Nearly 3 in 4 employees in the U.S. are considered at-will employees. Unlike public sector workers, who are employed under a contract or a collective bargaining agreement, at-will employees can be fired at any time for any legal reason.
As a small business owner, your staff likely comprises at-will employees, but that doesn't mean you can terminate the employment of a worker whenever you feel like it.
This guide explains the basics of at-will employment and what it means for both you and your employees.
What is at-will employment?
At-will employment describes the status of employees who are not bound by an employment contract. At-will employees can be terminated by employers for any reason, provided that reason is legally compliant with state and federal laws.
Additionally, employers can change the terms of the employment relationship of an at-will employee, including the job description, compensation and benefits.
"An at-will employee is an employee that can be terminated at any time by the employer," Stanley Tate, owner and founder of Tate Law, told business.com. "The employer also has the additional capability to change the terms and conditions of the employment at any time."
For workers, at-will employment gives flexibility, allowing them to vacate their position without notice and fear of any legal consequences, Tate added.
"It works both ways," said Paula Brantner, president and principal at PB Work Solutions. "However, it doesn't work both ways equally … the employer has more sway over the employee's career, and so, if [the employer is] unhappy with the employee leaving suddenly, [the employer] could provide a poor reference."
Should my employees sign an at-will agreement?
At-will employment is the default status of employees who do not work under an employment contract. Still, it might behoove employers to document this arrangement by having their employees sign an at-will agreement, which clearly states that employees are working at will and what that means.
"At-will employment is the concept that someone can be hired for any reason, and they can be fired for any reason, as long as that reason is not an illegal one," Brantner said. "Virtually all private employment in the United States is employment at will, with the exceptions being union members and those under an employment contract with specific just-cause protections, which define the grounds under which someone can be terminated. Typically, the at-will nature of employment is emphasized in the employee handbook and other personnel documents upon hiring."
There is no legal requirement for employees to sign an at-will employment agreement. Employers have the right to terminate an individual's employment or refuse to hire a new employee if they decline to sign such an agreement.
Employers should carefully consider whether firing an employee (or not hiring a candidate) over their refusal to sign an at-will employment agreement is worthwhile. If the employee is performing well or a job candidate is promising, it might be in the company's favor not to have a signed agreement. Also, consider the potential impact on employee morale that comes with dismissing high-performing team members or failing to fill a vacant position over a dispute as small as their refusal to sign an agreement.
What are the benefits of at-will employment for employees?
At-will employment offers some benefits to employees, including the flexibility to leave their job without providing advance notice. Additionally, some of the most important job protections for employees remain in place under at-will employment.
Employees are free to leave at any time.
At-will employees are not required to give employers any notice before leaving their position. This means an at-will employee is free to pursue other opportunities. While it remains a professional courtesy and best practice to offer two weeks' notice, either verbally or in a written resignation letter, employees are not legally bound to do so unless a signed contract specifically states otherwise.
"The norm of giving two weeks' notice before you leave is just that – a norm – but not legally required," Brantner said. "Employees also run the risk of being told to leave immediately, and if they do not have a new job lined up and/or need the income from the notice period, it may be risky financially to give notice."
Protected classes cannot be terminated without cause.
Just because an employee is at will doesn't mean protected classes under federal and state employment law can be ignored. Employees cannot be terminated for their age, ethnicity or gender. While at-will employees can be dismissed "without cause," protected status still applies, and any illegal termination remains prohibited.
Whistleblower protections apply to at-will workers.
Employers are prohibited from terminating an employee as retaliation for the employee making public unethical or illegal activities by the company. Retaliation for whistleblowing remains federally illegal, and many states have additional stringent whistleblowing protection laws in place.
What are the benefits of at-will employment for employers?
At-will employment arrangements give businesses the ability to quickly terminate an employee for any legal reason. Further, employers can alter the role or compensation of any at-will employee without consequence.
Employers can dismiss employees for any legal reason.
