Preserving the At-Will Relationship

Originally published in the Orange County Business Journal

• 1. Pre-Offer of Employment
• 2. Offer of Employment.
• 3. During Employment.

"At-will" employment or the right to terminate employment at any time AND FOR ANY OR NO REASON, i.e., with or without cause, has been the law in California and most other states for a very long time. Labor Code Section 2922, which provides that all employment is "at-will" (unless the employment arrangement is for a specified term) was enacted in 1937.

For many years, employees dissatisfied with the reasons given for their termination tried to sue their employers claiming the employers had to have "good cause" to fire them. And for many years the court flatly turned away these cases, citing to Labor Code Section 2922 and the concept of at-will employment.

In 1981, all this ended when a California appellate court held, in the now notorious case of Pugh v. See's Candies, that while Labor Code Section 2922 created a presumption of "at-will" employment, that presumption could be avoided by evidence that the employer and employee had entered into a contract whereby the employer would terminate the employee only for "good cause."

What made the pill hard to swallow was the court's further holding that the contract did not have to be written, it did not have to be oral; rather, it could be "implied" from various aspects of the employment relationship, most notably, language in handbooks that seemed to suggest that employees would be fired only for certain things and then only after a form of "due process" was provided.

Thus began the wave of lawsuits by disgruntled employees who challenged their terminations. Employers who had not documented the at-will relationship now had to justify their reasons for termination before twelve jurors unfamiliar with their business and more prone to sympathize with the employee.

Ever since Pugh, employers have been struggling to find ways to continue to treat employees fairly and to recognize and motivate with promotions, raises and awards without throwing away their right to make termination decisions which are not subject to challenge in the courts.

The answer: a well-written "at-will" employment policy which gives the employer the discretion to terminate employees for any lawful reason.

There are three critical junctures in the employment relationship when the "at-will" policy should be articulated:

1. Pre-Offer of Employment

• Employment Applications and Pre-Employment Interviews. The application and the interview are the first opportunities an employer has to ensure that its at-will policy is made clear. A number of measures can be taken at this early stage which will help avoid later misunderstandings and costly lawsuits.
  • Interviewers must be careful not to incorrectly represent any terms of employment, or the conditions or plans of the company. Also, interviewers must not make promises of representations which could lead the applicant reasonably to believe he or she will have a "permanent" job or one that will be terminated only for good cause.
  • Interviewers must be aware that seemingly harmless, but hyperbolic comments such as, "You will have a long and prosperous career here" can later fuel an employee's wrongful discharge case.
  The employment application, which the prospective employee is required to sign, if often the first opportunity to assert the company's at-will policy in writing. Every form should contain a statement such as this:

  "I understand and agree that if I am offered employment with ABC Company, it will be on an "at-will" basis. This means that either I or the Company may terminate the employment relationship at any time for any reason, without or without cause. I further understand that the "at-will" nature of employment with ABC Company cannot be changed except by a writing signed by me and the President of the Company."

2. Offer of Employment.

• Employment Agreements or Offer Letters. It cannot be repeated too often: every new employee should sign an offer letter or employment agreement which explicitly set forth (a) the at-will nature of the employment relationship, (b) that the at-will nature of the relationship can be changed only in a writing signed by the employee and the President (or other high-level officer) of the company, and (c) that the employee is not accepting the offer in reliance on any promises made by any company representative other that those in the offer letter itself, and that any such contrary promises are superseded.

3. During Employment.

• Personnel Manuals/Employee Handbooks. Most employers develop and disseminate employee handbooks or policy manuals which touch on any number of subjects affecting the employer-employee relationship. Courts have treated these handbooks as "contracts" between the employer and the employee, particularly if they suggest that the employee will not be terminated other than for certain reasons or will not be fired unless certain "due process" steps are first followed.

  As a result, "at-will" language should always be included in handbooks and manuals. In addition, employees should sign an acknowledgement of receipt of the employee handbook and the receipt should be placed in the employee's personnel file.

  Finally, circulate periodically and post your at-will policy.

One caveat: "At-will" employment, even if perfectly documented, does not protect the employer from claims that an employee was terminated for unlawful reasons; for example, that the employee was discriminated against or terminated in violation of some public policy. In these cases, being able to prove that the employer treated the employee fairly and terminated the employee for a good reason, is still the best defense.