Employment-at-Will: Definition, Advantages & Implied Contracts

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  • 0:05 What Is Employment at Will?
  • 1:38 Limits on Employment-at-Will
  • 2:49 Implied Contracts
  • 4:42 Implied Covenant of…
  • 6:18 Public Policy
  • 7:20 Lesson Summary
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Lesson Transcript
Instructor: Ashley Dugger

Ashley has a JD degree and is an attorney. She has taught and written various law courses.

Many employees work 'at-will,' meaning they can quit at any time and for any reason. This arrangement has certain advantages and disadvantages. This lesson explains employment-at-will, including the impact implied contracts have on employment-at-will.

What Is Employment-At-Will?

When English common law was most prevalently used in the U.S., employees didn't have employment contracts. This type of employee is known as an employee-at-will. This type of work arrangement is known as employment-at-will and means that the employee can quit at any time, for any reason, and the employer can terminate the employee at any time and for any reason.

This type of arrangement offers immense flexibility for the employee. That was especially important in times when relocating for more plentiful food or work opportunities was common. However, this arrangement doesn't offer job security. That's become more important as fewer families have migrant workers.

Employment-at-will arrangements still exist. Many hourly and certainly many minimum wage employees are at-will employees. In fact, all employees are presumed to be at-will-employees unless the employee has a legally binding agreement with the employer that the employee can only be fired for good cause. Good cause is a legal term and will vary depending on the circumstances, but it generally means sufficient and substantial grounds, or good reason, to take a certain action.

Limits On Employment-At-Will

The U.S. legal system eventually introduced federal and state laws that limited both the use and scope of at-will employment. These laws placed restrictions on when employers can legally terminate at-will employees. One example is Title VII of the Civil Rights Act of 1964, which prohibits employers from firing employees because of race, color, religion, sex or national origin. Another example is the Occupational Safety and Health Act, which governs health and safety in the workplace and prohibits employers from retaliating against employees that report violations.

As time passed, the courts saw an increasing number of lawsuits brought by at-will employees alleging wrongful discharge. Surprisingly, many of these plaintiffs were successful. Three major exceptions to the at-will doctrine emerged, allowing some at-will employees to claim that they can only be fired for good cause.

Implied Contracts

The first major exception is breach of an implied contract by the employer. Generally speaking, an implied contract is a legally enforceable agreement assumed to exist due to the parties' conduct and because it would bring the fairest result. This type of implied contract is always construed in favor of the employee.

Employers unknowingly create implied employment contracts every day. For example, let's say that Abe applies for a job with Anna. During his interview, Anna tells Abe that everyone loves working for her company. She tells Abe that her employees 'work for her until they retire.' Anna then offers Abe a job. Abe takes this to mean that he has a job as long as he wants one and can't be fired unless Anna has a good reason to fire him. Anna may have created an implied contract even though she intends to employ Abe at-will.

Employers also often run into trouble with employee handbooks and policies. Though these items are meant to be helpful, the employer can unwittingly create implied contracts and accidentally eliminate at-will employment. This can happen when the employer states that particular termination procedures will be followed or that particular acts will result in grounds for termination. Employers have to be careful to clearly state that other termination procedures might also be followed and that other acts can also result in termination.

Implied Covenant of Good Faith and Fair Dealing

The second major at-will employment exception is breach of the implied covenant of good faith and fair dealing. This generally means that the courts will assume that the employer promised to act with honest intentions.

This implied covenant is common in contracts. It's the general presumption that the contracting parties will deal with each other in an honest and fair way. However, remember that an at-will employment arrangement doesn't involve a contract. For this reason, only a minority of states apply the implied covenant of good faith and fair dealing to at-will employment.

For the states that recognize this exception, courts require good faith and fair dealing in all employment relationships. There's no set standard. What constitutes 'good faith' or 'fair dealing' varies by the circumstances.

For example, let's say that Abe works for Anna. Abe is much older than Anna. Anna would like to replace Abe with someone younger because she's trying to attract younger clients and she thinks that's what the clients want. Even though Abe is an at-will employee, Anna knows she can't legally fire Abe because of his age. Instead, Anna makes a bookkeeping mistake and blames it on Abe. She then uses the mistake as a reason to fire Abe. This is a breach of Anna's implied covenant of good faith and fair dealing toward Abe.

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