What Is At-Will Employment and How Does It Affect Non-Competes?

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Though at-will employment is the predominant employment status throughout the United States, the concept of at-will employment remains one of the most misunderstood issues in business law. Generally speaking, an at-will employee, then the employer has every right to utilize that disclosure, as evidence that the employee may be fired without cause.

Contract employment is the opposite of at-will employment. An employee under contract will sign an agreement outlining all aspects of the position, such as obligations and authority, compensation and length of employment.  

The Basics of At-Will Employment.

Generally, at-will employment can be applied to all employers regardless of size or industry.

By definition, at-will employment means that the employer and the employee are engaging in an employment relationship based on the mutual understanding and agreement that either party can terminate the relationship at any time without the other party’s consent and without prior notice. 

At-will employment also means that an employer can change the terms of the employment relationship, including compensation, benefits, and job duties, at any point with no prior notice. In its most perfect form, an at-will employment policy leaves employees and employers alike with an “easy out” from a less than ideal employment situation. 

However, employers and employees need to understand that courts and legislature have created exceptions, which vary by state, to the definition above.

Exceptions to At-Will Employment

Public Policy

Under this exception, an employer cannot terminate an employee in violation of a well-established public policy or statute. For example, in many states, an employee cannot be terminated for filing a workers’ compensation claim. Additionally, an employer would be barred from terminating an employee for refusal to violate the law or report illegal activity at the employer’s behest. Public policy violations will vary between states.

Implied Contracts 

In Arizona, under the implied contract exception, an employer is prohibited from releasing an employee where an implied employment contract has formed. Since nothing appears in writing, however, it is often difficult to prove the existence of an implied contract and the burden of proof is usually on the terminated employee. An example of a potentially implied contract is when an employer tells an employee, verbally or in an official employee handbook, that they will only be fired for cause and said causes as well as a process for termination are clearly laid out. Terminating an employee in contradiction to this implied agreement could be considered a breach of contract.

Discrimination and Retaliation

At-will employment will not be applicable anywhere in the United States if employees are fired due to:

– Discrimination based their status as a membership of a Protected Class

– Violation of the Americans with Disabilities Act

– Violation of the Age Discrimination in Employment Act

Furthermore, at-will employment does not apply if an employer terminates an employee in retaliation for union action, such as going on strike or in instances where a collective bargaining agreement exists.

At-Will Employment & Non-Competes

There is much debate between states on the best manner for developing a binding non-compete agreement in the face of at-will employment. This is due to a contractual concept known as consideration. Consideration, in its simplest terms, is when each party to an agreement gives something to the other party in exchange for something. For a contract to be valid, there must be a consideration.

This concept applies to non-compete because many states believe that the offer of continued employment to an employee is sufficient consideration to make a non-compete agreement valid. However, other states believe that an offer of continued employment isn’t of sufficient value in an at-will scenario. The middle ground amongst states is that consideration is sufficient only if the employee is retained for a substantial period (some have held two years or more) after the non-compete is signed.

So, the takeaway here is that employers should look beyond an offer of employment or continued employment as the sole basis for a non-compete agreement. Additionally, it is a good idea to include a choice-of-law provision designating the law of a state where at-will employment is adequate consideration and your non-compete has a high likelihood of acceptance. Since enforceability of non-compete agreements varies from state to state employers are encouraged to obtain advice from a local business attorney.

While at-will employment contracts may be preferable for small-business owners who anticipate fluctuating staff needs or want a simpler way to release employees who are not working out, understating the intricacies of at-will employment, its exceptions, and how it related to a potential non-compete is crucial.

Contact Counxel Legal Firm

If you would like to learn more, contact us at (480) 744-6621 or at request@counxel.com. Don’t forget to check out the good things that others are saying about the services they received from Timothy Coons on Google.

This article is intended for informational purposes only and does not constitute legal advice for your specific situation. Use of and access to this article does not create an attorney-client relationship between you and Counxel Legal Firm. Please contact request@counxel.com or (480) 744-6621 to request specific information for your situation.

*Conveniently located off the 101 Freeway and the US 60 in the middle of Phoenix, Scottsdale, Tempe, Chandler, Gilbert, Mesa, and Queen Creek!

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