By:Allie Beil

Most U.S. employees are at-will employees, meaning they can be terminated for almost any reason, or for no reason at all, so long as it is not an unlawful reason at any time. In fact, most states presume all employment relationships are at-will. Despite this presumption, startups should still exercise good judgment and caution when terminating employees to avoid potential pitfalls. These pitfalls include discrimination claims and other claims of wrongful termination against public policy. Startups should have a well-thought out and multifaceted approach, which includes some of the following suggestions:

  1. Create an employee handbook or policy manual that outlines consistent practices regarding employee termination and equal opportunity employment practices;
  2.  Document the employment relationship from start to finish, including any infractions or performance issues as they arise for the business’s and employee’s records; and
  3. Take note of common law exceptions to the at-will presumption, to avoid potential litigation.

I. Understanding and Establishing the At-Will Employment Relationship

Unless contractually agreed upon, all states in the United States, except Montana, presume that employees are at-will. At-will employment is employment not guaranteed and which can be ended at any time for cause or without cause, as well as with reason, or without reason, if that reason is not unlawful. Unlawful reasons for termination include unlawful discrimination (e.g., race, sex, gender, age, etc.) and for other reasons against public policy, which can vary from state to state. Despite the presumption of at-will employment, startups need to be aware of local, state, and federal laws pertaining to their businesses to be sure they are not unlawfully terminating an employee. For example, D.C. has more extensive anti-employment discrimination laws that not only include more protected traits than existing federal laws, but also extend these employment discrimination laws to any employer, regardless of number of employees.
Despite this presumption, startups may also wish to document the employment relationship that outlines the nature of the relationship. This documentation can take many forms, including in an offer letter, employment contract, or some other communication or document (e.g., an employee handbook or policy manual). This would work to ensure there are no future misunderstandings.

II. Avoiding Wrongful Termination Claims for Public Policy Reasons
While state laws can vary widely in regard to public policy exceptions for termination of employment and can vary widely in the interpretation and application of these exceptions, there are four widely recognized public policy exceptions for termination of employment. An at-will employee cannot be terminated for:

  1. refusing to commit an act that is contrary to state law,
  2. reporting that such an act has occurred in violation of state law,
  3. participating in acts that are in the public interest, and
  4. exercising a statutory right.

Startups need to take note of public policy exceptions to avoid wrongful termination claims or complications. If an employee refuses to commit an act in violation to state law, for example refuses to perjure himself, the public policy exception applies. If an employee chooses to report such an act, the exception also applies. In regard to participating in acts that are in the public interest, for example include participating in jury duty, the exception also applies. Additionally, the exception applies when an employee chooses to exercise a statutory right, whether federal or state, such as filing for worker’s compensation.

III. Avoiding Discrimination Litigation
Although some federal equal opportunity and anti-employment discrimination laws do not apply to smaller employers (for example Title VII which addresses federal anti-discrimination in employment for the protected classes of race, color, religion, sex, and national origin only applies to employers with 15 or more employees) which many startups begin as, state legislatures have passed various anti-employment discrimination laws in their states that cover these smaller employers. Startups need to be aware of these laws and should include an equal opportunity policy in their policy manuals to mitigate the risk of potential litigation for discrimination from terminated employees. Startups should review relevant state laws to determine what protected categories are included in their state’s laws and consider making their anti-discrimination policies as broad as reasonable and practicable in their area.

IV. Documenting the Employment Relationship with Employees
In addition to having clear policies on equal opportunity, anti-discrimination, and the at-will employment relationship, startups can mitigate the risks of a wrongful termination claim, public policy related, discrimination related, or otherwise, by documenting employee infractions and performance issues in a detailed and careful manner. This provides a record that a startup can point to as evidence of a lawful termination. This includes documenting previous references to violations and infractions in the termination letter to incorporate all records.

V. The Importance for Startups
Startups should be wary of potential employment issues that could lead to costly and troublesome litigation from current or former employees. To mitigate the risk of these potentially business debilitating lawsuits, startups should create and document proper procedures, especially for something as possibly contentious as terminating an employee.

Sources:
The National Conference of State Legislatures, http://www.ncsl.org/research/labor-and-employment/at-will-employment-overview.aspx
SHRM, https://www.shrm.org/resourcesandtools/legal-and-compliance/state-and-local-updates/pages/7-policies-to-update-in-your-2019-employee-handbook.aspx
SHRM, https://www.shrm.org/resourcesandtools/hr-topics/employee-relations/pages/performance-documentation.aspx
§ 2.01 Default Rule of an At-Will Employment REST EMPL § 2.01Restatement of the Law – Employment Law
EEOC, https://www.eeoc.gov/laws/statutes/titlevii.cfm
D.C. Office of Human Rights, https://ohr.dc.gov/