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Contract vs. At-Will Employment: A Worker’s Guide

Whether you’re looking for a job, you already have one, or you’re hiring someone, it’s important to know the differences between the two types of employment arrangements.

You may think you already know the difference between contract and at-will employment, but it may be more complicated than it first seems.

Since contract roles are becoming more common for entry-level positions (see below), it’s more important than ever for everyone to know the rights and limitations of both ways of working.

The Simple Stuff

Most of the employment in the United States is considered at-will. At-will employment means both the employee and the employer are maintaining the working relationship at their own will. If either party wants to terminate the employment at any time and for (almost) any reason, they can do so, and the other party needs to just accept it.

Contract employment is where there’s a binding contract in place stating the employment arrangement must be maintained unless there is a very, very good reason to end it. This means the employer cannot fire the worker on a whim, but it also means the employee is not free to leave the job whenever they want. If either party tries to end the employment, the other can take them to court and stand to win.

At-will employment is more popular because employers like having the freedom to dismiss anybody they see unfit for the job and employees like having the freedom to leave and go about their lives if they think that’s the right move.

Meanwhile, contract jobs have an odd stigma of either being very good or very bad. Sometimes the promise of a contract is used for important roles to bait a highly-qualified candidate with the legal promise of job security.

Other times, contracts are used for lowly roles to bait prospective employees with the legal promise of job security. This is why an increasing number of entry-level jobs are either contract or contract-to-hire (although the latter is a whole different story); they want to make sure new employees don’t quit if they decide they don’t like the work.

Contract jobs can be seen as rewards that contain traps, or the other way around; both are valid interpretations.

So far, everything’s straightforward, right? Now let’s complicate everything.

Contracts Have Exits

Any competently-arranged contract will include some sort of escape plan in case something exceptionally bad happens. Contracts are to list out reasons and circumstances wherein the contract can be voided and the employer can fire the employee.

The law simply says the termination must have a “good cause.” This is usually interpreted as the employee being exceedingly bad at the job or doing something in violation of a code of conduct, whether that’s breaking workplace rules or breaking the actual law. This should be made clear in the contract.

However, some employers may try to shoehorn in some other provisions, so this is why it’s important to read the contract thoroughly and to know your local employment laws.

This also means the employee can get out of the contract if the employer does something in violation of the contract or otherwise clearly out of line. Of course, at that point, it becomes a conflict between an individual and a company, so the worker may have to prove the misstep in court before they’re free to go.

Free Agents Have Rights

On the contrary, there are plenty of reasons why an employer would be in the wrong for terminating an at-will employee.

Most notably, an employer cannot fire an at-will employee for discriminatory reasons. At-will employees also can’t be fired for missing work for good reason (e.g., jury duty) nor can they be fired to prevent them from earning something owed them (e.g., an upcoming raise or bonus).

Of course, a business competent enough to get off the ground would rarely explicitly say they were firing someone for such reasons and would likely give some other reason (if any reason at all). So, wrongful termination cases are very much about picking up clues about their true intentions.

Needless to say, if this happens to you, this is something to talk to a legal expert about.

At-will employers also can’t force workers to quit. “Constructive discharge” is when a company doesn’t fire an employee, but does alter their working conditions to make them unbearable, making them quit so the employer doesn’t have to give severance pay.

“A breach of the covenant of good faith and fair dealing” (that is the legal term, no more, no less) is when an employer either forces a worker to quit or outright fires them, and then never pays the worker the rest of what they’re owed.

Being an at-will employee is not a complete free-for-all. You have rights. But… are you an at-will employee?

Now Things Get Even Weirder

There are, legally, three types of employment contracts. There are written contracts, oral (or spoken) contracts, and implied contracts.

The first one is the obvious one with self-evident proof of the arrangement, but you may be in a spoken or implied contract and not even know it – and your boss might not, either.

An oral contract is one in which some authority figure verbally guarantees you job security. If you were personally promised a specific length of time and sum of money to work for the company, you can hold them to that. You get bonus points if they said this during the job interview or as part of the job offer.

Implied contracts are much trickier. Before we elaborate, let’s make clear that not every jurisdiction recognizes implied contracts. Some states have implied contract laws on the books, others scoff at the idea. Check your local listings.

Look for the Clues

Now, then: implied contracts are ones where everything in the work environment suggests there was no reason the employee should have been fired. In implied contracts, nobody ever specifically told the worker they were guaranteed x months of work for y dollars per year, but everything hinted to it all the same.

Perhaps the bosses did tell the employee – without mentioning any numbers – that they would never have to worry about their job security there. Maybe they said something to an employee about being part of a project that would take a certain period of time, suggesting the employee would work there for that whole duration.

But perhaps the best evidence you could show a judge or lawyer is if the company has a history of only dismissing people for very extreme misconduct, instead giving employees who committed smaller offenses in-company discipline or putting them on probation, and generally never exercising their at-will right to fire someone for lesser reasons.

Implied contracts hinge on companies unconsciously surrendering their at-will rights. In cases that have gone to court, the implied contract was often ruled based on things in the employee handbook that undermined the company’s ability to terminate a worker at their own volition.

With that in mind, it’s theoretically possible for an employer to take an employee to court if they think the worker violated an implied contract by quitting.

For example, when the boss lays out a project that would take six months, they might be able to sue an employee who quits during that time for violating (what they should have understood to be) the contract.

Cases like this are much rarer than implied contract cases defending the wrongfully terminated, but if a contract works one way, it can work the other.

This might all sound messy (which it is), and arguing wrongful termination on the grounds of an implied contract might not be worthwhile (nor geo-politically legal) to you, but as an employee, it’s important to know your rights.

No matter what employment situation you’re in or are trying to get into, you ought to do your best to understand the arrangement and what can happen if that arrangement is broken.

It might seem like the prevailing laws make it messy, but in any break-up, everything gets messy anyway.