What is “at-will employment”?

Except for Montana and Puerto Rico, at-will employment is the default rule across the US’s many states and jurisdictions.

At-will employment is the concept that, unless an agreement says otherwise, a person’s employment is not guaranteed and can be terminated by the employee or the employer at any time, with or without notice, with or without cause, and for any reason or no reason; although if there a reason for termination, then it can’t be for unlawful discrimination or retaliation purposes.

For startups, at-will employment is most often important in two cases.

First, many founders develop the idea for a startup while they are at an employer. These founders notice the shortcomings or missed opportunities at a current employer and want to pursue these themselves with a new company. However, these founders often wonder if they can just quit and start a new business. The short answer is yes; the longer answer is yes, if the founder is subject to at-will employment and hasn’t violated any responsibilities to their old employer (e.g. not taking IP or soliciting employees of the old employer), then they are free to start building!

Second, many startups need to terminate employees to preserve cash or remove under-performers. They worry though that they need grounds to do so. Again, at-will employment gives startups the right to terminate at will.

Still, whether terminating a job or an employee, it is extremely important that attorneys are consulted. Each employment relationship is unique and each state has its own employment laws so employment situations can get tricky and carry major liability.

For the employee quitting, they should ensure they are actually at-will and not violating their employment agreements or other duties to their employer. Depending on the state, at-will employment may be established by default, or may require some level of agreement such as an offer letter, company handbook, oral agreement, etc. Some states also impose standards of good faith and fair dealing, which could expose an employee to liability depending on when and how they quit.

For the employer terminating, the minefield of legal risks is even greater because the federal government and most states have imposed numerous restrictions on why, when, and how employees may be terminated. Employers often have deeper pockets than employees and are more susceptible to lawsuits as a result. So even if an employer objectively follows the law, the manner in which an employee is terminated could open the employer up to subjective claims of wrongful termination.