Are Employment Contracts Always Terminable At the Will of Either Party?

Monday, January 27, 2014

In states where employment is generally considered “at-will,” many employers take it as a foregone conclusion that employment contracts are terminable at the will of either party.  But is this conclusion always correct?  The answer is no – sometimes, an employer can unwittingly defeat the presumption of “at-will” employment by incorporating language into its employment policies and manuals that restrict the ability to discharge an employee.

A recent case from the Federal District Court in Massachusetts highlights this issue and provides helpful guidance to employers on drafting effective personnel manuals.  In Ray v. Ropes & Gray, LLP, an associate at a law firm argued that a personnel manual created an implied employment contract and rebutted the presumption that his employment was at-will.  In assessing the associate’s claim, the court noted that, under Massachusetts law, a personnel manual may create an implied employment contract.  However, the court explained that a personnel manual does not create an implied contract where:

1. The employer retains the right to unilaterally modify the manual’s terms;
2. The terms of the manual are not negotiated;
3. The manual states that it provides only guidance regarding policies;
4. The manual does not specify a term of employment; and
5. The employee does not sign the manual to “manifest assent.”

In this case, the court found that the personnel manual contained nothing more than the “customary blandishments about fair treatment and equal opportunity.”  The manual did not specify a term of employment and included a disclaimer that it did not amount to a contract.  In addition, the manual explained that its terms were non-negotiable and that the law firm retained the right to modify or withdraw its policies at any time.  Given these disclaimers, the court concluded there was no reasonable basis to regard the manual as an enforceable contract.

For employers, the Ray decision serves as a good reminder to review all existing personnel policies and manuals to make sure they are consistent with the expectation – and presumption – that employment is at-will.