NC’s At-Will Employment
Under North Carolina employment law, employees are considered to be employed "at-will." This means that either the employer or the employee can terminate the employment relationship at any time for any reason, with or without notice.
Despite the at-will employment doctrine, there are certain exceptions under which a terminated employee may have a claim against an employer. These exceptions include wrongful termination, retaliatory termination, and violation of public policy. An employer may also be sued for intentional infliction of emotional distress and negligent infliction of emotional distress, and an employee may lose the protection of the at-will employment doctrine if the employer has entered into a written employment contract.
North Carolina is one of several states that recognize the tort of wrongful discharge. Under the wrongful discharge tort, an employee may have a cause of action if he or she was terminated in violation of an express public policy of North Carolina or the federal government. The public policy may arise from a statute, administrative regulation, or constitutional provision. Public policies that have been recognized include the following: North Carolina courts have not recognized all public policies. However, only one of the policies discussed above needs to exist in order for the employee to have a valid cause of action . Another requirement for finding the wrongful termination tort is that the employer must have violated the public policy in terminating the employee. For example, dismissing the employee "because of race, sex, or religion" is a violation of public policy that prohibits discrimination in employment on such bases. McElrath v. K-Mart, Inc., 318 N.C. 764, 765-66, 302 S.E.2d 554, 555 (1983). Likewise, an employee may have a cause of action for wrongful discharge in violation of the public policy against retaliatory discharge. id.
In some instances, employment contracts made between an employer and employee may take an employee outside of the at-will employment doctrine. Courts have held that "abatement of the at-will employment doctrine does not require an express written contract." Miscellaneous Servs. Corp. v. Phillips, 110 N.C. App. 637, 641, 431 S.E.2d 232, 233 (1993). Rather, a plaintiff employee must show either an express or implied contract, or a contract implied by a company handbook, policy manual, or other similar materials.
Employers can lessen the risk of wrongful termination claims by issuing and requiring employees to sign a clear acknowledgment of an at-will employment relationship. Doing so puts an employee on notice that although he or she may perform well, which is a subject of some degree of subjectivity, employment can be terminated with or without cause.
Lawful Reasons for Termination
In North Carolina, employment is "at will," which means that, subject to the North Carolina Wage and Hour Act’s requirement to pay final wages when employees are discharged, employers may set conditions of employment and may discharge employees at any time for any reason or no reason. However, employees cannot be discharged for any reason that violates public policy, such as refusing to drive a truck in violation of a federal regulation concerning hours of service.
There are generally one of two ways to terminate an employee so as to avoid liability under applicable laws, including wrongful termination and discrimination laws. The simplest way is to have a "good" reason, which turns out to be easier to find than you think. The second way is to have a "bad" reason that you can show was not the real reason for the discharge. So, if John worked for you for four years without incident and you tell him that he is being discharged because you found out he was stealing, he probably has a good claim against you. On the other hand, if there are seven progressive disciplinary write-ups dating back three months, which he stewed about only but one to three days ago, then you can protect yourself because the discipline will show that there is no real question about your true motive. As we see in the following, performance issues are among the best, and cleanest, reasons for terminating an employee.
Performance Issues
It is simple enough to discharge employees who perform inadequately. The key, however, is to have documentation supporting the discharge. Failure to document performance problems directly equates to failure to have an adequate reason for the discharge. Absent sufficient documentation identifying the cause of the termination, an employee may be able to prove that it was caused by discriminatory or retaliatory intent. In any event, to show that performance justified the termination the employer will have to prove the employee actually performed poorly. It is not sufficient to simply say that the employee was deficient; the employer has to be able to show what he did wrong and, importantly, that the business suffered because of the employee’s deficient conduct.
Misconduct
Employers are well within their rights to discharge employees for misconduct during the employment relationship. Misconduct includes stealing (theft), sexual harassment, insubordination and other forms of misconduct. Again, the key to supporting a discharge for employee misconduct is documentation, under which you put the employee on notice that if he or she engaged in additional misconduct the company would have grounds to terminate employment. Documentation also is important to prove that the employee has engaged in misconduct.
