The California Labor Code still includes section 2922, which sets out a fundamental employment principle: employment is presumed “at-will.” Absent an agreement to the contrary, either employer or employee can end the employment relationship at any time, for any reason. That contrary “agreement” may come in the form of an individual employment contract, a collective bargaining agreement, or a state’s civil service law.

But the legislature and courts have created many exceptions to at-will employment. Anti-discrimination laws, such as the federal Title VII of the Civil Rights Act of 1964, and the state Fair Employment and Housing Act are familiar examples. In addition, the legislature has passed a number of anti-retaliation laws. These not only have expanded “whistle-blower” protections, but also have transformed other work place activity into conduct protected from employer retaliation.

The courts, too, have been amenable to finding new sources of “public policy” exceptions to at-will employment, stretching the concept with each new opinion. California employers understandably question whether at-will employment continues to play a valuable role in sound human resource policy. At-will remains a vital principle for several reasons explained below.

Good Cause

When employment is not terminable “at will,” then what standard applies? Employment contracts, collective bargaining agreements or civil service provisions may limit an employer’s ability to terminate, demote or discipline an employee only for “good cause” or some other formulation of the term. “Good cause” may be defined by agreement. If not, the courts have supplied a definition that requires a “fair and honest” reason, supported by a good faith investigation that is “appropriate under the circumstances.”

Who decides if the reason is “fair” and the investigation is “appropriate?” The jury, judge or arbitrator, not the manager. That is the principal distinction between “at will” and “good cause.”

In discrimination cases, then, the absence of “good cause” would suggest the employer took action for a reason that is inconsistent with its obligation that it agreed to. When employment is at-will, on the other hand, the law allows the employer to act arbitrarily, irrationally, or unfairly without repercussions.

Business Judgment

Put another way, the law entitles at-will employers discretion to exercise business judgment in making personnel decisions, without second guessing by the jury or court. In an at-will employment relationship, an employer has the right to assign work to an employee, to change an employee’s duties or work schedule, or even to discharge an employee for a good reason, bad reason, or no reason at all. It is legally irrelevant whether the employer’s decision was wrong, mistaken, or unwise, or that the employee disagrees with the employer’s stated reason, so long as the action is not taken for an illegal reason.

Therefore, in a discrimination or retaliation case, the burden is on the plaintiff-employee to produce evidence of illegal motivation, rather than evidence that the employer’s decision was incorrect or too “harsh.” For example, in McGrory v. Applied Signal Technology, Inc., a female subordinate accused her boss of discrimination. The employer hired an outside investigator, who ultimately exonerated McGrory of the discrimination charges. Yet, the employer discharged McGrory in part because the investigator found that McGrory had been uncooperative and untruthful during the investigation.

McGrory sued, claiming discrimination and other legal wrongs. He alleged the investigation was flawed and biased because he was not informed of the charges against him by his employer or by the investigator.

The Court of Appeal rejected McGrory’s claims in great part because he was an at-will employee. The court reasoned McGrory had no right to advance notice or a hearing before termination. The fact that McGrory disagreed with investigator’s conclusions that he was uncooperative or untruthful was irrelevant.

In Veronese v. Lucasfilm Ltd., the court held that every at-will employer in discrimination cases is entitled to a jury instruction explaining the role of the employer’s business judgment. That is, an employer’s stated legitimate reason for taking action does not have to be one that a judge or jury would act on or approve. Juries must be instructed that the employer’s adverse action is not illegal just because it is ill-advised – the motivation for the action must actually be unlawful.

So, when an employer fires an at-will employee, the employer is not legally required to show that the decision to terminate was a good one, although the employer certainly may wish to do so. Under the law, though, the employer is required only to show that the decision was for a reason “unrelated to unlawful discrimination.” Employers can set standards that might appear unreasonable to its employees, and even discipline employees who fail to meet those standards, provided that the standards are applied evenhandedly to all employees.

Tips for Employers

Obviously, the McGrory and Veronese decisions are two examples of how at-will employment made a difference in discrimination cases. Therefore, employers should remain vigilant to preserve the relationship.

At-will employers should include effective language preserving at-will employment status in job applications, offer letters, employee handbooks and other written materials. As the application and onboarding processes are becoming computerized, applicants and new employees should affirmatively acknowledge their employment is at-will in a way that can be tracked.

At-will statements need not be limited termination. The employer should apply its at-will policy to all aspects of the employment relationship, including promotions, compensation decisions and the like.