Avoiding the Accidental Contract
In Texas, the relationship between an employer and an employee is presumed to be terminable "at will," which means that either side is free to end the relationship at any time. The relationship may be ended for any reason or for no reason, but cannot be ended for an illegal reason (such as the employee's race, color, religion, age, gender, national origin or disability, or due to the employee filing a worker's compensation claim, refusing to perform an illegal act, reporting a violation of law, or attending jury duty.) An employment relationship which is not "at will" is said to be "contractual," and contractual employment relationships can only be terminated for good cause. From the employer's perspective an "at will" relationship is often preferable because it permits severing relationships with employees who are not a good fit with the organization, even though their conduct may not be bad enough to warrant termination for cause.
Changing "At Will" Status
So if the relationship is presumed to be "at will," how does one end up with a contractual relationship? As it turns out, there are number of ways this can happen--not all of them intentional.
- A formal contract. Sometimes, both sides really do want to have a contractual relationship so that the employer knows it will have the benefit of the employee's services for a particular period of time, and the employee knows she will not be fired except for good cause. In this situation the parties typically negotiate and sign a written employment agreement that expressly eliminates "at will" status.
- Verbal promises. Sometimes in their eagerness to make an employee feel secure an employer will promise that the employee may remain as long as she does "a good job," or that she will get a raise in a year. These kinds of remarks have been held to evidence an intent to limit the employer's right to terminate at will by guaranteeing employment for a specified term.
- Offers of employment. These sorts of letters are particularly fraught with danger. They are often written by lay persons who inadvertently include terms that eliminate "at will" status. Examples of common mistakes include quoting an "annual" salary (rather than the hourly equivalent), failing to clearly define factors upon which continued employment is conditioned, offering employment for a fixed term (rather than simply stating a starting date), and failing to clearly state that the relationship is intended to be terminable "at will."
- Employee manuals and handbooks. Many of the problems commonly seen in written offers of employment also appear in employee manuals and handbooks. When applicable, such manuals and handbooks should include a clear and conspicuous disclaimer to the effect that the employment relationship is terminable "at will" by either party, and that nothing therein is intended to change that status or constitute a contract of employment.
Employment contracts serve a legitimate and important function in business, but they should be the result of careful negotiation and thoughtful deliberation. Unintended contractual relationships can be extremely difficult to terminate, and may result in the employer continuing to pay compensation and benefits to the former employee for months or years after the employee has been fired. At the Killeen law firm of Roberts & Roberts, we can assist in drafting employment policies, manuals, and contracts, as well as other business law issues.