Category Archives: Employment At Will
When employers make written offers of employment or provide written employment policies to employees, such as Employee Handbooks, it is generally advisable for the employer to include a disclaimer stating that the employment is at-will. The purpose of an at-will disclaimer is to prevent an employee from mistakenly believing that he or she is entitled to employment for a specified period of time or is entitled to other protections with respect to the employment.
In most cases, the following language will be sufficient to disclaim any intent to alter the at-will employment relationship:
Employment with the Company is at will unless otherwise stated in a written agreement signed by the President of the Company. This means that either the Company or the employee can terminate the employment at any time and for any reason, with or without notice.
Employers should be careful, however, with respect to language that suggests “that the at-will employment relationship cannot be amended, modified, or altered in any way.” An administrative law judge recently held that language interfered with employees’ rights under Section 7 of the National Labor Relations Act.
Takeaway: The presumption that employment is at-will is an important protection for most employers. By including at-will employment disclaimers on key documents, employers can increase the odds that they will be able to benefit from the protections of the employment-at-will doctrine.
To preserve “at-will” employment status, employers will carefully avoid entering formal contracts and insert “at-will” disclaimer provisions in their Handbooks and Policies. But these efforts can be countered, thwarted, or complicated by poorly drafted offer letters that promise continued employment to a “hot” candidate. Often the problem comes from a manager recruiting and trying to attract a candidate, not Human Resources or senior management.
Such promises can create contract or reliance claims if the “hot” candidate turns out to be not so hot as an employee and has to go. An offer letter can constitute a contract as to termination or other terms and conditions of employment which can lead to damages for breach – particularly suspect are letters that have no clear at-will disclaimer language. A reliance claim arises when there is a promise of employment that is specific and relied upon and compensates an employee for losses incurred in taking a job that doesn’t work out. Reliance claims usually arise in the context of job offers that are withdrawn.
Courts have often rejected attempted contract or reliance claims on the strength of the at-will doctrine, but a specific-enough promise with clear detrimental reliance or an offer letter that makes promises of employment for a definite period of time can support a reliance or contract claim and make a termination an expensive mess.
Takeaway: Once you write an offer letter, review it backwards. If the employment is at-will, include language expressly stating that. Think about a termination meeting and ask yourself if you are making specific promises or saying things about the position that may compromise at-will employment rights. If you think you are, then consult legal counsel about rephrasing the letter to take out the potential contract or reliance language without entirely losing the intended tone and points meant to attract the candidate. Or, if such promises are really necessary to attract the candidate, have counsel draw up a reasonable contract that maximizes the employer’s rights while giving whatever binding assurances are necessary for the hire.
While most states are at-will employment states, employers commonly enter a range of individual employment contracts that can either alter or preserve the at-will relationship. Typical reasons for such contracts in an “at-will” legal environment include recruiting the best candidate, protecting employer rights, or securing releases in exchange for severance.
Employment lawyers commonly see the following range of individual employment agreements:
- The Comprehensive “Just Cause” Agreement: These are sophisticated binding contracts often limited to the most senior management. They have provisions for “just case” termination, severance, protection of company information, post-employment restraints, and, as applicable, stock options, change of control, and the like. If such a contract is breached by the employer (for example, terminated without “just cause”), the employee usually can seek the remaining compensation due under the contract. Drafting such important agreements takes an investment of time and effort and truly needs careful legal counsel and review. The adage “a small mistake in the beginning can be a big mistake in the end” is rarely more applicable than in these type of contracts.
- The “Term” Contract: These contracts can be as sophisticated as the comprehensive “just cause” contracts, but they include a term provision ending the contract at a certain date with renewal or non-renewal at the discretion of the parties. This provides the employer with the opportunity to end the employment relationship at non-renewal time without the risk of breach. Term contracts are often first or “trial” contracts and can interest employees who believe that they will be able to negotiate better terms once they have proven themselves. Legal review for consistency in term contracts is very important if the non-renewal option is to work.
