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What Does “At Will” Employment Really Mean?

Our new executive employment clients often start their initial conversations with us by saying, “I know that I am only an ‘at will’ employee.”

They are usually correct, since these days almost every executive in America is “at will” (I can count on the fingers of one hand the number of instances in the last decade when I have seen anything approaching an old-fashioned employment contract for a term of years).

What about college and university presidents, you might ask, whose contracts customarily specify right up front that they are being hired for a “term” of three, five or seven years? These “terms” may project an aura of stability to the alumni and the faculty, but the actual contracts almost invariably go on to say that the president serves at the will of the Board of Trustees, which may dismiss the president at any time (often with only a modest amount of notice) with or without Cause. If a college president or any other senior executive can be fired without Cause, their employment is effectively “at will.”

(A little bit of history: the United States has long had a strong tradition of employment “at will,” since U.S. businesses have been wedded to the principle that an employer should be able to hire and fire as their economic interests dictate. This is not true in many other countries. Britain and the EU countries offer some form of job security to employees who have worked for a certain period of time. In at least one Middle Eastern country, by contrast, when an executive is offered and accepts employment for a term of years, that executive may incur serious monetary penalties if the executive departs before the end of the term without having one of a limited number of specified legal reasons for doing so. Economists and philosophers can argue about the merits and deficits of these different legal approaches, but experienced executive employment lawyers usually do not have the luxury to do so. Accordingly, our uniform advice is not to accept executive employment in any country outside the United States without an executive having his or her prospective contract carefully reviewed by, and taking advice from, a lawyer practicing under the laws of that country. End of history lesson.)

So, accepting that virtually all executives, including college and university presidents, are effectively employed “at will,” what does that mean?

On the surface, it means what the language of most executive employment agreements explicitly says: that the employer does not have to have any reason, let alone one of the reasons which constitute acknowledged “Cause” for termination, in order to end the executive’s employment.

But the inquiry does not stop there, since the employer cannot use the absence of some explicit reason for termination as a pretext for a termination which is actually motivated, in whole or material part, by a form of discrimination or retaliation which U.S. laws — Federal, state, city or local laws — prohibit. To put it this way: an employer can decide to fire an executive because one morning the employer decides that the employer does not like that executive’s face, but not because that face is a different color, religion, ethnicity, gender, age, or any of the other categories of discrimination specifically protected by a statute applicable to the geographical area in which the executive is employed. (NB: This blanket statement covers many variations; as one example, generally there are stronger legal protections against discrimination on the basis of race or gender than on the basis of age.) Or, that the reason the employer does not like the executive’s face is that the executive “blew the whistle” on the employer’s illegal environmental practices. Or protested other practices. Or refused to be sexually harassed, etc.

But what does the senior executive and his or her lawyer do if in fact the employer is acting properly? Maybe the business is not doing well and the executive’s compensation has become burdensome. Maybe the executive’s services have become redundant. Maybe the Board of the university wants “to go in a different direction” and find a new leader.

What is an executive employment lawyer to do?

Hopefully, they have already done the most important thing, which is to negotiate, at the outset of the executive’s employment, either in the offer letter or in a fully integrated employment agreement (which most college and university presidents, as well as business CEOs and some senior executives in lesser positions, should have) a contractual term which specifies the amount and timing of the severance payments to which the executive is entitled if he or she is terminated without Cause, or for no reason. Securing and setting a senior executive’s severance entitlement is one of the primary objectives of the executive employment attorney, maybe the primary job.

(In a future blog, we will take up the issue of what can be done if the executive, when being hired, has not used a knowledgeable executive compensation attorney and, accordingly, has no explicit severance entitlement.)

About the Author

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George Birnbaum

Since 1980, sophisticated business people have relied on George to apply the meticulous preparation, attention to detail, and devotion to his clients he learned from fabled trial lawyer Louis Nizer. A graduate of Harvard College and Harvard Law School, George has over 35 years of distinguished deal-making, litigation, mediation and arbitration experience which he has used to negotiate high-stakes agreements for senior executives and select business clients throughout the United States.