Don’t Sign Pre-Nup Contracts With Your Employees — At-Will vs. For-Cause
Imagine your surprise. You’re conducting the final interview when the candidate abruptly declares,
“We need to sign a pre-nup agreement before I start work here. Not a romantic, actual, pre-nuptial agreement, but a boss-to-employee pre-nup for our working relationship. This is a big step, and I need to be certain that you’re going to take care of me, in good times and bad.”
An even more peculiar interview scenario:
“I know you haven’t asked for it,” Employer says, “but I want to sign a pre-nup before you begin here. No, this isn’t to protect our company; it’s to protect YOU from us. Here is the contract. This benefits you exclusively, not us. I may greatly regret this one day.”
As strange as these might sound, both scenarios happen frequently—especially the latter! In employment law, it’s not a pre-nuptial agreement. It’s the difference between “at-will” and “for-cause” employment relationships. Both are very real, legally binding contracts (even if it’s not what you intended). After we discuss the difference between the two, you’ll understand why we advise our clients to avoid “for-cause employment.”
An at-will employment relationship simply means that the employee or employer can terminate the working relationship at any time, for any reason (unless the reason is unlawful). Most employers believe they’re operating under at-will freedom, even if they’re not.
A for-cause employment relationship, however, means that the employee can only be terminated for a reason specified in the employment contract as grounds for termination. Simply stated: The employer has promised continued employment, unless x or y or z happens (a.k.a. the “cause” in “for cause”).
The difference is profound, and easier understood by a few examples.
ACME Company hires a Coyote with an obsession for fast fowl. He’s a natural fit for their product-testing division, and zealously tests the efficacy of ACME’s Road Fowl Foiling Devices. The small wolf performs well. He never misses a day of work, and while he’s strangely quiet, he gets along with his co-workers.
The CEO soon realizes that none of their products work, so he fires the angst-ridden, oft-frustrated Coyote. Or the CEO doesn’t like Coyote’s attitude, so it’s termination time. Or the CEO wants to replace Coyote with Artificial Intelligence. Whatever the lawful, non-discriminatory reason, it doesn’t matter. ACME Company legally fires the new employee. Since it is an at-will employment company, which was CLEARLY defined in ACME’s contract with Coyote, the ineffective mammal has no legal recourse. He was fired at the will of the company.
That’s all, folks.
Our legal opinion: Clearly, unequivocally define yourself as an at-will employer at every step of the hiring process – more on that in a moment!
I previously mentioned that for-cause employers make promises for continued employment. These promises are more common, and subtler, than you might think. Employers frequently create unintentional for-cause agreements! Do any of the following sound familiar?
- “We’d like you to stay here for the duration of your career. We expect this to be your last job.”
- “So long as you do your job well, you’ll have a place here!”
- “We fire people for the following reasons ___________.”
- “We’re all human. We don’t fire for making simple mistakes.”
- The employee handbook states that an employee may be fired after three infractions and three written warnings.
- The company has a 1/30/60/90 day “probationary period” for new hires.
You might not think so, but these are promises for continued employment. That, my friend, is a contract that you created for the benefit of your employee, possibly at your own expense. Even if you think that you hired an at-will employee, it’s possible to shift them into the for-cause category. Remember that verbal contracts (off-handed promises) are still legal contracts.
Consider the example from the employee handbook—the “three strikes” policy. Let’s say that your new employee comes to work obviously drunk. Furious, you fire him on the spot. Soon thereafter you’re being sued for wrongful termination—it was his first and only offense. You promised three infractions. You’ve fired a for-cause employee.
Again, our legal opinion: Avoid for-cause employment!
Is it ever a good idea to hire a for-cause employee? YES. A hard-to-get, sought-after talent will often successfully negotiate guaranteed job security in the form of a “for cause” contract.
- A Fortune 500 CEO quits and moves her family across country to accept an offer at the next Google.
- A Rockstar Salesperson brings his expansive book of clients to a new company.
- An Operations Manager takes a lower-paying position because she’ll earn stock options after one year.
All of these people protect themselves through for-cause contracts. If your organization needs the help of a truly extraordinary hire, expect it.
Our advice remains: Avoid for-cause employment. Except when you can’t. Do not enter these contracts without the protection of your legal team!
In most states, including Georgia, laws favor at-will status. It’s therefore fairly simple to protect yourself from accidental for-cause agreements. Does your job post, offer letter, and employee handbook protect you? We’re here to help.
Email our office at email@example.com or give us a call at (770) 285-7785. We’re happy to schedule a free, no-obligation consultation.