A ruling by the Sixth Circuit Court of Appeals (Michigan, Ohio, Kentucky, and Tennessee) helps employers understand what is needed in order to maintain at-will employment status. Under the at-will principle, both the employer and employee are free to terminate the employment relationship at any time and for any reason. The case, Highstone v. Westin Engineering, Inc., No. 98-1548 (8/9/99), involved an employee who claimed he was terminated in violation of both written provisions in the employee policy manual and oral statements made to him in a pre-employment interview. The Court found that the employee did not have a reasonable expectation of a continuing employment relationship with the employer and ruled him to be an at-will employee who could be terminated at any time.

The employee alleged that when he interviewed for the position of Principal Engineer/Project Manager he told the company he wanted a job with long-term employment possibilities. He claimed that during his interview with the Chief Engineer he was told there would be plenty of work for that office because of an ongoing five-year project.

When he first went to work in September 1992, he was given a copy of the company’s policy manual and was asked to sign an “Employment Agreement” in which he consented to abide by all of the company policies and procedures. By his signing, he also acknowledged the company’s disclaimer which held that the policy manual did not constitute a contract and was not a guarantee of continuing employment.

Early in 1995 it became apparent to the company that revenue from its major project was declining, and in April the employee was terminated because of a lack of work. On July 16, 1996, the employee brought suit against the company alleging a breach of contract based on the oral statements that were made to him before he was hired.

The employee also alleged that the company’s policy manual created a contract between the parties and gave him an expectation of job security. He interpreted these representations as a promise that he would not be terminated without just cause, i.e., without his violating company policies. The employee argued that the company breached the contract when it terminated him without just cause. The district court disagreed and found in favor of the company on both the oral and policy manual contract claims. The employee then appealed to the Sixth Circuit.

In deciding the case, the court applied Michigan contract law, which holds that an at-will relationship is generally presumed to exist. However, if an employee can produce evidence of the existence of an express written contract which promises a definite period of employment or prohibits termination without just cause, the employee may be able to prevail and overcome the at-will presumption. The court said that an express contract could exist if there are clear oral or written statements, including the employer’s policies and procedures, that give a “legitimate expectation” of job security to the employee.

The oral statements. The Sixth Circuit said that oral statements could be an express contract, but that they would have to be understood as such by “reasonable people,” and they must be clear and unequivocal. In his interview, the employee claims to have made it clear he was seeking a stable position and that he was told there would be “plenty of work.” He took this as a promise of job security. However, the court found these statements to be only expressions of “optimistic hope” and were “not sufficient to create a reasonable expectation” of long-term employment.

The policy manual as a contract. The court’s next focus was on whether the company’s policy manual created an expectation that the employee would only be terminated for just cause. The court first looked to see what, if anything, was promised in the policies. It found the specific disclaimer that the employee had signed said that the manual was not a guarantee of employment. Further, the manual clearly stated in its “Application of Contents” section that it was not a guarantee of employment to any employee, and the employer reserved the right to terminate its employees at any time for such reasons as lack of work or reorganization. Finally, the manual did not contain an express statement saying that employees could be discharged only for just cause. For these reasons, the court ruled that the manual could not reasonably be interpreted as giving the employee an expectation of job security.

Additional note. While the employee was still working for the company, the manual was revised to add the actual term “at-will.” The new language said: “Note that all… employees are at-will employees and that neither the Employee Agreement nor this manual are guarantees of continuing employment.” The revision was completed at the end of 1994 and was published on-line on March 16, 1995, one month before the employee’s termination. Although the employee claimed that he did not receive the revised manual, the court said this did not matter. It went on to explain that the addition of the term to the manual did not change the employee’s at-will status, rather only clarified it.

If you intend to be an at-will employer, make the point clear in all your hiring and policy communications. The company in this case may have been able to avoid litigation if the oral statements had been more consistent with its written policies. Forty-nine states and the District of Columbia recognize the at-will employment relationship. Only Montana has a “for cause” requirement for the termination of nonprobationary private employees. However, just because the at-will relationship exists in your state, you should be aware that most states also have some limitations on this principle. Even so, there are proactive steps that you can take to help avoid misunderstandings:

• Add a statement to your employee policies stating that all employees are employed at the will of the company for an indefinite length of time, unless they have a written contract for a definite period of employment. The statement needs to be highly visible so that employees are sure to read it.
  
• Explain that no statements made in any of the company’s policies will alter the at-will relationship.
  
• Have prospective employees sign a statement acknowledging they understand they are applying for an at-will job.
  
• Let employees know that completion of any introductory period of employment does not change their status as an at-will employee.

These steps and careful supervisory training can help you preserve your at-will status. However, you still need to remember that the at-will status will not protect you against all employment legal actions. Your state laws may have restrictions on the application of the at-will status, and at-will status will not protect you from violations of discrimination laws.

This article is not intended as legal advice. Readers are encouraged to seek appropriate legal or other professional advice.