YOU’RE FIRED!

Have you or someone you know heard the words, “It’s not working and we’re letting you go?” Have you wondered what an employer had to think about and/or do before making this announcement? An employer must consider the following legal ramifications and documentation issues before discharging an employee.

Most U.S. employees are governed by the termination, or employment-at-will, doctrine. Under this doctrine, an employer may fire an employee with or without cause, and an employee may resign at any time without giving a reason. The courts in all of the U.S. states except Montana recognize the employment-at-will doctrine.1

Even though the employment-at-will doctrine appears to favor the employer, an employer’s decision to fire an employee cannot be based on retaliation, race, sex, age, religion, nationality or disability. In addition, there are three basic exemptions to the employment-at-will doctrine which limit the employer’s ability to fire an employee. First, most U.S. states provide a “public policy” exception that restricts an employer’s ability to fire an employee because the employee refuses to perform a dangerous task or an illegal act, or has filed workers’ compensation claims. Secondly, many states allow for an “implied-contract.” The implied-contract exception, which is applied by only eleven U.S. states, provides that written materials or conversations that suggest a long-term stability of the employee’s job entitles the employee to compensation for most kinds of termination. The third exception, generally referred to as the “covenant of good faith dealing,” provides that an employer is obligated to provide a justifiable reason for terminating an employee.2

Three general categories of employee are not governed by the termination-at-will-doctrine. The first is union employees. In general, collective bargaining agreements between labor unions and employers provide that employees represented by unions may be fired only for just cause and only after a hearing before a neural arbitrator. Two other categories of employees not governed by this doctrine are certain government employees and contract employees.

Since one or more of the exceptions to the employment-at-will doctrine may apply, and certain employees, such as union members, are not governed by this doctrine, employers should establish policies and procedures that apply equally to all employees. An employer should have guidelines to address discriminatory behavior and practices and make it clear that discrimination will not be tolerated in the workplace.

For instance, the employer should provide employees with meaningful feedback, at least annually, about exceptional, good and poor aspects of work performance. This feedback should be delivered to the employee in private and should also be formally documented. A written evaluation is invaluable in tracking an employee’s performance. An employer presents a better case for firing an employee and may avoid or prevail in a wrongful termination lawsuit if the employer documents that the employee has been continually informed of his or her poor performance and has been given numerous chances to correct the poor performance but failed to do so.

Recently, instead of, or in addition to, filing a wrongful termination lawsuit, terminated employees have filed tort lawsuits (commonly referred to as “truth-in-hiring” lawsuits). In these tort lawsuits, the employee claims that the employer failed to deliver the employment experience that was promised or represented during the hiring or promotion process by the recruiter or employer. These cases generally involve situations where the prospective employee was told that he or she will head a new department, that a position will become available in a few months or that the financial health of the employer/company is stable, only to discover after accepting employment that the promised new department or the available position does not materialize and that the employer plans to issue layoff notices since the employer has failed to meet its financial projections. Many employees who filed these lawsuits were awarded damages based on legal theories which include fraud, fraudulent inducement, misrepresentation, negligent hiring and failure to disclose. The damages awarded took into account the employee’s lost job opportunities and lost salary, damage to the employee’s reputation and his or her emotional distress. For a more detailed discussion of truth-in-hiring lawsuits, read Employer beware: truth-in-hiring may be the new standard in recruiting, by Amy Oaks Wren et. al.

To avoid truth-in-hiring lawsuits, the employer and recruiter should simply tell the truth about, among other things, the open position, the opportunities for promotions, the working environment and the employer’s financial health. The employer should also have a written agreement with the recruiter which provides that the recruiter will be responsible for any damages awarded to the employee as a result of statements or promises made by the recruiter. To reduce this liability, the recruiter may require the employer to include a statement in the offer letter or other written agreement with the employee which denounces or disallows any statements or promises made during the recruitment process. The offer letter or agreement should also provide that the only terms and conditions recognized between the employee and employer are those contained in the offer letter or agreement. In order to preserve the employer’s greatest weapon, the offer letter or agreement should contain employment-at-will language. An employer, therefore, must prepare for the potential firing of an employee from the time an open position becomes available.

In today’s business world, an employee can no longer feel secure merely because his or her job performance was satisfactory. And an employer or a recruiter may find that even though attempts have been made to avoid truth-in-hiring lawsuits, their oral statements or promises may result in damages being awarded to an employee who has been fired.

  1. The employment-at-will doctrine has been attributed to Horace Gay Wood’s treatise on the master-servant relationship. See Horace Wood, A Treatise on the Law of Master and Servant (1877).
  2. For a more detailed discussion of the three exceptions to the employment-at-will doctrine, see Charles Muhl, The employment-at-will doctrine: three major exceptions ,(http://www.bls.gov/opub/mlr/2001/01/art1full.pdf), Monthly Labor Review, January 2001.

Carlon B. Walker is an attorney licensed to practice law in Michigan and Illinois. In his private practice, Mr. Walker provides advice and counsel with respect to tax, employee benefits, and estate planning matters.