Choose your words carefully to avoid ‘accidental contracts’
Most employees know that North Carolina is an employment at-will state. That means that an employer can terminate an employee at any time and for any reason except an illegal one. Illegal reasons include retaliation for whistle-blowing or filing a workers’ compensation claim, or firing someone for discriminatory reasons.
For at-will employees, the employer does not need “just cause” for termination.
At-will employees also have the right to quit at any time and for any reason. They aren’t required, for example, to provide their employers with notice.
If there is an employment contract between the employer and the employee, then termination of the employee is restricted by common law or by the termination provisions of the contract. North Carolina courts have held that even if the contract does not discuss termination provisions, there is an implied provision that the employee can be terminated only for cause.
The accidental contract
Most employment contracts are written documents prepared with the assistance of an attorney. However, an employment contract can be oral, written, or partially oral and partially written. If an employer isn’t careful, it’s easy to unknowingly enter into an employment contract with an employee.
Basic contract law applies to the formation of employment contracts. The elements of a contract are offer, acceptance, consideration and mutuality of assent to the contract’s essential terms.
In addition to those basic elements, an employment contract must also address the duration of employment and compensation. If a purported employment contract—either oral or written—does not have a definite duration, then it’s not a valid employment contract and the employee can be terminated at will.
Courts have reviewed many disputes concerning whether a purported employment contract had a definite duration. For example, North Carolina courts have held that a promise to hire an employee for “permanent employment” is not an expression of a definite duration. A promise to provide a bonus for satisfactory performance during a certain time frame does not create an employment contract for that certain time frame. Also, where the compensation is specified at a rate per year, per month or per week, this generally does not create employment for a specific period of time.
Even a specific promise about maternity leave following the birth of a child does not negate an at-will employment relationship and create employment for a definite period of time.
The employee has the burden of proving that employment of specific duration was agreed to. In one case, an employee established a two-year employment contract where a letter stated that for the next two consecutive years, he would be paid $700 per month, plus 5% percent of vehicle sales, with a guarantee of $1,000 per month.
In determining whether a purported employment contract has a definite duration, the courts will look at any documents exchanged by the parties and any oral statements. Courts will also look at the parties’ intent, to determine whether it may be discerned from their documents, statements or conduct. Thus, the conduct of the parties after employment starts could be significant.
Put it in writing
Some terms of employment must be in writing.
A covenant not to compete is not enforceable against an employee unless it is in writing and signed by the employee. Likewise, an agreement to arbitrate disputes related to employment must be in writing. Both covenants not to compete and arbitration clauses require careful drafting to be effective and enforceable.
An employment contract can be a valuable tool for structuring the employment relationship. However, if an employer does not want to have employment contracts with its employees, it pays to carefully weigh oral and written communications during the employment process.
The best way to avoid entering into an employment contract by mistake is to state in the offer letter that the employee is being employed on an at-will basis. Here’s a sample of such statement to include in an offer letter:
Nothing in this offer letter binds either the employee or the employer to a specific or definite period of employment. The employee is employed on an at-will basis. Either the employee or the employer may terminate the employment relationship without cause at any time.