An employment contract is an agreement between an employer and an employee. Employment contracts can cover a variety of topics, from salary and benefits to reporting relationships to performance expectations.
If you have an employment contract that limits your employer’s right to fire you, you might have a legal claim for breach of contract. However, many employees work without a contract. And, not every employment contract limits an employer’s right to fire: If you have signed an at-will agreement, for example, your employment contract merely reinforces your employer's right to fire you at any time, for any reason that is not illegal.
In the United States, most employees work at will. This means they can quit at any time, for any reason, and they can be fired at any time, for any reason that is not illegal. Montana is the only state that has a different rule: Once a Montana employee has finished the employer’s probation period (or has worked at least six months, if the employer doesn't have a probationary period), the employee may be fired only for good cause.
In all other states, employees are presumed to work at will unless that status is changed by contract. If an employee has a contract promising that he or she will be fired only for good cause or only for specified reasons (such as committing a felony), then that employee no longer works at will. The employer must live up to the terms of the contract or risk a lawsuit.
Not every employment contract changes an employee’s at-will status, though. Some employers use written contracts specifically to affirm that the employee works at will. For example, an employer might ask an employee to sign a job offer detailing the position, hours, starting date, and pay, and stating that the employee will work at will. If the employee signs, this creates a written at-will contract. Although the employee might have a legal claim if the employer doesn’t live up to the terms of the agreement (for example, as to the rate of pay), the employee can still be fired at any time.
There are three forms an employment contract might take: written, oral, or implied.
A written contract is an agreement that has been documented. For example, if you signed a document agreeing to work for your employer for at least one year, you are no longer an at-will employee. Written contracts that specify a duration of employment are commonly used with company executives and officers. These contracts also often come up when an employee moves a long distance to accept a job offer or when an employer needs an employee to complete a certain project before leaving the company.
In addition to specifying the length of employment, written contracts may also include information about how much you'll be paid, what benefits you will receive, what type of conduct establishes good cause to fire you, and much more. For example, a contract might say you can be fired only for good cause or only if you commit a felony or certain types of financial offenses. If you have a written contract that changes the usual at-will arrangement, your employer must follow its terms.
Not all written contracts alter the at-will employment relationship, though. It is common for employers to ask employees to sign an offer letter or at-will employment agreement, which merely affirms the employer's right to terminate at will. Although these agreements are considered contracts, they don't give you any special protection against being fired.
As you might guess, an oral contract is an agreement that is spoken rather than written down. For example, an employer might call a successful applicant and say, “We’d like to hire you for $50,000 a year for the sales position, starting next Monday.” If the applicant says, “That sounds great, I’ll see you on Monday,” there is an oral contract to employ the applicant in the sales position for an annual salary of $50,000.
Oral contracts are just as binding as written contracts, but they are much harder to prove. The employee and employer may remember the deal differently, or they may even deliberately lie about what was said. Without anything in writing to prove your side of the story, it can be very difficult to convince a judge or jury that your employer breached your agreement.
Like written contracts, oral contracts may or may not change the at-will relationship. In the $50,000 sales position example above, no mention is made of how long the job will last or the reasons for which the employee might be fired. As a result, the default rule is that the employee works at will. But, suppose the employer also said, “We want you to commit to at least one year in the position. During that time, we won’t terminate your employment except for cause, to give you time to learn the ropes and grow into the job.” In that case, the oral contract would limit the employer’s right to fire for the first year of employment.
An implied contract is one that has not been put in writing or stated explicitly, but can be inferred from a combination of the employer’s statements, policies, and actions. In other words, if both the employer and the employee act as if there is an implied contract, a court might be willing to find that they intended to create a contract.
The existence of an implied contract typically only becomes an issue after an employee has been fired. The employer argues that the employee worked at will and therefore cannot sue for breach of contract. The employee claims that, based on the employer's actions and statements, he or she had reason to believe that the employer would fire him or her only for good cause.
Not every state recognizes implied employment contracts, however. And, even in states where these claims are allowed, the evidence required to bring a suit – and win – is different in each state. However, there are a few factors courts often considering in deciding whether there is an implied contract:
If you believe you were fired in violation of an employment contract, talk to an experienced employment lawyer. A lawyer can assess the strength of your claims, including whether you have enough evidence to prove that you had a contract and that your employer breached it by firing you.
A lawyer can also help you determine whether it’s worth taking legal action. Even if you have good evidence of breach of contract, the damages available to employees who win such cases aren't always significant. Unlike personal injury claims, in which a successful plaintiff can receive awards for pain and suffering and punitive damages, contract cases are often limited to specific monetary losses caused by the breach. In other words, even if you sue and win, you might be able to recoup only the amount of money you are actually out of pocket, such as the wages and perhaps other benefits you lost when you were fired. So if, for example, you landed a better paying job right after you were fired by your employer, you may not have much to gain from filing a lawsuit.
Often, a contract claim is only one of several claims in a wrongful termination case. And, your former employer may be willing to settle the dispute quickly, rather than risk going to court. An experienced lawyer can help you sort through all of your options and decide on the best strategy going forward.