If you’ve ever been terminated “without cause,” you know it stings. Being called into your manager’s office and hearing the words, “We’re going to have to let you go,” are probably some of the harshest words you’ll ever hear.
If that happened to you and you left the building dazed and confused, that’s understandable.
Once you got your bearings, you may also have felt angry about being fired without an explanation. You may even have had thoughts about suing your former employer.
Well-meaning friends may have even told you to go ahead and sue the company, that you have the “right to work.” They may have even mentioned that you lived in an “at-will” employment state.
Though they had the best intentions, their understanding of at-will employment and right-to-work was probably inaccurate.
Let’s clarify what both of those employment terms are, how they apply to different types of employment (W-2, 1099), why it’s important that you understand what they mean, and more.
What is at-will employment?
The concept of at-will employment is simple: you can be fired for almost any reason, at any time, without any warning. It doesn’t sound quite fair, does it?
But you also have the same option. You can also walk out the door at any time without giving your employer notice. Don’t count on asking your former employer for a reference, but you’re legally within your rights to quit anytime you’d like.
Did you notice in the explanation of at-will employment that we italicized the word “almost?” That’s because there is one very significant exception to at-will employment termination — discrimination.
Your employer cannot fire you because of your “protected class,” including your gender, race, religion, nationality, or sexual preference. Federal and state laws list a variety of protected classes.
Employees also cannot be fired for reasons such as being a “whistleblower,” refusing to break the law, or reporting sexual harassment.
The opposite of at-will employment is when your employer can terminate you for “just cause.” This would include reasons such as theft or incompetence.
Belonging to a protected class doesn’t mean you can’t be disciplined or fired. But, most employers are very cautious about firing someone, like a person of color or a disabled employee, without just cause.
Just cause usually protects the employer from a lawsuit. Companies often have regularly scheduled performance reviews or will put an employee on a performance improvement program (PIP) to document why an employee has been disciplined or terminated.
[ Related: What is severance pay? ]
At-will termination
Every state in the U.S. except Montana allows for the at-will termination of an employee. However, this doesn’t mean the other 49 states have uniform rules.
For example, some states allow no exceptions to the rules beyond those required by Federal law, while others do.
Local governments can also pass laws concerning at-will employment, like when the City of New York passed an ordinance requiring the fast-food industry to only terminate employees for just cause.
If a dispute over a case of at-will termination lands before a judge, don’t be surprised if the judge asks whether the employer had reasonable cause. The courts have been known to side with fired employees without a documented history of problems or proper procedures followed by the employer.
At-will employment for W2s vs. 1099s
Everything detailed above concerning at-will employment pertains to company employees who receive a W-2 every year.
The line gets a bit blurred regarding independent contractors who receive a 1099 from a company. Courts have paid more attention to what was said or implied, not just the absence of a formal contract.
If an employee can prove they were promised employment for a specific term of months or years, such as in an e-mail or text, they might be able to make the case they were not an employee-at-will. Attorneys, judges, and juries often become involved in disputes arising when contractors are ushered off the job without an explanation.
[ Related: 1099 vs W2: Pros & cons for employers & employees ]
What is right-to-work?
Though right-to-work sounds like the opposite of at-will employment, it’s actually an entirely different matter.
Right-to-work simply means your employer can’t require you to join a union. Of course, it might not endear you to your boss and co-workers if you refuse to join the union, but it is your right, and you can’t be terminated if that’s your decision.
Twenty-eight states have right-to-work laws, which apply to state or federal government employees and private businesses.
Right-to-work is a controversial policy. Supporters say it’s unfair for someone to be forced to pay union dues which could then be spent lobbying for positions the individual would oppose. Opponents argue it allows non-union employees to get the same benefits members do without contributing.
Suffice it to say many conflicts have arisen between new employees who refused to join the union and their co-workers who supported the union by being members.
Right-to-work for W2s vs. 1099s
Federal and state labor laws apply only to employees, not independent contractors.
If you’re misclassified as an independent contractor, you could be missing out on some valuable employee benefits, such as:
- Overtime wages
- Minimum wage
- Being paid at least twice a month
- Being provided an earnings statement for each pay period
- Having your employer pay employment taxes
- Participating in employee benefit programs (health, life, long-term disability insurance)
Some employers have been known to misclassify workers to skirt these laws.
The courts have been known to gauge employee/contractor status by what the employer requires from the individual (i.e., show up at work during certain hours, and have reviews with management).
If you’re unsure of your status or think you’ve been misclassified, ask yourself:
- How long am I supposed to work for my employer? If it’s open-ended, you’re probably an employee.
- How much control does my employer have over the work I do? You're likely an employee if your employer supervises and controls your actions.
- Can I make a profit or loss through my work? If you personally profit from your work or can lose money, you’re probably a contractor.
- Is my work an “integral part” of the business? If the company can’t do without your specialized skills (i.e., a cake decorator for a company specializing in custom cakes), you’re probably an employee.
- Am I required to make business decisions affecting the company? If yes, you are most likely an employee.
If you’re in doubt about your employment status, consider contacting a labor attorney. Most employers classify workers correctly, but some don’t. The law is there to protect you.
The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.