So long as the reason for terminating an at-will employee is legal, employers can do so without offering severance pay or providing advance notice. Cause for firing an at-will employee must merely be legal under state and federal law.
"You don't need any special processes to terminate an at-will employee, sadly," Brantner said. "It's easier, not harder, assuming there's no contract to the contrary. You just shouldn't do it for an illegal reason, because at-will status doesn't exempt the employee from having a claim, such as discrimination, harassment or whistleblowing."
Employers can change an at-will employee's role. At-will employment means an employer can change the role and compensation of an employee as well. For example, if your retail business is having difficulty finding a new stock room employee and you have one too many cashiers, at-will employment allows you to reassign a cashier to the stock room and alter their compensation accordingly. Additionally, employers can change benefits, such as paid time-off policies. This gives employers flexibility when it comes to managing staff and payroll.
Employers can alter compensation and benefits.
At-will employment suits employers who anticipate a dynamic work environment with changing needs or who want the flexibility to remove underperforming employees quickly and easily.
However, employers should remain aware of the legal standards under state and federal law as to when they can and cannot fire someone. They should also consider the workplace ramifications of terminating an at-will employee, changing their role or altering their compensation, as these actions affect morale and productivity.
What to know about dismissing an at-will employee
There are a few things to research and consider before terminating an at-will employee. First, check whether the employee is under an employment contract and, therefore, is not an at-will employee. Certain things – such as collective bargaining agreements or employee handbooks – may constitute an employment contract.
"Any employment that comes under contractual obligation is called contract employment," Tate said. "In such a setup, the exact terms and conditions are prescribed, and it cannot be changed by the employer at will. Moreover, any sudden termination by the employer or employee will have consequences."
You'll also want to be aware of the following:
- Collective bargaining agreements may be considered an implied contract. Even if an individual employee isn't under contract, collective bargaining agreements may be an implied contract that creates de facto contract employment. Make sure you are not violating any applicable collective bargaining agreements when altering an employee's role or dismissing them.
- Employee handbooks may be considered an implied contract. Vicky Brown, CEO of Idomeneo Enterprises, said certain materials can inadvertently create a contractual relationship. "It's really important to clearly state in things like handbooks that it is not a contract and does not replace at-will employment," Brown said.
- Protected classes still apply. "Even though we generally say an at-will employee can be fired for any reason, it is important to keep in mind that there are statutory items that can make the termination wrongful discharge – things such as discrimination, retaliation, harassment, etc.," Brown said. "Even though someone may be at will, it is still important to ensure that if you terminate them, it is for a valid reason, such as performance, and that issues are properly documented."
- Termination cannot violate the U.S. Constitution or your state's constitution. Finally, at-will employees are not exempt from constitutional rights such as freedom of speech, association and religion. Employees also enjoy the right to freedom from unlawful search and seizure. If an employee's constitutional rights are violated in the course of their termination, their employment status as an at-will employee is irrelevant.
If none of the above apply, you should be able to terminate the employment of an at-will employee with no consequences. However, it is always advisable to talk with legal counsel before dismissing an employee to ensure you are not violating any state or federal laws. Not doing so could open your business up to financial penalties and lawsuits.
Consider how at-will employment effects workplace morale and company culture.
Before terminating an at-will employee, consider the potential impact on morale and workplace productivity. Also, think about the general effect at-will employment has on employee attitudes toward your company and their willingness to come to you to report problems.
"The cons are that people who need their jobs and know that they can be easily replaced and terminated without notice will be less loyal to the company, less likely to cooperate with any transition period/training their replacement, terminations will be more disruptive to morale, and employees are less likely to come forward to report wrongdoing such as harassment, toxic work environments, health and safety issues, or whistleblowing," Brantner said.
While at-will employment offers benefits to employers, consider these tangential impacts and determine whether the benefits outweigh the risks. Factor in the unique nature of your workplace before deciding whether all employees will work as at-will employees, and especially consider these impacts before dismissing an at-will employee.