Employment At-Will Exceptions: Public Policy, Implied Contracts, Good Faith

The Rule Is At-Will. The Exceptions Are Where Employees Actually Win.

American employment law defaults to at-will employment: an employer may fire an employee at any time, for any reason or no reason, without advance notice or justification. Conversely, employees may quit at any time without liability. The doctrine, which originated in an 1877 treatise by Horace Wood, became the dominant rule in U.S. common law by the early 20th century. Montana is the only state to have legislatively abolished at-will employment — requiring just cause for termination after a probationary period under the Wrongful Discharge from Employment Act of 1987. Every other state applies the at-will presumption but recognizes one or more common-law or statutory exceptions that limit employer discretion in ways courts have been developing for 50 years.

Exception 1: The Public Policy Exception

The most widely recognized exception — accepted in approximately 43 states — prohibits an employer from discharging an employee for reasons that violate a clearly established public policy. The doctrine originated in Petermann v. International Brotherhood of Teamsters (California, 1959), where a court refused to enforce the termination of an employee fired for refusing to commit perjury at a legislative hearing. Firing someone for following a law, enforcing a legal right, or refusing to break a law is tortious discharge — a tort (civil wrong) actionable in court, unlike a pure at-will termination.

The public policy source matters. Courts require the public policy to be derived from:

• A constitutional provision (state or federal)
• A statute (the most common and safest source)
• An administrative regulation in some states
• A clear mandate of judicial decisions in a minority of states

Exception 2: Implied Contract from Employee Handbooks

When employers distribute employee handbooks promising progressive discipline, termination only for "just cause," or specific grievance procedures, courts in many states have held that these promises create an implied contract — modifying the at-will relationship without a signed agreement. Toussaint v. Blue Cross & Blue Shield of Michigan (1980) was the landmark case: the Michigan Supreme Court held that personnel manual language stating employees would be discharged only for cause was enforceable as an implied contract term.

Employer responses have been aggressive. Almost every modern employment handbook now contains an "at-will disclaimer" explicitly stating that the handbook does not create a contract and that employment remains at-will. Courts have generally — but not universally — enforced these disclaimers. The tension:

• A handbook with detailed progressive discipline procedures but a boilerplate at-will disclaimer presents a question of whether employees reasonably relied on the procedures
• California courts apply a more employee-favorable totality-of-circumstances test than most states
• Oral promises by supervisors ("we don't fire people without three warnings") can create implied contracts even in the absence of a handbook
• Duration-of-employment promises ("this is a permanent position") have been held to modify at-will status in some jurisdictions

Exception 3: The Implied Covenant of Good Faith and Fair Dealing

The most employer-unfriendly exception — recognized in only about 11 states, most prominently California, Massachusetts, and Nevada — implies into every employment relationship a duty of good faith and fair dealing. The covenant prohibits terminations made in bad faith or for malicious reasons, even if no other exception applies.

Montana's Wrongful Discharge from Employment Act of 1987 represents the legislative version: after a probationary period (defined in the employment agreement or, if none, after six months of employment), an employer may discharge an employee only for good cause. "Good cause" means legitimate business reasons based on documented performance or conduct deficiencies. Montana employees can recover lost wages and benefits — but not punitive damages — for wrongful discharge. The Montana model has not been replicated in any other state despite decades of advocacy.

Weingarten Rights and Collective Agreements

Union employees have important additional protections rooted in the National Labor Relations Act. The Supreme Court established in NLRB v. Weingarten (1975) that a unionized employee has the right to request union representation during an investigatory interview that the employee reasonably believes may result in disciplinary action. Denying this request and proceeding with the interview is an unfair labor practice. Union employees are also protected by just-cause requirements in collective bargaining agreements — they cannot be terminated without the employer demonstrating legitimate cause and following specified procedures, typically including progressive discipline.

• Weingarten rights apply only in unionized workplaces (the NLRB has extended and then retracted application to non-union workers multiple times)
• Just-cause protection in union contracts is the most robust form of job security available in U.S. employment law
• Arbitration under the grievance procedure in a CBA is the remedy for just-cause violations — not a lawsuit
• Last Chance Agreements (LCAs) — in which an employee waives further grievance rights in exchange for keeping their job — are generally enforceable if the employee signed voluntarily

This article is for informational purposes only and does not constitute legal advice.