Since I write a lot about the sociology and HR game theory of software engineering, I get a lot of hits to my blog for queries related to employment and, in particular, its endgame, such “should you sign a PIP” (answer: no) and “can they fire you for <X>”. I’m going to answer the second category of question. Can a company fire employees for any reason? Isn’t that what at-will employment means?
Well, no. Companies like to claim that at-will employment means that an employee can be terminated for any reason and has no recourse. They like to argue that people never win termination lawsuits except when discrimination is obviously provable. They say this because they don’t want to deal with the lawsuits, and they believe they can get away with low or nonexistent severance payments if the employee actually believes this. However, that’s not true. If it were, companies would not write severance packages at all.
Before I go any further, I am not an attorney and this material is provided for informational purposes only. This is no substitute for legal advice, and if you are at risk of, or in the process of, a messy termination, you should be consulting a lawyer. Preferably, find an attorney in your state, because these laws differ depending on where you are. What I’m providing here is for the purpose of explaining the HR game theory involved, with the goal of shining some light on how companies work.
What is “at-will employment”?
Legally, it means that the employment contract is of indefinite duration and can be ended by either party on a same-day basis. An employee is not in breach if he quits at any time, nor is the firm required to provide notice or a severance package. It exists to protect 3 classes of termination:
- Layoffs for business reasons. Companies that choose to end employment for a business reason, such as the closing of a factory or a need to reduce payroll, have the right to end jobs. In some cases, they are required to provide notice or severance (see: WARN Act) but not in all.
- Objective, published performance or conduct standards. Companies have the right to set performance standards as they wish, as long as they are uniformly enforced, and to fire people who fail to meet them. (Uneven enforcement is another matter. If it can be proven, the employee might have recourse.) It is not for the law to decide that a standard is “unreasonably high”. If a business decides that it needs to set productivity standards at a level that only 5 percent of the population can meet, that’s their prerogative.
- No-fault “breakups” in small companies. In small firms where the failure of a single working relationship can make employment completely untenable (because there’s no possibility for “transfer” in a 8-person company) the employer maintains the right to say, “We’re just not that into you”. This does not apply to large companies, where an employee who fails to get along with one manager could be transferred to another.
I don’t think any of these provisions are unreasonable. Companies should be allowed to lay people off for valid business reasons, set uniformly-enforced performance standards as high or low as the business demands, and terminate people whose failed relationships make employment untenable.
What doesn’t it cover?
A surprisingly large set of terminations are not covered under the above. I’m going to pick on one, resume lies. Clearly, this is fireable under any circumstances, right? Well, no.
Job fraud, defined as procuring a job that would not normally be available using misleading information that claims competencies the individual does not have, is a breach of professional ethics in any line of work, and in life-critical professions or law, it’s illegal. (If you say you’re a doctor and don’t have a medical degree, you’re likely to end up in prison.) People can be terminated for that, no question. So what is job fraud? If someone claims to have a PhD and didn’t even finish college, that would be considered job fraud, if the job requires a higher education. If someone is hired as an Enterprise Salesman based on his claimed 5 years of Goldman Sachs (and the contacts that would imply) but did not work there at all, that’s job fraud. What about someone who covers up an embarrassing, 4-month-long, gap in employment? That’s a much grayer topic. Let’s say that the applicant actually had 37 months of experience in that field, and with the inflation, 41 months. Well, that’s like rounding up a 3.651 GPA to 3.7: not exactly fraudulent. To establish just cause for termination, the company must prove that it would not have hired that same person with only 37 months of experience: that a pre-existing cutoff for that position was between 37 and 41 months of employment. (It could set a policy of not hiring people with 4-month gaps in their history, but juries will not look kindly on a company with such a policy.)
Broadly speaking, resume lies fall into two categories: job fraud, and status inflation. If job fraud occurred– the person would have been ineligible for the role were truthful information provided– the company will have no problem firing that person. Severance or notice are not required. The company is not required to prove that the standard is reasonable, but only that one exists and is uniformly applied. On the other hand, most resume lies are inflations of social status and political success: upgraded titles, tweaked dates, improved performance-based compensation, and peers representing themselves as managers to fix reference problems. It’s much harder for a company to prove that the person would not have been hired were truthful information provided. There’s a spectrum:
- Overt job fraud, at one extreme, is deception claiming competencies a person does not have, such as a person who never attended medical school claiming to be a doctor. This person can be fired immediately, and often prosecuted.
