Understanding At-Will Employment and Your Business

Human Resources
Article
6 min. Read
Last Updated: 04/11/2024

Reviewed By:

Sheena McClelland

HR Response Partner

Paychex

A manager terminates an at-will employee

Table of Contents

Before bringing on new hires, both you and your employees should know whether the relationship is employment-at-will or covered under another type of working relationship (like a contract). While at-will employment is the default employment framework in the U.S., there are nuances and variances that may impact how a particular employment relationship works. Read on to learn what employment-at-will is, exceptions and exemptions, employment laws that offer protection for employees, and the impact it could have on your hiring practices and termination decisions.

Employment-At-Will Definition

At-will employment refers to a working relationship where either the employer or the employee has the right to terminate employment at any time, with or without cause, and with or without notice or warning.

Unlike an employee hired under a contract, at-will employment allows for flexibility for both parties should the working arrangement not work out at any time. There are exceptions and laws that limit the at-will nature of the relationship, including anti-discrimination laws, workers' compensation, workplace safety regulations, and unemployment insurance. Employees who are part of a union, contractors, and workers in the public sector are generally not considered employed at-will.

An offer of employment, such as a written offer letter, should state whether an individual is being hired as an employee-at-will or under an employment contract.

Employers may also ask employees to acknowledge an employee handbook that includes a policy or other language defining at-will employment and how it applies to their company's positions. The language used should clearly state that the handbook itself doesn't represent a binding employment contract. A handbook with this language may be referenced if an employer faces a wrongful termination suit.

Exceptions to Employment-At-Will

Some circumstances might require either an employer or an employee to follow employment guidelines that limit the presumption of at-will employment. Employment-at-will exceptions vary by state but may include:

Contracts: A written employment contract or collective bargaining agreement signed by the employer and the employee or union may outline employment over a specific period or allow termination only for cause, such as poor employee performance, misconduct, or budgetary reasons. Employers who use employment contracts are responsible for upholding and enforcing the terms within the contract.
Public policy: Under the public policy exception to employment-at-will, an employee is wrongfully discharged when a termination is for reasons against the state's policy. For example, in most states, an employer cannot terminate an employee for filing a workers' compensation claim after being injured or refusing to provide false testimony at the employer's request during a trial.
Good faith and fair dealing: An implied duty of good faith and fair dealing assumes that each party should interact fairly and honestly with respect to the employment relationship. Examples of bad faith terminations include an employer firing an older employee to avoid paying retirement benefits or terminating a salesperson before they are paid commission after closing a sale.
Implied contracts: Implied contracts of employment can occur when an employee may expect long-term, lifetime, or permanent employment based on an employer's statement(s), an employer's practice, or language in the employee handbook. Employers can protect themselves by using precise language on written materials stating that their policies and procedures do not represent a binding agreement or contract. Employers can also clearly communicate that they can modify policies and procedures at any time.

At-Will Employment Rights and Regulations

Even though at-will employment allows employers to terminate an employee with or without cause, employees still have certain protections under applicable federal, state, and local laws. For example, federal anti-discrimination laws enforced by the Equal Employment Opportunity Commission protect employees from discrimination or retaliation based on race, color, religion, age, sex, national origin, disability, and genetic information. Other government entities protect veterans and uniformed service members.

While these laws cover private employers with a minimum number of employees or more, many state and local laws are more expansive and may apply to smaller employers. Employees are also protected from unlawful termination while they are on job-protected leaves covered under the Family and Medical Leave Act and other mandatory leave laws.

States Offering Employment-At-Will

Many states have some form of employment-at-will, with differences regarding exceptions or exemptions.

