Employment-at-Will vs. the Discharge-for-Just-Cause-Only Standard: A Critical Employment Law Distinction

By Paul Falcone Sep 26, 2016
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Janet is an HR manager who was recently challenged by a department manager, who demanded that an employee be fired on the spot. The reason? The individual's performance had been an ongoing challenge for the past year, and it had become too much of a burden on the entire department to compensate for his shortcomings. Therefore, the department manager says, there was no reason not to let the person go since he was employed "at will." 

Janet wisely looked at the personnel file of the three-year employee in question and found three annual performance reviews that the employee met expectations and no corrective action. She asks the department manager why these ongoing performance issues hadn't been documented in the form of progressive discipline or a negative annual review, and the leader defensively responded that the demands of the job were too high to divert energy and resources toward corrective action or any other type of negative, confrontational activities. It was time for Janet to educate the manager on the nature of at-will employment and its practical limitations in the workplace.

At-Will Employment History in the U.S.

Have you ever wondered, "Why can't we just fire employees if they're employed at will?" or "Don't we have total discretion to terminate on a whim (i.e., without cause) for substandard job performance or inappropriate workplace conduct?" You'll understand your rights and limitations a lot better once you have a firmer grasp of employment law history. At the time of our nation's founding in the 18th century, U.S. employment law borrowed much of what existed in England at the time, where termination for just cause only was the standard. In fact, the 14th Amendment to our Constitution later guaranteed, among other rights, workplace due process, based on the fact that the right to work was so fundamental to U.S. citizens that it shouldn't be taken away arbitrarily or without due process of law. In essence, workers had a property right to their jobs, and companies were not at liberty to terminate without just cause or good reason.

That all changed in the 1930s at the time of the Great Depression. The very existence of capitalism appeared to be under threat, and Congress pulled out all the stops to ensure that companies could stay in business. The employment-at-will relationship was born, and the employment property right shifted to companies, which suddenly retained full discretion to terminate at whim.        

After World War II, unions gained a stronghold in corporate America. However, it wasn't for the reasons most people expect. When polled, most respondents believe that the ability to collectively bargain for better wages and benefits drove union growth in the late 1940s through 1950s. In reality, it was the unions' promise of job security in the form of workplace due process that sent membership ranks through the roof. According to Rich Falcone (no relation to the author), shareholder and senior employment litigation partner with Littler in Irvine, Calif., "In short, the promise went, if your company becomes unionized, you won't be employed at will. The company will have to follow a termination-for-just-cause-only standard, meaning that you can't be terminated at whim and must generally be informed in writing if your job performance is a problem or your position is at risk."

Workers flocked to unions as a result, with union membership reaching its peak in the 1950s when roughly 35 percent of the U.S. workforce fell under some form of a collective bargaining agreement. Today, that percentage is closer to 12 percent of the workforce (with the majority in public-sector organizations).

One key reason for the decline in union membership is the advent of tort law. In the 1980 case Tameny v. Arco Oil, then-California Supreme Court justice Rose Byrd ruled that a 15-year employee who refused to engage in price fixing on the employer's behalf couldn't be fired under the employment-at-will umbrella.

"The public-policy exception was born, and exceptions to the employment-at-will practices made it much more difficult for companies to terminate using the employment-at-will affirmative defense," according to Falcone. Specifically, four major categories of exceptions to employment-at-will included:

  • Public-policy exceptions (e.g., as in the Tameny case, where whistle-blowing or otherwise engaging in protected, concerted activities eliminated a company's ability to terminate at whim under the employment-at-will affirmative defense)

  • Statutory exceptions (i.e., protected classes, like those outlined in Title VII of the Civil Rights Act of 1964, which prohibits discrimination on the basis of sex, race, color, religion, or national origin)

  • Employment contracts (including collective bargaining agreements)

  • Implied contract exceptions/implied covenants of good faith and fair dealing (especially pertaining to potential promises made in employee handbooks)

Why Performance Reviews Are So Important

Today the plaintiff bar, rather than unions, functions primarily as the mechanism to remedy employer malfeasance in the workplace, and the concept of workplace due process is still at issue when it comes to litigating employment claims. What's key, however, is that employers understand how the dual standards of employment at will versus termination for just cause only are used in the courtroom.

The employment-at-will affirmative defense is applied at the hearing stage with the goal of gaining an immediate dismissal of the case in the form of a summary judgment. The company will argue that the former employee was employed at will and that the company did nothing to repeal the employment-at-will relationship. Therefore, the company's defense attorney will request that the court dismiss the case by relying on the employment-at-will relationship that the company had established with its ex-worker. If the judge grants a summary judgment based on the employment-at-will affirmative defense, the case ends at the hearing stage, plain and simple.

Unfortunately for most corporate defense attorneys, 90 percent of claims don't get dismissed at the summary judgment hearing stage—they continue on to the next stage in the litigation process: the trial. "Once the case is escalated to trial, there's almost no such thing as the employment-at-will affirmative defense any longer. At the trial stage, the only standard that likely will be considered is termination for just cause only," Falcone counsels. "So once a case makes it to trial, our legal system reverts back to the termination-for-just-cause-only standard established in the 18th century. And as the saying goes, 'If it wasn't written down, it never happened.' "

Therefore, practically speaking, companies can't terminate workers solely based on the fact that they're employed at will. Without a crystal ball, the company can't know whether it will win a summary judgment at the hearing stage using the employment-at-will affirmative defense or if the case will proceed to trial. As a result, when it comes to relying on the employment-at-will status of a worker versus documenting progressive discipline to prove that a company had cause to terminate, it's not one or the other—it's both.

"Every company should attempt to protect the employment-at-will relationship with its workers (for the sake of winning a summary judgment at the hearing stage) but also be prepared to show that it had cause to terminate should the case escalate to the trial stage," Falcone advises. That cause to terminate is typically found in the form of documented progressive disciplinary warnings and failed annual performance reviews—and you'll sure be glad you have them if a claim escalates to trial.

"As a general rule, therefore, you should always assume that a litigated case will progress to the trial stage and that your company will have the burden of proving that it had good cause (in the form of progressive discipline) to terminate," Falcone advises. "That's what jurors want to hear." 

That's just the advice that Janet needed to convince her department manager that effective leaders are responsible for tackling employee performance and conduct issues head-on and documenting them, when necessary, as they occur. Never underestimate the importance of progressive disciplinary documentation and failed performance reviews to demonstrate that you had just cause to terminate. You'll protect your company, make your defense lawyer proud and, most importantly, give the worker a chance to course-correct and turn things around.

Paul Falcone (www.PaulFalconeHR.com) is an HR trainer/speaker/executive coach and has held senior HR roles with Paramount Pictures, Nickelodeon and Time Warner. His newest book, 75 Ways for Managers to Hire, Develop, and Keep Great Employees (Amacom, 2016), focuses on aligning front-line leadership teams and on key employee retention. A longtime contributor to HR Magazine, he's also the author of a number of SHRM best-sellers, including 96 Great Interview Questions to Ask Before You Hire, 101 Tough Conversations to Have with Employees, 101 Sample Write-Ups for Documenting Employee Performance Problems and 2600 Phrases for Effective Performance Reviews.

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