Many business people tend to believe that the at-will rule makes it easy to discharge employees without risk of liability. While it is true that at-will employees can be discharged for no reason, wrong reason, good reason without incurring liability, but this rule of law has major exceptions.
As a practical matter, a terminable at-will employment relationship exists only where there is little if any objective evidence of any type of accompanying understanding, expectation, or intent concerning job security or a termination right. Absent this, the at-will discharge can give rise to a variety of claims and lawsuits.
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At-will employment has real limits
While at-will employment allows you to let an employee go for nearly any reason or no reason at all, firing an employee not because of a protected characteristic or activity, but because he or she lacked the necessary skills, violated a workplace policy, wasn’t a good culture fit, or some other legitimate reason, it’s hard to defend a wrongful termination claim.
Worker classification is a financial liability hiding in plain sight
Many small and mid-sized companies hire independent contractors to limit headcount and benefits expenses. This works out okay when the classification is correct. When it isn’t, the IRS and the DOL will cause back taxes, unpaid overtime under the FLSA, interest, and penalties that increase the longer the error goes uncorrected.
The legal benchmark for contractor status has nothing to do with how you label the person or even what the contract says. It’s all about control – how much control you have over what the person does and how they do it. If somebody you report as a “1099” works your hours, or you supply their tools to work with, or they work only for you, then you can expect the regulators to classify them as an employee and not a contractor no matter what the paperwork shows.
This is one situation where working with experienced employment counsel like Pierce & Kwok LLP to audit your classifications early is well worth it. An audit is cheap compared to reclassification liability, and you can’t afford not to.
Your employee handbook is your first line of defense
If you are not in possession of a recently updated signed employee handbook, you cannot prove in court that you took “reasonable care” to prevent harassment or discrimination. And the truth is, you probably didn’t even know that until now. But it’s actually an important detail because the determination of employer liability in cases of hostile work environment often, frustratingly, comes down to whether the company had proper policies and the employee was made aware of them.
A handbook from 2018 that hasn’t been updated since doesn’t qualify. Nor does a handbook that you happened to write up but never got around to distributing. The guidelines need to include anti-harassment language and complaint procedures, and the reporting chain should be evident. Better yet, employees sign off confirming they’ve seen it.
This is often the kind of basic organizational stuff that business owners keep meaning to get to but doesn’t feel urgent until it’s too late and that lack of documentation becomes proof.
The ADA requires a process, not just an answer
When an employee requests a disability accommodation, the ADA doesn’t just require a yes or no decision – it requires an “interactive process.” That means a genuine, documented dialogue about what accommodation the employee needs, what’s operationally feasible, and what alternatives exist if the specific request isn’t workable. Saying no without engaging in that process is itself a violation, even if the accommodation genuinely wasn’t possible.
The interactive process also has to be documented. Notes from conversations, written responses to accommodation requests, and records of alternatives considered all matter if the decision is challenged later.
Respondeat superior: liability follows the employment relationship
What respondeat superior, or vicarious liability, means is that if an employee hurts someone or breaks the law while on the job, the company is also occasionally deemed at fault if you didn’t know and had no reason to know the employee was untrustworthy.
A delivery driver who has an accident. A manager who harasses an employee. A salesperson who lies to a customer. In these situations, the company is often on the hook.
That doesn’t mean you’re helpless. You can use employee-training programs, supervisory best practices, and internal employee-claim processes to do the legal heavy lifting whether you realize you’re doing it or not. The companies that view their HR infrastructure as something they’re required to maintain rather than a risk prevention tool often learn the hard way why they should have maintained that infrastructure.
Employment law compliance isn’t about being a good citizen and following the rules. It’s about avoiding getting sued long enough that your company makes it worth suing.