Although the employment-at-will doctrine allows most employers to fire employees at their discretion, this does not mean that you can fire anyone, anytime just because you feel like it. To the contrary, various federal and state laws as well as public policy put serious limitations on employee terminations. On the other hand, employers should be aware that under certain circumstances the failure to fire an employee can result in legal ramifications.
Most employers dread firing employees but as careful as you may be to select the best employees available and to manage them well, at some point it's likely that you'll have to do it. Making an unpleasant task worse is the fact that there is a growing body of law that limits your right to fire workers, and that more and more workers seem to be filing (and winning) lawsuits against their former employers.
Before taking steps to limit your risks when you fire someone you should educate yourself regarding the major laws and legal restrictions that limit your right to fire and when you may be required to fire a worker or suffer legal repercussions.
If you enter into a formal employment contract with an employee (or a union contract with a group of employees), you'll frequently specify in the contract the proposed length of the employment relationship and the reasons for which either party can end the relationship. In other words, the contract's terms will generally govern your ability to fire the employee, as well as the employee's ability to quit. If either party attempts to terminate the relationship in violation of those terms, a potential breach of contract claim arises.
Assuming that a formal contract does not govern your employment relationships, as is generally the case, the employment-at-will doctrine is likely to apply.
In all states other than Montana, employment relationships where there is no contract in place are governed by the "employment-at-will" doctrine. "Employment-at-will" means that there's a presumption that the employee is employed at the employer's will for an indefinite period rather than for a fixed term.
Montana law has abolished the "employment-at-will" status. In Montana, an employer can fire an employee who has completed a probationary period only for good cause. "Good cause" is defined as reasonable job-related grounds for dismissal based on a failure to satisfactorily perform job duties, disruption of operations, or other legitimate business reason.
Traditionally, both the employer and the employee have had the ability to end an at-will relationship at any time and for any reason. However, at least from the employer's perspective, the unlimited freedom to fire at-will employees at any time for good cause, bad cause, or no cause at all has been eroded in recent years by the federal and state governments and the courts. The exceptions that these institutions have carved into the employment-at-will doctrine form the foundation for most wrongful discharge claims, in which employees sue you for lost wages, punitive damages, and occasionally, reinstatement in their job.
Don't assume that you're free from a wrongful discharge type lawsuit merely because an employee quits. Courts will frequently treat an employee who quits in order to escape illegal or intolerable employment practices or conditions (for example, sexual harassment or other discriminatory conduct) the same as though he or she were fired.
Limitations in written laws. Numerous federal and state laws potentially restrict an employer's ability to fire at-will employees. These laws fall into two general categories. The first category consists of those laws that make it illegal for employers to discriminate against certain individuals. The second category consists of laws that make it illegal for an employer to retaliate against employees who exercise rights conferred by the laws or who take steps to see that the laws are enforced.
Limitations applied by the courts. Courts, too, have taken steps to limit an employer's ability to fire at-will employees. In doing so, they generally rely on one of the following theories:
- The implied contract limitation: A statement or document from the employer effectively created a formal employment contract where none previously existed. For example, stating that employees will be fired only for good cause in your handbook may form the basis for such an "implied" contract.
- The public policy limitation: The firing goes against public policy by infringing on some right granted employees by federal or state law or because it is otherwise morally or socially wrong. For example, firing an employee merely for filing a workers' compensation claim is illegal.
- The bad faith limitation: The few courts that have relied on this theory presume that employers are generally obligated to deal fairly and in good faith with all their employees. For example, firing an employee for the sole purpose of denying the employee a bonus that the employee has earned but not yet received may be unlawful in some states.
Firing restrictions in written laws
What's one of the easiest ways to find yourself defending a wrongful discharge lawsuit? Fire an employee under circumstances that violate a fair employment law. Numerous federal, state, and even local laws restrict an employer's right to fire an employee for discriminatory or retaliatory reasons.
Many fair employment laws exempt certain businesses. For example, it is not uncommon for such laws to provide exemptions for employers having some minimum number of employees. However, merely because you qualify for a law's exemption does not mean that you're free to fire those employees whom the law was designed to protect without any risk of being sued. Courts can, effectively, extend the law to you under the "public policy" theory. The fact that a law protecting a certain class of employees was adopted generally indicates a public policy in favor of that protection.
Federal fair employment laws protect employees against various forms of discrimination in the workplace. This protection lasts throughout the entire employment relationship, including the period leading up to and ending with an employee's separation from the business. Thus, for example, you could run afoul of federal law if you fire an employee solely on the basis of the employee's race, color, religious preferences, gender, national origin, disabilities (including substance abuse problems), or age.
In addition, every state has its own laws that make it unlawful for an employer to fire an employee under certain circumstances.
Federal fair employment laws
The following table shows some of the federal fair employment laws that are of general application. Normally, the effect of these laws starts with the hiring process and continues through the termination of the employment relationship.