- Cosmetic falsification is generally not grounds for termination. Let’s say that a person claims to have ancestors who came over on the Mayflower. In “white-shoe” law or management consulting, this could easily sway an interviewer. It’s a signal that the person is more likely than average to have the pedigree that clients prefer. However, since it’s not an explicit requirement for the job, and the company would have a hard time proving that it swayed their decision, few companies would be able to justify terminating an employee on that alone.
This is also why it’s much more dangerous (and far less useful) to fake a college degree than to upgrade a job title, self-assigning a promotion when one was actually passed over. The first is considered fireable job fraud almost always, and it lacks plausible deniability (you cannot claim to have forgot how you spent 4 years of your life). The second has two advantages. First, unless that title were an explicit job requirement (“we only hire SVPs, not VPs”) it doesn’t consist of grounds for termination on its own. Second, there’s plausible deniability: “I was promoted during my last week there, and they must have forgot to put it in the system. Since I was no longer working there, I wasn’t aware of this discrepancy.”
Why does HR exist?
The purpose of the above discussion was to show that companies don’t have as much freedom to “fire at will” as they might want. They can’t just can people who annoy them. However, most company executives would like to be able to fire as they wish, and preferably cheaply. That’s where HR comes in.
For blue-collar, commodity work, companies have the unambiguous right to set performance standards and fire people who don’t meet them. However, the standard must be uniformly enforced. If a company decides that 150 widgets per hour is the productivity standard and fires Mark for achieving 149, it’s within its rights to do so. However, if Mark can establish that Tom, the boss’s son, was regularly pulling 145 and retained, then Mark can justify that his termination was wrongful.
In most states, uneven enforcement of policies is not enough to justify a lawsuit. Rather, wrongful termination requires a specific protected context (discrimination, retaliation, harassment, union-busting) before a case will even be heard, and “he just didn’t like me and was unfair” does not qualify. It is, however, not that hard to create such a context. Here’s one way to do it: in response to managerial adversity, put in for a transfer. Now, a negative performance review (if that review reduces transfer opportunities, or would be visible to the manager of one’s target team at all) constitutes tortious interference with an attempt to establish a mutually beneficial working relationship elsewhere in the company. Since part of the worker’s job is to remain aware of internal mobility opportunities, this is direct interference with work performance, and that is, of course, a form of harassment. It’s retaliation against legitimate use of internal processes.
This approach doesn’t work if the company can establish a uniformly enforced, objective performance standard. No employee at 149 widgets per hour was ever retained or afforded transfer. However, the nature of white-collar “knowledge work” is that it’s almost impossible to define standards for it, much less enforce fairness policies that can apply uniformly across a job description. Consider software. A first scratch at a standard might be “20 lines of code, per day”. For engineers on new development, this is easy to meet. For maintainers whose time is spent mostly reading code, it’s very hard. Also, it provides dangerous incentives, because it’s relatively easy (and in the long term, costly) for an engineer to add 20 lines of useless code.
This, of course, is what’s behind the “calibration score” nonsense and global stack-ranking in which companies regularly engage. The original intention behind these systems was to enable quick layoffs without discussion. Actually cutting projects that made no sense (which is what the company needed to do, possibly in addition to reducing personnel) required a discovery process, and that involved a lot of discussions and input, and word would get out that something was going on. The purpose of the global stack-ranking is to provide a ready-made layoff for any cutoff percentage. It’s a simple database query. What percentage are we cutting? 7.5? Here’s your list. This is actually a terrible way to do layoffs, however, because it means people are cut without eliminating projects. So (a) fewer people are left to do the same amount of work, and (b) the excessive complexity– what likely caused the company to underperform in the first place– never goes away. That said, it remains a popular way of doing layoffs because it’s quick and relatively easy. It also generates a slew of bad data.
One of the dangers of bad data is the temptation to use it as if it were valid. “Calibration scores” are subjective, politically motivated, and often bear virtually no correlation to an individual’s ability to add value to the firm. However, in the context of at-will employment, they have an additional use. The books can be cooked in order to justify “performance-based” firing of any employee for any reason. Instead of “150 widgets per hour”, the standard becomes “3 points out of 5″. Of course, the numbers are bullshit made up to justify personnel decisions that were already made, but they create the appearance of a uniform policy: no employee below 3.0 was retained.
