Risk Management

At-Will Employment

Turning Back the Clock
John P. Mello Jr.July 1, 2001

As companies mull possible midyear layoffs in response to a slowing economy, executives should take another look at an October California Supreme Court decision that handed companies an at-will employment victory.

An at-will policy allows employers to terminate workers at the company’s discretion. Since the 1970s, though, legislatures and the courts have tempered such policies: Laws were passed to prevent employers from dismissing workers for discriminatory reasons (sex, race, age, and the like) or for public-policy reasons (blowing the whistle on fraud). Furthermore, as a way to dilute a company’s at-will powers, the courts expanded the definition of an “implied contract.”

It’s in the implied contract area that the courts appear to be backpedaling. In Guz v. Bechtel, the California high court turned its back on a 12-year-old decision that established criteria for implied contracts for at-will employees. The criteria included such factors as employee longevity, raises, and favorable reviews. Essentially, the court upheld Bechtel National Inc.’s choice to cut John Guz loose due to a downturn in the company’s workload. With the opinion, California joins such states as Montana, New Mexico, Nevada, and Idaho, where longevity and a policy of warning before discharge are insufficient evidence to infer an implied contract.

But some labor lawyers remain cautious about a possible resurgence of unfettered at-will employment. “There is always a risk that employees will challenge their termination if they are released for reasons not covered by a contractual provision,” says Mark S. Dichter, a labor and employment attorney with Morgan, Lewis & Bockius, in Philadelphia. Marshall Bellovin, an employment attorney with Ballon Stoll Bader & Nadler, in New York, agrees, and recommends that companies remove all doubt by requiring a new hire to sign a statement that indicates he or she is an at-will worker. He also advises companies to omit any references to length of employment from offer letters. “If there’s a term of years in that letter, then a CFO can get into trouble,” asserts Bellovin. — John P Mello, Jr.