- The “At-Will” Agreement: These individual contracts contain many terms and conditions of employment (e.g., salary, bonus, confidential information, post-employment constraints), but there is no just cause provision by which the employee can only be terminated for specific reasons following specific procedures. The objective of these “at-will” agreements is to commit the employer and employee to certain aspects of employment, but to keep employment itself at-will – usually with only a modest notice provision, if any. Preserving “at-will” status in a contract prohibits the terminated employee from seeking damages for breach of a contract. Because these contracts are so limited, they can be tricky to draft.
- Post-Employment Contract Constraints: Many employers, especially those with sales forces, have contracts that are explicitly limited to securing non-compete and non-solicitation obligations as a condition precedent to employment. The contents of the contract, legal “consideration”, professional drafting, and timing of these agreements will be of critical importance if they are to be enforceable. Contracts with post-employment constraints may either preserve or alter at-will status.
Takeaway: Think about the range of possible individual employment agreements (there are more types than just listed above) when determining whether you want to enter an individual employment contract. What are your objectives? What does the candidate really require in order to be successfully recruited? Are you setting precedent in the organization? And stay away from the “off the shelf” contracts – each needs to be drafted with care and professional precision.
In some circumstances, a minority shareholder in a closely-held corporation may have a reasonable expectation of continued employment. As a result, if termination of employment is “unfairly prejudicial” to the shareholder in his or her capacity as a shareholder-employee, the termination may be grounds for a court to provide equitable relief for shareholder oppression under Minn. Stat. § 302A.751. The threshold question in this type of claim is whether the minority shareholder’s expectation of continuing employment was reasonable.
In Gunderson v. Alliance Computer Professionals, Inc., 628 N.W.2d 173 (Minn. Ct. App. 2001), the Minnesota Court of Appeals identified several factors that influence whether a minority shareholder’s expectation of continued employment is reasonable or not. Here are some of the key points from that decision:
- Shareholders who sign buyout agreements permitting termination of employment for any reason and obligating shareholders to sell their shares to the corporation upon termination of employment likely do not have a reasonable expectation of continuing employment.
- An employee who has no capital investment in the corporation but either buys a small percentage of stock through periodic company offerings or receives a small percentage of stock as part of a compensation package likely does not have a reasonable expectation of continuing employment.
- To be reasonable, an expectation of continuing employment must be known and accepted by other shareholders, as opposed to based only on the shareholder’s “subjective hopes and desires.”
- An expectation of continuing employment is likely reasonable if “continuing employment can fairly be characterized as part of the shareholder’s investment.” Factors to be considered in making this determination include, among others, whether a shareholder’s salary and benefits constitute de facto dividends and whether procuring employment with the corporation was a significant reason for investing in the business.
- Expectations of continuing employment must be balanced against the controlling shareholder’s need for flexibility to run the business in a productive manner. Accordingly, an expectation of continuing employment is not reasonable when the shareholder-employee’s own misconduct or incompetence causes the termination of employment.
If a group of employees votes to be represented by a union, it usually has a significant effect on the workplace and the employer-employee relationship. For example:
- The employment relationship ceases to be “at will,” and employees may only be terminated for “just cause.”
- The employer is prohibited by law from dealing directly with union employees about wages, hours, and working conditions and must deal directly with the union instead.
- Employees tend to go to their union rather than their employer when they have a problem.
- The relationship between the employer and the employees tends to become more adversarial rather than cooperative or collaborative.
- The employer is required to expend additional time, money, and resources to deal with the union, particularly in the area of collective bargaining and grievance processing.
- Supervisory employees are required to become familiar with the collective bargaining agreement and administer it on a consistent basis. Flexibility is reduced and the rules become more rigid regarding employee conduct.
Under Minnesota law, employment is presumptively “at will.” This means that the employment relationship may be terminated at any time and for any reason, except on the basis of prohibited discrimination or retaliation (e.g., race, sex, age, disability, whistleblowing, etc.).
The traditional rule of at-will employment may be altered and a contract for employment may be formed by:
- Employment contracts or collective bargaining agreements;
- Statements made in employee handbooks or policy manuals without an appropriate disclaimer;
- Specific oral statements made to applicants or employees; and
- Other written representations, for example, those contained in an offer or warning letter to an employee.