Key Takeaways

  • An implied contract of employment can arise from employer policies, past practices, or assurances, even when no written agreement exists.
  • Courts consider factors like employee handbooks, length of service, and employer conduct when determining whether an implied contract exists.
  • At-will employment is the default in most states, but implied contracts can create exceptions that protect employees from termination without cause.
  • Employers can reduce risk by using clear disclaimers in policies and communications.
  • Employees may pursue wrongful termination claims if they can show that an implied employment contract existed and was breached.

Implied contract employment law is important to know before getting into a contract with an employer.

What is an Employment Contract?

An employment contract is an agreement created between an employee and the employer. The company and worker are both given certain rights, responsibilities, and conditions that are established in the contract. It can be expressed orally, written, or implied.

What is Included in an Employment Contract?

The employment contract may include:

  • Salary, wages, and commission, if applicable.
  • Schedule of days and hours expected to work.
  • Length of employment
  • General duties and tasks required of worker
  • Confidentiality statement or non-disclosure agreement
  • Points of communication
  • Benefits for the employee
  • Non-compete agreement to avoid any future competition
  • Other work-related terms and conditions

Definition of At-Will Employment Contracts

In the United States, the majority of the people work at will; they can quit when they want, or get fired at any time for whatever legal reason. Employees in Montana, however, can only be fired for a good reason after working six months. Other states do not follow this probationary period rule.

Some at-will contracts state that the employee understands that their employment is at will and that they can be fired at any time. While they can be fired at any time, the employee can still enforce the terms of the agreement. If the company fails to uphold their part of the agreement, the employee can sue.

Types of Employee Contracts

  • Written. This is usually a physical document with set employment terms. It can define your job, responsibilities, benefits, and other important details for your convenience. Confusion is often avoided with this type of contract because everything is laid out for you to easily understand.
  • Oral. This is spoken between an employer and the employee. Terms can be laid out and the employee only has to agree to them for it to be valid. They hold the same power as written agreements, but their existence is harder to prove. It can be your word against your employer's word.
  • Implied. This can be any combination of what an employer has said and written down. An employee may prove the contract exists by pointing to certain policies, statements, and actions to show that he believed he would only be fired under good reason. The contract, however, may only come up after the employee is fired. Not all states find implied contracts to be real.

Types of Implied Contracts

  • Implied In-Fact Contract. This is created based on facts between the parties involved. Certain circumstances or conduct may imply that there was an agreement, such as a sequence of routine events between the parties.
  • Implied At-Law Contract. This type contains conditions or circumstances enforced by the law. One party will receive what is due to them even if neither party had the intention to enter a contract. This can also be called a quasi-contract.

Implied Contracts in Employment Relationships

An implied contract of employment often arises when an employer’s actions, communications, or established practices reasonably lead an employee to believe that continued employment is guaranteed under certain conditions. For example, if an employer routinely tells staff they will not be terminated without good cause, or if employee handbooks outline progressive discipline policies, courts may view these as creating contractual obligations.

Employees should understand that even in the absence of a written contract, the employer’s behavior can give rise to enforceable rights. However, the enforceability of these agreements varies by state, and some jurisdictions interpret implied contracts more narrowly than others.

Factors Courts Consider Whether an Implied Employment Contract was Created

Some factors the court may look into to see if there was an implied contract include:

  • If job security was assured to the employee
  • If the right to fire at will is limited by the company's policies
  • How long the employee has worked for the employer

Evidence That Supports an Implied Employment Contract

When analyzing whether an implied contract of employment exists, courts often look beyond the employment relationship’s duration and examine:

  • Employer promises: Statements made during interviews, evaluations, or meetings that suggest job security.
  • Written policies: Handbooks or manuals that outline termination procedures, disciplinary steps, or employee protections.
  • Past practices: Consistent behavior, such as granting raises or only terminating employees for serious misconduct.
  • Customs of the industry: In some fields, long-term employment practices may influence a court’s interpretation.

The presence of disclaimers in employee handbooks or contracts can weaken claims of implied agreements. Employers who explicitly reserve the right to terminate at will often limit employee claims in court.

Common Law Implied-Contract Exception to At-Will Employment

If an implied contract is created and put in place, terminations are prohibited, unlike at-will employment. Oral or written suggestions can be used, even if the employment doesn't have a contract in place. The suggestions would then make for an employment contract.

How the Implied-Contract Exception is Treated by Courts

Courts around the country have found employee handbooks can make for an implied contract. For instance, the use of discipline on an employee are implied in the handbook, which shows specific procedures. Job security in the future may not be backed up by how long you have worked in the company or the amount of raises received.

Courts may also look to see if there is any disclaimer language found within the evidence to see if there was an implied contract. Some cases involving implied contracts are being looked at more closely and strictly than they were before.

Wrongful Termination and Implied Contracts

An employee who is dismissed in violation of an implied contract of employment may have grounds for a wrongful termination lawsuit. Courts often evaluate whether the employer violated a reasonable expectation of continued employment based on established policies or assurances.

For instance, if a handbook promises progressive discipline steps but the employer terminates someone immediately without following those steps, a court may find the termination unlawful. Remedies for breach of an implied employment contract can include reinstatement, back pay, or damages.

Employers can protect themselves by:

  • Including clear disclaimers in employee handbooks.
  • Training managers to avoid making guarantees about job security.
  • Consistently enforcing policies without exceptions that may be interpreted as promises.

Frequently Asked Questions

  1. What is an implied contract of employment?
    It’s an agreement inferred from employer actions, policies, or communications that suggests an employee can only be terminated under certain conditions, even if nothing is in writing.
  2. How is an implied employment contract different from at-will employment?
    At-will employment allows termination at any time without cause. An implied contract creates an exception by limiting when and how an employee can be fired.
  3. Can employee handbooks create an implied contract?
    Yes. If handbooks outline disciplinary steps or promise job security, courts may treat them as binding unless clear disclaimers are included.
  4. What remedies are available if an implied contract is breached?
    Employees may seek reinstatement, lost wages, or damages for wrongful termination.
  5. How can employers avoid creating implied contracts?
    Employers should use disclaimers in handbooks, avoid making promises about job security, and ensure policies are applied consistently.

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