Wednesday, September 5, 2012

Maintaining At-Will Employment In California -- Good, Better and Best Methods

California employers love at-will employment.  It is a valuable tool that allows employers to take adverse action against employees while lessening the risk of litigation.  The problem arises, however, when an employer does not take appropriate steps to maintain at-will employment. 

The Parameters of At-Will Employment

Per Labor Code section 2922, "An employment, having no specified term, may be terminated at the will of either party on notice to the other."  This means that if an employer hires a worker and does not specify the term of employment, then the relationship can be terminated by either party.  That's at will employment -- the ability to terminate the employment relationship without notice, reason or obligation. 

However, at-will employment is not absolute.  An employer cannot terminate the employment relationship if doing so violates public policy.  For example, an employer cannot fire a worker because of the worker's age, race, religion, or other protected classification.  Such action would constitute unlawful discrimination.  The law protects also protects workers for other reasons as well.  For example, an employer cannot fire an employee because the employee has complained of safety violations.  When an employer engages in these types of activities, it is violating public policy.  At-will always gives way to public policy. 

A second type of wrongful termination claim is breach of the employment contract.  An employer cannot breach a term of an employment contract when ending the employment relationship. 

Implied Contracts of Employment

Most employers don't have express written contracts with their employees.  Rather, the employer merely informs the employee that (s)he has been extended a job offer for a certain position for a certain wage.  The letter might even say that the employment relationship is at-will.  However, this does not resolve the issue of at-will.  An employer's subsequent behaviors, coupled with other factors, may imply a contract of employment. 

Factors that may imply a contract of employment include industry practices, the length of the worker's employment, and an employer's policies and practices.  Moreover, the fact that the agreement is "implied" makes termination issues even more difficult because the conditions for termination are not clearly articulated.  Instead, the ability to terminate is phrased in terms such as "good cause" or "just cause". 

The problem with the standard of "just cause" is two-fold.  First, what is just cause, or in other words, when does the employer have cause sufficient to terminate?  Second, who makes the determination of just cause?  Perhaps the answer to the second question will help answer the first question.  If a worker sues its employer, the jury makes the decision of just cause.  Jurors typically are not business owners, HR professionals, or senior managers.  Juries are often made up of government employees (who understand civil service), retired persons, the unemployed and staff employees.  More likely the jury will be more closely aligned with the worker suing the employer. 

What cause is just?  It will depend on the jury.  This is not an enviable position for an employer. 

Typical Faux Pas Creating Implied Contracts of Employment

The most common way for an employer to create an implied contract is with a policy of "probationary employment."  Probation typically considered a testing time when the employer can terminate the employment relationship for any reason and at any time.  Probation is the equivalent of at-will employment. 

What is the employee's status at the end of probation?  I often hear terms such as "regular" or "permanent".  These are not terms consistent with at-will.  They suggest that the worker cannot be fired but for just cause. 

Another common practice that implies a contract of employment is progressive discipline.  Such a policy suggests that an employee will not be fired unless certain steps or procedures are followed.  Combine poor documentation with a progressive discipline policy an an employer has no evidence that the worker is unsatisfactory and that sufficient cause exists for termination of employment. 

Employers often make statements, without considering the consequences, that suggest an implied contract.  For example, during an evaluation, the boss says, "We enjoy having you here at XYZ Corporation; you have a job here as long as you want." This might imply employment that cannot be terminated but for just cause. 

Methods to Maintain At-Will Employment

So how can an employer maintain at-will employment?  In my practice I have seen several methods of maintaining at-will employment.  However, these methods are not equal.  All are good.  But some are better and one is best. 

Good.  Most employers will include at-will language in documents communicated to employees.  For example, an offer letter with reference of at-will is a good way to maintain at-will employment.  Similar language can be found in an application for employment or a handbook. 

Better.  A better way to maintain at-will employment is by having the employee acknowledge at-will status.  For example, when completing orientation, an employer may ask its employee to acknowledge his/her at-will status.  This is better than simply informing the employee of his/her at-will status because it shows the employee's understanding as well. 

Best.  There is yet an even better way to maintain at-will employment.  It is done by entering into a contract with a worker for at-will employment.  A contract is better than an acknowledgement.  It is something to which the employee has given his/her assent, and not merely an acknowledgement of understanding. 

The contract is also best because it should include an integration clause.  This clause prevents an employee from introducing evidence from outside the  employment agreement.  Thus, if the handbook includes a poorly-drafted policy implying at-will, the integration clause prevents it from being introduced at trial. 

I recommend that all my clients use at-will employment agreements with integration clauses for all employees.  It is the absolute way to avoid a claim of breach of the implied employment contract.  I also like to add an arbitration provision in the contract.  But that's a subject for another blog. 

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