This also explains the phenomenon of transfer blocks. Employees who meet too much documented political adversity find themselves immobile in the company. Either that person’s personnel file is damaged (often by falsehoods the employee will never be allowed to see, because she would have a serious harassment claim if she knew what was in it) so severely that no manager will want her, or she is prohibited from moving at all as per HR policy, even if there’s another manager who’d gladly hire her. At first glance, this makes no sense. Why would HR care enough to interfere with internal mobility? The answer is that it can break the uniformity that’s needed to justify termination. Let’s say that this employee was particularly politically unsuccessful and received a damning 2.6 (where 3.0 is passing) on her performance review. If she’s allowed to transfer to another team, then another employee who received a 2.7 and was not allowed to transfer has recourse. Of course, the likelihood that an ex-employee will compile this sort of information in enough volume to build a case is very low, because the data are hard to get without initiating a lawsuit, but this should explain why companies are insistent on keeping those “calibration scores” secret.
The HR transfer block is a nasty thing to encounter. It doesn’t occur unless a manager is so hell-bent on firing an employee that he must be kept in place. It also means that, even if the new manager desperately wants to hire a person, she often can’t. There are only two ways to beat an HR transfer block. One is to escalate, but that rarely works, because managers at a high enough level to do this are generally too busy to hear petitions from peasants they don’t know. The second is to offer a bribe to someone in HR who can change the review. This practice is a lot more common than people think, but that’s not a good position to be in, and I’d say it’s not the recommended course of action in most cases. (Just get another job.) HR bribes don’t always work, and they typically cost 3 to 10 percent of a year’s salary. When you’re at the point of having to pay for your own job, you’re better off just finding another one. Keep in mind, also, that if you’re in this position you’ll often be paying two to three times the bribe you offer, because what you’re doing is immediately fireable. (The first rule of extortion: when offered an illegal bribe, triple it.)
There’s one more thing to talk about. What is it that companies really fear? When they write these “performance improvement plans” (PIPs) and create elaborate machinery to justify terminations that are actually political, what are they trying to defend themselves against? First, they don’t want to be sued– that much is clearly true. However, they also know that the vast majority of employees won’t sue them. It’s extremely time-consuming, it can be dangerous to one’s professional reputation, and employers win most of the time. The economic cost of losing a lawsuit, multiplied by the low probability that one occurs, is not something a large firm fears. Secondly, they’re afraid of public disparagement, which is what severance packages are really about. People who can move on to another job without financial worry or loss of career status are unlikely to spend months to years of their lives suing an ex-employer. They move on. However, there’s a third fear that is often not discussed, but it’s important to understand it when negotiating severance (in which, by the way, you must involve a lawyer because you do not want an extortion rap). Companies aren’t afraid of the financial costs of a lawsuit, and they can’t do much about disparagement, but there’s something else that terrifies them. Discovery. Even if the employer wins a termination lawsuit– and, fair warning, they win about 80 percent of the time– they’re going to have to prove that the termination occurred in the context of a uniformly enforced, fair performance standard. Everyone knows that white-collar work is subjective and often impossible to measure, so there are a lot of angles that can be exploited. All sorts of personnel data, HR intrigue, and possibly even historical compensation tables, can be brought into the open. That’s a terrifying thought from an employer’s perspective: much scarier than losing a termination lawsuit. So even winning a termination lawsuit is a pyrrhic victory for the employer. However, that’s unfortunately also true for the employee: winning is pyrrhic, and losing can be disastrous. There’s a delicate “mutually assured destruction” (M.A.D.) at play. Companies will often pay severance just to make the dance not happen.
This also leads to the one bit of advice that I’m going to give. This is not legal advice, but I’ve seen enough good people (and a few bad ones) get fired that I think it’s valid. Unless you are in financial need, you probably don’t want to push for more cash severance than is offered. If they offer 3 months, and you’re likely to have a job in two, then take it. Don’t try to push your go-away fee up. However, never walk away for free, and always make sure your reputation is protected. You can take a zero for cash, but if you do, mandate a positive reference (written, agreed-upon, contractually obligated) and the right to represent yourself as employed until you find your next job. One major advantage of pushing for a non-financial package is that you’re less likely to inadvertently do something illegal. Companies know that disparagement is a more credible threat, in the age of the Internet, than a termination lawsuit, but you can’t legally say it. If you say, “Give me $50,000 in severance or I’ll write a blog post about this”, you’re breaking the law and, while you probably won’t go to jail, you’ve lost all leverage with the employer. With only a reference being asked-for, you can frame it as, “Hey, we need to come up with a straight story so we don’t hurt each other in the public. I intend to represent my time at your company well, but here’s what I need from you.” Still, work with an attorney to present the deal because this is a very weird territory. (I know too much about extortion law for one lifetime, having been illegally extorted by a (now ex-) employer in the spring of 2012.)
That, in a nutshell, is an incomplete summary– but a scratch at the topic– of at-will employment. I hope that none of my readers ever need this information, and certainly that I will never have to use it, but statistically, many will. Good luck to those who must fight.