The great majority of private sector workers are employed on an “at will” basis. Under this arrangement, either the employer or the employee can end the employment relationship for almost any reason or for no reason at all. However, recognizing that at will employment tended to put disproportionate power in the hands of the employer, courts and legislatures since the 1960s have limited the at will employment doctrine in a number of important respects. Both employers and employees should know these important exceptions to at will employment.
1. An at will employee cannot be fired for discriminatory reasons.
While an at will employee can be fired for virtually any reasons or no reason, he or she cannot be fired for improper reasons. Federal statutes prohibit discrimination on the basis of age, disability, race, color, religion, national origin, gender. Massachusetts law also prohibits these types of discrimination and, in addition, prohibits discrimination based on sexual orientation. Nor can an employer fire an at will employee in violation of various other federal statutes, including the Family and Medical Leave Act, and the Occupational Safety and Health Act.
2. An at will employee cannot be terminated if doing so violates an important state public policy.
An at will employee cannot be fired if doing so would violate public policy. The employer cannot terminate an employee: (1) in retaliation for the employee asserting a legally guaranteed right such as making a workers’ compensation claim; (2) for doing something legally required like serving on a jury; or, (3) for refusing to do something illegal, like committing perjury.
3. An implied contract may alter the employee’s at will status.
In the absence of any indication to the contrary, an employee is assumed to be hired on an at will basis. However, Massachusetts courts recognize that even in the absence of an express contract for other than at will employment, there may be an implied contract. Often, employees assert the existence of an implied contract based on the terms of an employee handbook. Under appropriate circumstances, such a handbook can be a binding implied contract, modifying the terms of employment.
However, to establish that the handbook is an implied contract, the employee must show that, “considering the context of the manual’s preparation and distribution as well as its specific provisions, an employee would be objectively reasonable in regarding the manual as a legally enforceable commitment concerning the terms and conditions of employment.” While a number of factors are relevant to this determination, a handbook is unlikely to form the basis of an implied contract if the employer reserves the right to unilaterally modify the terms of the manual.
An employer should definitely consult an attorney when drafting its employee handbook.
4. The implied covenant of good faith and fair dealing.
Under a line of cases originating with the Massachusetts Supreme Judicial Court’s 1977 decision in Fortune v. National Cash Register Co., a covenant of good faith and fair dealing is implied in every at will employment contract and is breached where the employer terminates an at will employee for the purpose of depriving the employee of a “commission earned but not yet payable.” Michelson v. Digital Financial Services, 167 F.3d 715, 726 (1st Cir. 1999), citing Fortune, 364 N.E.2d at 1257. Later cases extended Fortune, holding that the employer breaches the implied covenant of good faith and fair dealing by terminating an at will employee “without good cause and for the purpose of appropriating the employee’s commissions that were `reasonably ascertainable future compensation based on his past services.’” Michelson, 167 F.3d at 726, quoting Gram v. Liberty Mutual Ins. Co., 429 N.E.2d 21, 29 (Mass. 1981). The purpose of the implied covenant is to prevent the employer from becoming unjustly enriched.
Notably, to recover for breach of the covenant it is not necessary that the employee prove that the commissions of which he or she was deprived were actually due and payable at the time the employee was terminated. Rather, an employer may be liable for breach of the covenant even if the employee has not become absolutely entitled to receive the commissions, so long as the employee had performed the services to which the commissions in question were related.
For the most part, the foregoing limitations on the at will employment doctrine represent nothing more than common sense. No employer can reasonably believe that is “ok” to fire an employer for refusing to break the law, for asserting legally protected rights, or for prohibited discriminatory reasons. Nor could any employer exercising common sense think it proper to fire an employee simply to avoid paying commissions earned. Finally, the risk of implied contract claims can be avoided with proper attention to drafting of the employee handbook and other materials.