Originally published in October 2020.
“At-Will Employment“
Yes, you are allowed to fire employees and no, it is not a crime. 49 states are what we call “at-will employment” states. The one exception is Montana, which codifies certain protections that generally exist under the common law of the other 49, but that’s beyond the scope of this episode.
“At-will” employment means you may fire an employee at any time, and the employee is entitled to quit at any time. Severance pay from an employer or two weeks’ notice from an employee is nice, but not required by law.
When I say an employer may fire an employee at any time, that doesn’t mean there are no limits to this otherwise broad right. In a nutshell, an employer may terminate an employee for a good reason or for no reason, but not for a bad reason.
Bad Reasons
What constitutes a bad reason? Under federal law, bad reasons include the following: age, disability, national origin, color, race, religion, and sex. That’s under federal law. Individual states and localities may include additional protected classes, so always check with local counsel if you have any local questions.
There are three exceptions to the at-will employment doctrine. The first is called the public policy exception. This means that an employer may not terminate a worker for taking advantage of services or rights to which they are entitled. For example, you may not fire an employee for filing a workers’ comp claim.
The second exception to the at-will employment doctrine is implied contract. If your dealership has an employee handbook that sets forth steps to be taken before an employee may be fired, those steps must be followed. If they aren’t, you may have a lawsuit on your hands.
The third exception is called “covenant of good faith and fair dealing.” This is not common and is recognized in only 11 states. But if you’re in one of those states, your right to fire an employee for no reason may be somewhat limited.
And here’s where it gets tricky. The employer may terminate an employee for substandard work or excessive absenteeism, but the employee may allege the real reason was actually one of the bad reasons. What’s an employer to do?
Employee Handbook
The first thing to do is make sure you have a written employee handbook that makes clear employment is at-will (assuming you’re not in Montana). If you have a progressive discipline process in place, state that it may not apply in all cases. I have personally fired two employees for embezzlement. If you steal money from my firm, no amount of counseling and probation will save your job.
Documentation
And document everything. If an employee is not performing up to standards, document that fact and the steps taken to help the employee improve. If termination becomes necessary, document the reason EVERY SINGLE TIME. Establish a protocol for terminating employees and follow it.
If the terminated employee is over 40 and you ask for a release – generally offered in connection with a severance payment – that older employee must be given additional time to review the document, have the ability to revoke the agreement for a specific period of time after signing, and be told to consult an attorney before signing.
If the employee you fired has health insurance through the dealership, you need to provide a COBRA continuation notice. If this all seems complicated, well, that’s why we have HR professionals. If your dealership doesn’t have a full-time HR Director, there are part-time, on-demand professionals that can pinch hit as the need arises.
So yes, you may terminate employees without getting sued – provided you are fair and consistent and document your reasons. Every. Single. Time.