Employment at Will: What It Really Means in California

The following is excerpted from Chapter 2 of California Employment Law: An Employer's Guide, Revised and Updated for 2017 (SHRM, 2017), written by James J. McDonald, Jr., a managing partner at the labor and employment law firm Fisher Phillips.

California's Labor Code contains a presumption that employees are employed at will. This means that either the employer or the employee may terminate employment at any time, with or without cause or prior notice. This is important for employers because "cause" is defined under California law as "a fair and honest cause or reason, regulated by good faith on the part of the employer." Employers would be significantly burdened if they had to prove to a court or jury that they acted "fairly" and "in good faith" in every employee termination.

Exceptions to Employment at Will

Exceptions to employment at will include:

• Public-sector employees, most of whom are protected by civil service laws and/or by a "memorandum of understanding" between their union and the agency that addresses discipline and termination.

• Employees represented by unions and covered by a collective bargaining agreement that contains a "just cause" standard for termination.

• Employees (usually executives) who have written employment contracts requiring "good cause" for termination.

• Employees whose employers have said or done things that overcome the presumption of employment at will.

Courts in some cases have found that employer policies or statements of managers have overcome the presumption of employment at will, such that an implied contract to be terminated only for good cause arose. One such policy is a rigid "progressive dis­cipline" policy under which employees cannot be fired until a series of prior warnings and lesser sanctions have been imposed. Managers' assurances of secure or long-term employment might also be found to overcome the presumption of employment at will in some circumstances.

Reinforcing Employment at Will

California courts will not find employer policies and manager statements to overcome the presumption of employment at will when an employee has signed an express employ­ment-at-will acknowledgment. To retain the freedom to terminate employment without cause that employment at will affords you, therefore, you should do everything you can do to preserve employment at will. This means:

• Include an employment-at-will statement on the employment application and in offer letters so that a prospective employee understands, before leaving another job or mov­ing from out of state, that the new job will be employment at will.

• Have new hires sign an employment-at-will acknowledgment on their first day.

• Include an employment-at-will statement in the employee handbook.

• Avoid rigid progressive discipline policies, and instead say that conduct violations "may lead to disciplinary action up to and including termination of employment."

• Train managers and supervisors not to make careless assurances of job security during job interviews or in response to questions from employees or applicants.

• When presented with an employment verification form in connection with a mortgage application, do not respond to questions asking about the employee's prospects for future employment.

The NLRB and Employment at Will

The National Labor Relations Board (NLRB) is vigilant regarding employer policies that may tend to interfere with employees' exercise of their right to engage in concerted activity for mutual aid and protection under Section 7 of the National Labor Relations Act. In one case, an NLRB judge found unlawful an employment-at-will statement that said that it could never be changed. The judge found fault with this statement because employees have the right to decide to be represented by a union, and most union labor agreements contain a clause requiring just cause for termination. In another case, however, the NLRB approved of an employment-at-will provision stating that it could be changed only in writing by the president of the com­pany, noting that this language did not foreclose employees choosing to be represented by a union and having a collective bargaining agreement with a just cause termination standard that would be signed by the president of the company.

It is not clear how far the NLRB will go in scrutinizing employment-at-will pro­visions. For now, employers should heed the agency's concerns by including language stating that employment at will cannot be changed except in a writing signed by the company president (or similar official).

Employment at Will Versus "Right to Work"

Sometimes employment at will is confused with the "right to work." They are different concepts, however. In states with right to work laws, union-represented employees cannot be forced to pay union dues or fees as a condition of employment. California is not a right to work state, so the term has no significance in California employment law.

The Limits of Employment at Will

Employment at will simply means that an employer cannot be sued for breach of an implied contract requiring a showing of good cause for termination. It does not mean that an employer may not be sued for other employment wrongs, such as discrimination, retaliation, violations of specific statutes (including those protecting whistle-blowers or employees who take family or medical leave) or for terminations that violate public poli­cies set forth in statutes or regulations.

Employers should do everything they can to preserve employment at will. It is not a good idea, though, to tell an employee only that "we are exercising our employment-at-will rights and terminating you." Because there are so many other grounds for employee lawsuits, you should still be sure to document the reasons for terminating an employee. This includes providing prior warnings, when appropriate, for poor job performance and less serious types of misconduct such as attendance policy violations. These warnings should not be given pursuant to a formal progressive discipline policy but rather simply to establish that misconduct or performance issues occurred and that the employee was put on notice of them, to rebut a later claim that the termination was motivated by an unlawful reason such as discrimination or retaliation.

James J. McDonald Jr., J.D., SHRM-SCP, SPHR, is a managing partner of the Irvine, California office of the labor and employment law firm Fisher Phillips. California Employment Law: An Employer's Guide, Updated & Revised for 2017 is now available from the SHRMStore.