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Ray Tomasco

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Are ‘At-Will’ Employment Contracts a Benefit or Detriment to Business Recruiting?

Labor laws that protect employee welfare in many countries, can make eliminating a difficult or underperforming individual an arduous process.  This presents a challenge for businesses, who may be forced to retain an employee longer than they wish, to comply with labor laws.

For instance, in Canada, two verbal warnings and one formal written warning are required, in order to legally terminate a full-time hire.  In Germany, the employer must observe a structured notice period of no less than four weeks, unless the employment contract is governed by other stipulations, including collective bargaining (unionized workplaces).

In the United States however, the at-will employment contract is becoming increasingly more popular, to allow employers to expedite unwanted staff in a timely manner.   In this article, we will talk about the structure of an at-will employment contract, the intention of the U.S. labor law, and some of the unwanted ramifications and impacts it can have on both recruitment, and retention of skilled professionals.

The Terms and Intentions of an At-Will Employment Agreement (United States)

In the late 19th century, the at-will contract became the norm in many states across America, and today it is more prevalent in areas where supply of skilled labor exceeds demand. In principal, the move to at-will contracts was meant to encourage employers to hire.  By increasing the flexibility that employers have to terminate employees (without lengthy or costly legal notice or process), lawmakers wished to make the U.S. government less involved in the regulation of labor markets.

The Supreme Court of California defined an at-will contract as follows:

“An employer may terminate its employees at will, for any or no reason.  The employer may act peremptorily, arbitrarily, or inconsistently, without providing specific protections such as prior warning, fair procedures, objective evaluation, or preferential reassignment.   The employment relationship affords no expectation, protectable by law, that employment will continue, or will end, only on certain conditions, unless the parties have actually adopted such terms.”

Changing an employee from an at-will contract, to a protected status, cannot be changed by law, except by a CEO or President.  At-will contracts help protect employers from wrongful dismissal suits, and other legal implications, and in theory, are designed to strengthen the hiring confidence of employers, particularly small and medium sized business owners.  It also works to eliminate the need for termination pay, at a cost savings to employers.

Employers Enjoy Fewer Obstacles to Releasing Employees (But There Is a Cost)

Just as employers enjoy the freedom of being able to release an employee without notice, in many at-will employment contracts, the opportunity for the employee to leave without notice exists.  Many employers add in this option, to make it appear congenial; if the work arrangement does not fit for the employer, or the employee, they can both end employment without lengthy notices or procedures, including ‘just cause’ for dismissal.

It seems fair and accommodating, when the employer positions this as an equal and flexible opportunity.   But the proposition is viewed by some economists as biased toward creating an advantage for the employer, and not the employee.  For instance, employees that leave without appropriate notice, are unlikely to get a positive work referral (regardless of past performance), if they fail to give a minimum notification of departure (usually two weeks in length).

While the employer may not give ample notice, or even cause for dismissal in at-will contracts, the employee (regardless of the terms of the contract) is expected to, with punitive consequences. Employees are aware of the inequity of the expectations, and it can damage morale, and shorten the tenure and level of commitment that the employee feels toward the employer.

Do at-will contracts make it more difficult to recruit a skilled professional, for an employer?  It can, depending on the individual considered for hire.  Many entry-level employees may be accustomed to being employed through at-will contracts, and it may not deter their interesting in the organization.  In some regions where at-will contracts are the norm, employees are generally accepting of the terms as a condition of hire.

However, in high-demand sectors such as technology, where demand for skilled and experienced professionals exceeds supply, it is an employee driven market. Competing against other organizations on levels that tend to be equal regionally (salary, health and wellness benefits and vacation time), at at-will employment opportunity is substantially less attractive, when there are other options for the professional.

Businesses should be aware of both the advantages and the obstacles that at-will contracts can create, when recruiting to build teams, and the costs associated with recruitment and re-hires, and lost productivity, if implementing an at-will policy, where employees can (and sometimes do) opt to leave without notice for a more secure employment contract.

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