Authored by Steve Holden. Published in the Sacramento Business Journal March 2013
The vast majority of private employers in California desire an at-will employment relationship with employees. The vast majority also believe they are at-will employers. They may be, but for a great many, it will take three years of litigation and several hundred thousand dollars to prove it.
It is often said that there are two types of employment: at-will employment and employment by contract. This is actually a misnomer. All employment is by contract. It is either a contract for at-will employment or a contract for something else. The most common alternatives to at-will employment are collective bargaining agreements in the union environment and individual employment agreements that provide for “good cause” termination. In the at-will employment relationship, the employer is not required to provide advance notice of a termination decision and is not required to justify the decision with “good cause.”
It is also often said that in the absence of a written employment contract, all employment in California is at-will. This is also a misnomer. It is true that the Labor Code specifies at-will employment as the default employment relationship, but a written agreement is not necessary to overcome the default. Oral agreements and implied-in-fact agreements can be entered which limit the employer’s rights to end the employment relationship. Implied-in-fact agreements are the most problematic because the employer will not even know that it has entered into the agreement until the question is litigated and the court renders a decision. A properly structured at-will employment relationship permits the employer to avoid this litigation. It also provides the employer with flexibility in making decisions for operational reasons, and ensures that no judge or jury will later be called upon to second-guess the wisdom or fairness of the employer’s business decisions.
It is likely at least one half of the employers in California who think they are at-will employers are not. Or, at least they are not in the sense that they can avoid extensive litigation by using the legal process of summary judgment to have wrongful termination lawsuits dismissed. The problem arises because many employers, even the big ones, use borrowed or template documents. Unfortunately, many of the attorneys and human resource professionals who write the documents lack a complete understanding of the law on at-will employment and they utilize documents which fail to properly establish the at-will relationship. Employers who create documents on their own are at even greater risk for errors. This is an area where the words and their precise placement really matters.
The most common errors made that interfere with the proper establishment of an at-will employment relationship are summarized below.
- Relying exclusively upon at-will policy statements and agreements in employment application forms. Courts have ruled that statements in employment applications are insufficient to prove at-will employment.
- Relying upon at-will policy statements. Courts have ruled that because policy statements are generally non-binding they cannot conclusively prove an at-will relationship.
- Utilizing employee handbook language stating that the handbook is not intended to create a contract or contractual rights. While that may be appropriate for most of the policies in the handbook, it can effectively wipe out any attempt in the handbook to create or confirm an at-will relationship.
- Failing to utilize documents which create an at-will employment agreement. A key court decision that can be used to obtain summary judgment requires that the at-will nature of the employment relationship be set forth in an “employment agreement.”
- Failing to control modification to the at-will employment agreement. If a properly written at-will agreement can be modified without specific controls, the employer may be put to the burden and cost of litigation to prove that it was not modified.
- Failing to integrate the at-will agreement. Agreements that are integrated are much less likely to be subject to lawyers’ arguments and extensive litigation.
- Failing to coordinate the numerous documents that may impact the at-will analysis. When the documents are not properly structured to work together in establishing the at-will relationship, there is an opportunity for lawyers’ arguments and litigation.
- Failing to get good documents signed and failing to securely maintain them once signed. Even the best designed documents are of limited value if they cannot be produced when needed.
Avoiding these errors can literally save years of litigation and hundreds of thousands of dollars in a typical wrongful termination case. Even where an at-will employment relationship is not desired, these same types of errors can result in unnecessary litigation.
Fortunately, the errors and litigation can be avoided. Employers should start by taking the time to really understand the various forms of employment. This includes the pros and cons of each form, and the elements necessary to properly establish each. Regardless of the form desired, employers should take a comprehensive approach. All of the documents which refer to or which may relate to the employment relationship should be audited.
Once the audit is complete and the documents have been revised properly, attention should be turned to employee training. Employees involved in the on-boarding process should understand the type of employment relationship being created and should be trained to avoid communications in interviews and communications in initial emails that may conflict with the desired relationship. By following these steps employers will have surety in the type of relationship created and will avoid unnecessary litigation.