an individual solely because the person has filed for bankruptcy.
  • Civil Service Reform Act of 1978 (5 U.S.C.A. § 7513(a)). Permits removing federal civil service employees only for efficiency-related causes.
  • Civil Rights Act of 1964, Title VII (42 U.S.C.A. §§ 2000e-2 and 2000e-3(a)). Prohibits discharge based on race, color, religion, sex, or national origin and reprisal for exercising rights under the act.
  • Clean Air Act (42 U.S.C.A. § 7622). Prohibits firing employees who assist in any proceeding under the act.
  • Consumer Credit Protection Act (15 U.S.C.A. § 1674(a)). Prohibits firing employees because of garnishment of wages for any one indebtedness.
  • Employee Retirement Income Security Act of 1974 (29 U.S.C.A. §§ 1140 and 1141). Prohibits terminating employees to prevent them from attaining vested pension rights.
  • Energy Reorganization Act of 1974 (42 U.S.C.A. § 5851). Prohibits firing employees who assist in any proceeding under the act.
  • Fair Labor Standards Act (29 U.S.C.A. §§ 215(a)(3) and 216(b)). Prohibits discharge for exercising FLSA rights.
  • Federal Water Pollution Control Act (33 U.S.C.A. § 1367). Prohibits firing employees who assist in any proceeding under the act.
  • Immigration Reform and Control Act of 1968 (8 U.S.C.A. § 1324b). Prohibits employment discrimination against individuals, except unauthorized aliens, because of national origin and against U.S. citizens or aliens eligible for citizenship because of citizenship status.
  • Judiciary and Judicial Procedure Act (28 U.S.C.A. § 1875). Prohibits firing employees for service on a grand or petit jury.
  • Labor Management Relations Act (29 U.S.C.A. §§ 158(a)(1), 158(a)(3), and 158(a)(4)). Prohibits termination for union activity, protected concerted activity, or filing charges or giving testimony under the act.
  • Occupational Safety and Health Act of 1970 (29 U.S.C.A. § 660(c)). Prohibits firing employees for exercising OSHA rights.
  • Railroad Safety Act (45 U.S.C.A. §§ 441(a) and 441(b)(1)). Prohibits firing employees who assist in any proceeding under the act.
  • Rehabilitation Act of 1973 (29 U.S.C.A. §§ 793 and 794). Prohibits federal contractors or any program or activity receiving federal financial assistance from discriminating against persons with disabilities.
  • Veterans’ Re-Employment Rights Act (38 U.S.C.A. §§ 4321 – 4327). Requires reinstatement of and protects returning veterans for a limited time against discharge without just cause.

Antidiscrimination Statutes

Both federal and state antidiscrimination statutes prohibit employers from basing employment decisions (hiring, benefits, termination) on certain characteristics, such as:

  • Race.
  • Creed.
  • Sex or sexual orientation.
  • Color.
  • National origin.
  • Religion.
  • Age.
  • Marital status.
  • Physical or mental disability.
  • Union activity.
  • Pregnancy.
  • Medical condition.
  • Parental status.
  • Military status.

These protected classes vary by jurisdiction. Review the protected classes of your state here.

It is important to recognize that discrimination statutes shield members of protected classes only from adverse employment actions made because of their membership in a protected class. In other words, an employer may fire an at-will employee because the employee failed to perform the required functions of her job, but not because the employee is in a wheelchair.

Antiretaliation Statutes

Retaliation is another statute-based exception to the at-will presumption. Federal and state laws prohibit employers from firing employees in retaliation for engaging in certain activities that are protected by law. For example, many states have statutes which explicitly prohibit employers from terminating or taking any negative employment action against an employee because the employee:

  • Filed a worker’s compensation claim.
  • Initiated a discrimination or wage claim.
  • Has a wage garnishment(s).
  • Disclosed or refused to disclose wages.
  • Voluntary participated in an alcohol or drug rehabilitation program.
  • Refused to authorize disclosure of medical history or records.
  • Performed jury duty.
  • Engaged in political activity (voted) or served as election officer on Election Day.
  • Engaged in military service.
  • Is a volunteer firefighter.
  • Refuses to patronize an employer.
  • Refuses to commit illegal activity.
  • Missed work due to attendance at child’s school regarding a suspension or for a child’s school or child care activities.
  • Is a domestic violence victim taking time off from work to obtain a restraining order, receive care or counseling, or to relocate.
  • Refused to disclose arrest records that did not lead to convictions.
  • Refused to take a polygraph test.
  • Enrolled in an adult literacy program.
  • Refused to participate in an abortion.
  • Exercised a statutory duty to report apparent victims of abuse or neglect, without suffering discharge or discipline (hospital employees).

Whistleblower Protection Statutes

Whistleblower protection statutes are closely related to antiretaliation statutes. Whistleblower protection statutes generally prohibit employers from retaliating against employees who have exposed unlawful behavior on the part of the employer. Many whistleblower protection statutes revolve around things such as occupational safety and health standards; environmental protection; accounting practices; or government waste, fraud, and abuse. While most states provide whistleblower protection for public sector employees, protection for private sector employees is much more limited.

Where there is no general state statute, private employees are left with a patchwork of federal and state statutes that address a wide variety of issues including workplace health and safety, environmental protection, accounting fraud, and discrimination, and whistleblower protections. The challenge for employees in these jurisdictions is to find a statute that applies to their particular circumstances.

Review your state’s whistleblower protection laws here.

Protections for an Employee’s Off-Duty Activities

Several states have statutes that protect employees from adverse employment actions resulting from legal off-duty activities. The laws primarily deal with the off-duty use of tobacco.