“At-will” or “For Cause” discharge, it’s one or the other, not both in employment contracts. I do a lot of work with C-suite executive and key employee contracts. One really bad thing the Internet has done was make legal documents readily available to people who don’t know what the documents mean or the legal effect of any given clause. In this example, I’ve seen DIY-online contracts that contain both an “at-will” and a “for cause” discharge term. The real reality is that these terms – at-will and for cause – are opposites to each other and should never appear in the same employment contract. Let’s talk about why employers want “at-will”, and new-hire key executives want “for cause” terms in their employment contract.
North Carolina is what we call an “at-will” employment state. Short version, an employer can discharge an employee at any time, for any reason or for no reason. That said, North Carolina also respects employment contracts as written, and an employer and a key employee are free to define the employment termination process as something other than at-will.
We call this a “discharge for good cause shown” or “good cause” term, because in order to discharge the for cause employee, the employer must show that the employee violated a behavioral term defined in the for cause provision in order to break the contract between them. It’s not just a matter of putting “discharge can only be made for cause” in the contract. “For cause” by itself has no real meaning.
The employer and employee must define what constitutes “cause” justifying discharging the employee. Common, obvious terms are failure to perform the defined job duties, absenteeism, conviction of a felony of some sort, co-worker harassment. Of course, I like to include “any other behavior that the employer deems in its sole opinion to be deleterious to the employer” in there too.
Why Not Both At-Will and For Cause?
If an employee is discharged in breach of the contract, the employer has to pay some kind of damages to the employee. The “damages” are usually some kind of severance package or golden parachute. If the employee is discharged for violating the “for cause” provision, they are not eligible for the breach of contract damages. It’s that simple. And yes, the employer is free to discharge the employee “at-will” even though there is no provision in the contract. They’ll just have to pay the severance damages. But putting extra words in a contract, with specific legal meanings to them, can be confusing to the parties and to a judge reviewing the contract, when that term was not needed in the first place.
The next part is simple: deciding which party wants which provision in an employment contract.
Who Wants What?
Let’s start with the employer’s perspective. The employer wants to be able to get rid of problem employees, even executives, quickly and with a minimum of fuss. Which provision allows for this, at-will, or for cause? You’re right! The at-will discharge benefits the employer because it can jettison an employee literally on the spot and not have to give a reason, do an investigation into allegations or questionable conduct, that sort of thing. Good start, right?
Well now, let’s see this from a key executive’s point of view. He’s being asked to move from a position he already has and potentially likes, and maybe physically move from one part of the country to another. For an individual, this is a big undertaking already filled with uncertainty. Would you quit an already well-paying job and move your family across the country, knowing that your new employer could discharge you the first day of work and anytime thereafter, for any reason? Of course not.
This is why, you guessed it, executives and key employees want a for cause provision built into their employment contract. At its core, a for cause provision will define for the executive, in the negative, what behavior is expected of that person and thus provide certainty in the employment so long as he does not violate the for cause terms. This provides security to the executive, which may be the inducement for that person to quit a job and move to the new position. All the above considered, most executive contracts I’ve seen contain a for cause discharge provision that is negotiated between the parties.
Can you see why at-will and for cause are competing terms and should not both be included in a key employee or C suite executive contract? For your key employee / C-suite executive contract drafting, be sure to call me.
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