State	Public Policy Exception	Good Faith Exception	Implied Contract Exception
Alabama	No	Yes	Yes
Alaska	Yes	Yes	Yes
Arizona	Yes	Yes	Yes
Arkansas	Yes	No	Yes
California	Yes	Yes	Yes
Colorado	Yes	No	Yes
Connecticut	Yes	No	Yes
Delaware	Yes	Yes	No
Florida	No	No	No
Georgia	No	No	No
Hawaii	Yes	No	Yes
Idaho	Yes	Yes	Yes
Illinois	Yes	No	Yes
Indiana	Yes	No	No
Iowa	Yes	No	Yes
Kansas	Yes	Yes	Yes
Kentucky	Yes	No	Yes
Louisiana	No	No	No
Maine	No	No	Yes
Maryland	Yes	No	Yes
Massachusetts	Yes	Yes	No
Michigan	Yes	No	Yes
Minnesota	Yes	No	Yes
Mississippi	Yes	No	Yes
Missouri	Yes	No	No
Montana*	Yes	Yes	No
Nebraska	No	No	Yes
Nevada	Yes	Yes	Yes
New Hampshire	Yes	No	Yes
New Jersey	Yes	No	Yes
New Mexico	Yes	No	Yes
New York	No	No	Yes
North Carolina	Yes	No	No
North Dakota	Yes	No	Yes
Ohio	Yes	No	Yes
Oklahoma	Yes	No	Yes
Oregon	Yes	No	Yes
Pennsylvania	Yes	No	No
Rhode Island	No	No	No
South Carolina	Yes	No	Yes
South Dakota	Yes	No	Yes
Tennessee	Yes	No	Yes
Texas	Yes	No	No
Utah	Yes	Yes	Yes
Vermont	Yes	No	Yes
Virginia	Yes	No	No
Washington	Yes	No	Yes
West Virginia	Yes	No	Yes
Wisconsin	Yes	No	Yes
Wyoming	Yes	Yes	Yes
Source: U.S. Bureau of Labor Statistics

Information in this chart is accurate as of April 2024. Information is subject to change as states update or change their policies.

* As Montana is not an at-will state, generally, after a 12-month probationary period, an employer must have "good cause" for termination.

Advantages and Disadvantages of At-Will Employment

At-will employment can offer employers and employees advantages and disadvantages, depending on the circumstances. For employers specifically, having workers employed at-will may provide them with the advantage of flexibility with respect to their workforce and may allow them to adapt more quickly to changing business needs. On the other hand, while employers should focus on open communication and building positive relationships with their workforce, employees without an employment contract can leave their jobs anytime and without notice.

At a glance, here are some advantages and disadvantages of at-will employment for employers:

Employment-At-Will for Employers
Advantages	Disadvantages
Flexibility around staffing and business needs	Potentially vulnerable to wrongful termination lawsuits
Increased ability to amend benefits and change pay structures	Employees may leave employment at any time and without warning
At-will employment may offer some protection for employers against legal action from employees	May increase the effort needed related to employee retention and the costs to keep workers (competitive pay, benefits, training, etc.)

At-will employees may benefit from the flexibility that this working relationship can bring. However, that flexibility often means there is no guarantee of future job security. Employers may choose to focus on building rapport and communicating changes around staffing, wages, or benefits to help with employee retention. It is also in the interest of at-will employees to understand this working relationship and familiarize themselves with the protections they have under it. At a glance, here are some advantages and disadvantages of at-will employment for employees:

Employment-At-Will for Employees
Advantages	Disadvantages
Flexibility to leave if the employee is unhappy or finds another job	Offers no security of guaranteed future employment at the company
May be able to leverage other employment opportunities for a raise or additional benefits	Employers have more flexibility to change wages, shift schedules, benefits, etc.
May help in employee motivation and career advancement, since employee promotions are generally based on merits and work performance	Employee turnover due to colleagues leaving could create heavy workloads and diminished morale

Employment Solutions From Paychex

Understanding at-will employment is important for both employers and employees. While it may offer flexibility for both parties, it's also crucial to carefully navigate the potential complexities associated with at-will employment. With the support of comprehensive HR and employment solutions, businesses can get help navigating the intricacies of at-will employment while fostering fair and sustainable employment relationships.

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Human Resources Hiring Employment Law Compliance