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Friday, March 9, 2012

Difference between an employment CONTRACT and employment AT-WILL

At Hanover Law, we frequently are called upon to draft employment agreements. I thought I would take a moment to explain the basic difference between employment at-will, and employment for a specific duration or case (called "term"). I should note that there is a difference between independent contractors and term employees -- I'll write about independent contractors at a later time. I won't be focusing on them in this blog today. Additionally, do note that "term employees" is not slang for "terminated employees" or "employees who are going to be terminated." Think of "term" in the sense of life insurance -- for a stated duration or purpose only. Once the time-frame or purpose has elapsed, the contract is extinguished. While there may be "closing" or "residual" obligations stemming from the contract, an extinguished contract is just that -- over.

Generally, the term "at-will" means that an employer or employee may end the working relationship with or without reason, so long as such ending is not contrary to law. Employment at-will has a speckled past. It seems to first have appeared in the late 1800's as a means of providing some rationale for how employees could leave an otherwise constraining job (absent which you would be stuck, even without a contract). Until that time, leaving a job could open you up to lawsuits -- just for leaving! (see a rather interesting, and caustic review of at-will employment here: Over time, though, it began to favor employers who would use the broad scope of the rule to cashier anyone they no longer wanted to work with. In order to better stabilize the work place, the Federal government and many states began issuing laws that limited the scope of at-will employment by making certain terminations contrary to law and thereby outside the breadth of the "at-will" permissive firing doctrine. Arguably, the most famous of these were the FLSA (Fair Labor Standard Act), Title IV (anti-discrimination law), ERISA/ADEA (age related protections), and ADA (health related exclusions). This is not an exhaustive list, of course, but you can begin to see how the Fed/states can control the employment relationship, even reaching into the otherwise extremely broad "at-will" arena, in order to promote a "longer lasting" employment environment. A really interesting discussion can be had on how laws are used to control the scope of the "at-will" environment, thereby modifying the socio-economic fabric of our economy. However, I won't bore anyone here (laughing).

In contrast to "at-will", one finds "contract" employment. A contract (henceforth, "term") employee is a person who works for a company in an employee capacity (company maintains control of the work environment and work-product, as well as the means, methods, and mode of work), but only for a specific duration, and/or only for specific purpose. Term employees were the defacto arrangement prior to at-will, and still constitute a strong showing in the consulting and hourly professional services arena.

So why would any employer, even given the Fed/state constraints, want to move away from at-will employment?

A tricky question -- and ultimately, I argue, one of defense and protection. Under "at-will" employment, the presumption is that any ending of the employment relationship is permitted. The burden falls on one party to show that the ending of the at-will relationship was premised on a reason prohibited by law. However, with the myriad of laws available to protect employees (and even employers!), there is almost always some law -- legitimate or otherwise -- that an employee (or employer) can claim that caused the ending of the employment relationship(at least on the surface). Such a minimal claim (called "prima facie" -- on the face/first glance) is sufficient to grant a trial and incur considerable expense to the defending party. However, a term employee, while still having such defenses during the course of the term, has none once the term ends, as the presumption is that the contract ran its course and the employee (or employer) is not entitled to any further benefit. Ergo, the natural ending of a term contract employee is almost bullet-proof from any claim of discrimination or malfeasance. Awarding follow-on contracts can open the door to discriminatory problems or claims of actions as contrary to law; however, any hiring action brings that possibility, so the risk is not really related to "at-will" versus "contract".

Interestingly, as I often recommend to my clients, employees hired under a specific "term" can be held accountable in ways that general, "at-will" employees cannot. For example, a contract may call for a reduction in hourly rate payment for failure to produce a certain grade, or failure to show to work, or any other performance metric. While such a metric could certainly be challenged as discriminatory against a certain group, a well defined contract eliminates this threat while preserving considerable control to both contracting parties as to expenses, and specific terms of the employment relationship. This is extremely handy when dealing with third-party placement consultants (hired by your company, but actually located and/or working in another agency or firm).

Would a discussion about your current hiring practice, or the terms of your current contracting/employment relationship be helpful? Call and ask us (703-402-2723)! We're happy to help, and your first call is always free.

Sean R. Hanover, Esq Contact Us

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