[Editor’s note: This article is based on a white paper published by the New England Legal Foundation entitled “Employment At Will And Its Exceptions: A Troubled Doctrine In Need Of Reform.”#]

Employment-at-will is the default standard governing employment relationships in 49 out of the 50 states, and in the District of Columbia.
This well-known rule is that, absent an agreement to the contrary, an employer is free to discharge an employee, and the employee is free to quit, for any reason or for no reason at all, and without any notice.
Generally, businesses support employment-at-will, assuming it provides them more flexibility with regard to employment decisions.
However, employment-at-will is not the panacea that many businesses may assume it to be. The doctrine has become riddled with numerous quirky and unpredictable common law exceptions from state to state, which expose employers to uncertain liability and unpredictable damages, especially given the wildcards of non-economic and punitive damages.
The courts have created numerous exceptions to employment-at-will, based on a perceived inequality of bargaining power between most employers and employees and often to serve social policy goals.
The most generally recognized exceptions are employee claims based on: (1) discharge contrary to the terms of an employer’s handbook, policy, or manual; (2) discharge in violation of a recognized public policy; and (3) breach of the implied covenant of good faith and fair dealing.
These common law claims evade precise definition. Consequently, employers have few, if any, clear guidelines to follow when making personnel decisions. Liability is similarly unpredictable because the contours of these common law claims expand or contract depending on the facts of each case, the particular jurisdiction, and the judge applying the law.
Even though employment-at-will may be the dominant legal paradigm, any employer who discharges an employee today risks exposure to significant defense costs and potentially large jury verdicts.

Abandon employment-at-will

Since this state of affairs actually does not serve the interests of employers or employees, NELF advocates in its white paper the abandonment of the common law employment-at-will doctrine and, in its place, the adoption of a comprehensive legislative wrongful discharge statute.
Such a statute would embody a quid pro quo where an employer’s liability and damages for discharge would be limited in amount and kind, in exchange for a “good cause” standard that would protect an employee from arbitrary termination.
Montana enacted just such a wrongful discharge statute in 1987, which Montana’s business community lobbied for in response to the extravagant damages awards in wrongful discharge cases. The law embodies precisely the quid pro quo proposed above, limiting employers’ exposure to wrongful discharge claims in exchange for holding employers to a good-cause standard when discharging non-probationary employees.
The Montana statute defines “good cause” as “reasonable job-related grounds for dismissal based on a failure to satisfactorily perform job duties, disruption of the employer’s operation, or other legitimate business reason.”
The statute expressly bars non-economic damages, and limits an employee’s economic damages to a maximum of four years’ pay, offset by the employee’s duty to mitigate. While codifying the common law handbook and public policy exceptions, the law significantly narrows them, such as by restricting the handbook exception to express promises in a written personnel policy.
The statute also expressly preempts all other common law tort and contract claims of wrongful discharge for at-will employees.
In practice, the Montana measure appears generally to have succeeded in reducing employers’ exposure to liability and damages, while imposing minimal additional costs for compliance with the good-cause standard.
Montana’s courts generally have applied the good-cause standard reasonably, and, according to employment lawyers in the Montana bar, the number of wrongful discharge suits has declined, due principally to the statute’s limit on damages. Leading economic indicators also show that the law has had no adverse impact on Montana’s overall economic performance and may well have benefited business.

Model Employment Termination Act

In 1991, the Uniform Law Commissioners proposed the Model Employment Termination Act (META), which generally embodies the same quid pro quo as the Montana law, preempting common law claims and limiting damages in exchange for providing good-cause protection to employees, along with recognizing a probationary period.
Unlike the Montana statute, META allows an employer and employee to define what constitutes good cause for discharge, or to waive good-cause protection altogether in exchange for limited severance pay in the event of future discharge.
Many state legislatures have considered, frequently more than once, wrongful discharge bills that typically borrow from these models and generally embody the same quid pro quo of limiting damages in exchange for just-cause protection.
The genesis of some of these bills appears to be a singular concern for the vulnerability of at-will employees. These bills are apparently not promoted as a balanced solution that can benefit both employers and employees. This fact may explain, at least in part, why no other state has yet enacted a wrongful discharge statute.
A balanced wrongful discharge statute would likely be a significant improvement over the current common law thicket of wrongful discharge claims, to the benefit of employers and employees alike.
Such a statute would protect both an employer’s discretion and an employee’s job security, and could also have longer-term benefits for the economy at large. Under a balanced statute, employees would be adequately compensated for, and employers adequately deterred from, adverse employment decisions that do not serve a legitimate business interest.
Conversely, the statute would protect an employer’s reasonable exercise of business judgment and would limit its exposure to damages in the event of liability. In the long run, a balanced statute and its measured application would reduce an employer’s costs associated with each employee, thereby increasing overall productivity and employment opportunities.
Ben Robbins is senior staff attorney at the New England Legal Foundation, and the principal author of the white paper discussed in this article. NELF is a non-profit foundation sustained by tax-deductible contributions from businesses, law firms, and individuals that support NELF’s mission of advocating business interests through amicus briefs in litigation and promoting public discourse on legal issues of concern to business.