Implied Employment Contracts and Wrongful Termination

Employment relationships are presumed to be "at-will" in all states except Montana. In general, an at-will employment relationship means that either the employer or the employee is free to end the relationship at any time and for any reason (or no reason) at all. However, "wrongful termination" is a major exception to at-will employment. Common law wrongful termination includes terminations after an implied contract for employment has been established.

Common Law Implied-Contract Exception to At-Will Employment

A widely recognized exception to the at-will employment presumption prohibits terminations after an implied contract for employment has been established. Such a contract can be created through employer representations of continued employment, in the form of either oral assurances or expectations created by employer handbooks, policies, or other written assurances.

Although employment typically is not governed by a contract, an employer may make oral or written suggestions to employees regarding job security or procedures that will be followed when adverse employment actions are taken. These suggestions may create an employment contract, for all intents and purposes.

How the Implied-Contract Exception Is Treated By Courts

Many courts across the country have found that the representations made in employee handbooks can create an implied contract, absent a clear and express waiver that the guidelines and policies in such handbooks don't create contract rights. A common situation involves handbook provisions stating that employees will be disciplined or terminated only for "just cause" or under other specific circumstances, or provisions indicating that an employer must follow specific procedures before disciplining or terminating an employee.

For example, a California court stated (Guz v. Bechtel) that where there is no express agreement, the issue is whether other evidence points to a mutual understanding of employment terms (an implied contract, in other words). However, the court also found that an employee's mere passage of time in the employer's service, even where marked with positive evaluations, can't alone form an implied contract that the employee is no longer at-will. Absent other evidence of the employer's intent, employment longevity, raises, and promotions don't in and of themselves constitute a contractual guarantee of future employment security.

In states that recognize the implied-contract exception to at-will employment, courts have generally agreed that at-will disclaimer language in an employee handbook or policy manual doesn't necessarily mean an employee is employed at will. However, even if disclaimer language isn't controlling, the provision is considered in determining whether the parties' conduct was reasonably understood to create binding limits on an employer's right to terminate an at-will employment relationship. This means that courts generally look at all pertinent evidence, including any disclaimer language, in determining the terms under which a worker is employed.

Because courts review all pertinent evidence and weigh many factors, the implied-contract exception has been applied in a fact-sensitive manner. In states that recognize the exception, it can be difficult to predict how a certain case will be decided. However, courts have begun to review implied contract cases more strictly.

For example, the California Supreme Court considered a case (Dore v. Arnold) in which an employee received an offer letter describing his commencement date, salary and benefits, and initial probationary period. The offer letter contained a paragraph stating that employment would be at-will and that the employer "has the right to terminate your employment at any time just as you have the right to terminate your employment with [the employer] at any time." The employee signed the letter, signifying his acceptance of the various employment terms. The court held that this express language alone was sufficient to bar an implied contract claim. The court made this determination despite the offer letter not containing all of the material terms of the employment relationship.

This means that, in accordance with the courts' more careful recent application of the implied-contract exception, an express agreement that indicates an at-will policy generally won't be trumped by evidence of an implied agreement.

Considerations

The implied-contract exception to the at-will employment presumption is a changing area of law. It is important to determine how your state courts have applied the exception. Because employers have reacted to the exception by carefully drafting documents to unambiguously state that the parties agree to at-will status, it can be difficult to bring a valid implied contract lawsuit. If you need help in understanding the implied-contract exception, or legal assistance in suing your employer based on an implied contract, you can contact a wrongful termination attorney.