What Employer Actions Can Create Implied Employment Contracts?

In Arizona, as in many states, the principle of “at-will” employment allows employers and employees to terminate their working relationship at any time and for any reason, or for no reason at all. However, despite this seemingly straightforward doctrine, courts in some instances will recognize implied contracts of employment. These contracts, though not explicitly stated, can be inferred from various sources such as employer policies, oral assurances, and consistent workplace practices. Understanding these nuances is critical for both employers and employees.

One common source of implied contracts is the language of employee handbooks or employer policy statements. These documents often contain detailed descriptions of workplace procedures, including those governing employee discipline, which can create expectations of job security and entitlement to certain treatment. If an employee handbook outlines a specific sequence of disciplinary steps before termination (e.g., verbal warning, written warning, then suspension), employees might reasonably expect these procedures to be followed. Deviation from these outlined procedures could be seen as a breach of implied contract, giving the discharged employee a right to sue for wrongful termination.

Another potential source of implied contracts is oral or written assurances given to employees, either during the hiring process or in performance reviews. Statements like “You’ll be here as long as your performance is good” can be interpreted as contradicting the at-will nature of employment, especially if relied upon by the employee. These assurances, when specific and clear, can form the basis of an implied contract if they are in direct conflict with the employee’s at-will status.

Employers’ consistent behavior or practices over time can also lead to the formation of an implied contract. For example, if an employer has a long-standing practice of only terminating employees for cause, and this practice is known and relied upon by employees, it might be argued that an implied contract has been created, ensuring job security unless there is justifiable cause for termination.

To avoid the creation of implied contracts, employers should include clear disclaimers in all handbooks and policy documents. These disclaimers should explicitly state that the document does not create any contractual rights and that employment remains at-will. Furthermore, these disclaimers must be conspicuous and unambiguous to ensure they are legally effective.

Employers should be careful in their communications and conduct so as not to create seeming assurances that an employee could reasonably rely on. Any deviations from written policies should be accompanied by clear explanations to avoid creating expectations that might later be viewed as contractual. Regular training for managers and supervisors on the implications of their statements and actions can also help in maintaining clarity regarding the at-will nature of employment.

An experienced employment law attorney can be of vital assistance in drafting effective disclaimers and managing employment practices to avoid implied contracts. An attorney can provide guidance on how to structure policies and procedures to minimize legal risks. They can also offer strategic advice on handling specific employment situations that might give rise to claims of breach of implied contract.

At Law Offices of Donald W. Hudspeth, P.C. in Phoenix, we advise Arizona businesses in all aspects of employee relations, including contractual disputes. Call us at 866-696-2033 or contact us online to schedule a consultation.