Unlawful Termination Practices
Under North Carolina law, an employer is prohibited from unlawfully terminating an employee for reasons that are discriminatory or retaliatory. Discrimination occurs when an employer terminates an employee based on their protected status, including but not limited to age, race, color, national origin, gender, disability, or religion. Retaliation occurs when an employer terminates an employee in an act of reprisal for asserting rights provided by law, such as filing a complaint alleging discrimination or requesting accommodations under the Americans with Disabilities Act. Examples of unlawful termination include an employer who states that it will not hire any job applicants who are twenty years older than the job applicant or terminates an employee based on their gender identity. Another example is a restaurant owner who refuses to hire an applicant with a certain characteristic on a day when it has no dining room injuries or bathroom injuries to report, yet is willing to hire an applicant with the same characteristic on a different day when it has injuries to report.
Termination Best Practices and Procedures
The termination of an employee in North Carolina remains one of the most frequent points of dispute between employers and former employees. Following best practices for termination procedures can give employers a significant advantage should a dispute ever arise. General advice is provided below, followed by specific suggestions for ensuring compliance with North Carolina’s final paycheck laws.
General Termination Procedures
When an employee is being terminated, the supervisor and/or human resources professional should meet with the employee privately. It is best to have documentation that clearly articulates the reasons for the termination (e.g., a listing of problems, poor reviews, performance improvement plans and/or disciplinary warnings). There is no legal obligation to provide the employee with any documentation – but if the employee does not already have it, then providing it can lessen the blow of their termination.
If an employment agreement provides for a meeting to discuss the employee’s termination and the consequences thereof, or in cases where the employment agreement gives the employee a right to appeal the termination, these obligations must be followed. If these steps are omitted, the termination will likely be considered a breach of contract and can support a breach of contract action.
North Carolina Final Paycheck Laws
North Carolina law is specific about employer obligations concerning final paychecks. The employee must be paid all wages due by the next regular payday. For example, if an employee regularly receives a paycheck every other Friday, and they were terminated on a Monday , then the total amount of wages due must be paid by the next time the company would have issued its next paycheck. This may seem harsh on an employee that has been terminated, but the law is clear that the law cannot be used to create a situation more favorable to the employee than the agreed up provisions of the employment agreement. Therefore, employers can be confident in adhering to this rule.
The final paycheck must include all pay due to the employee under the terms of the employment agreement, including, for example, commissions, sick pay, vacation pay, bonus pay, or anything else that may have been promised as part of the employment agreement or otherwise.
The final paycheck requirement is meant to protect the employee; the only exception is for situations where an employer has a counterclaim against the employee, i.e., an amount owed to the company. In this situation, the company may withhold the amount owed from the paycheck to the employee, provided the employee was provided with adequate notice of the amount withheld. Unfortunately, the statute is silent on what qualifies as "adequate notice." The law says employers "shall give" the employee "notice of amounts to be withheld." Receipt of the check with the deduction thereon is likely insufficient.
Since this statute provides no guidance on what notice must be provided to the employee, our best guidance is to no longer apply a deduction to a paycheck without first giving the employee written notice of the potential deduction and the process to contest the accuracy of the alleged debt. This would be both ethical and reasonable in case such an issue ever made it to litigation.
Recourse and Rights for Employees
Employees who are wrongfully terminated have several options that may be available to them. These include administrative claims filed with the North Carolina Department of Labor or a private right of action under the NCGS Ch. 95, Art. 12 for wrongful discharge in violation of public policy and other limited categories. However, the vast majority of private claims arise under employment contracts or when a breach of contract claim is available. Many times such claims arise in the context of layoffs or mass terminations or reductions in force. When a layoff is contemplated, an employer should examine all employment agreements as well as any collectively bargained agreements in effect to determine if there are any legal restrictions to lay off of various employees. These issues will be discussed in greater detail in future sections of this article.
As mentioned previously, employees have the right to file a complaint with the Department of Labor. The Division of Industrial Relations has authority to investigate charges of retaliatory discharge and is authorized to pursue a civil enforcement action. Employers should be familiar with the procedures for filing a charge or complaint with the North Carolina Department of Labor’s Wage and Hour Bureau. The charge of retaliatory discharge must be filed with the Bureau within 180 days after the alleged discharge.
The ability of employees and employers to agree to alternative dispute resolution mechanisms like mediation, arbitration, or other proceedings like nonbinding arbitration or expert determination are generally recognized as valid by North Carolina Courts. Such forums afford both the employers and employees the ability to select a forum for dispute resolution. What is important is that the method of alternative resolution chosen be a product of mutually agreeable terms of the parties or as set forth in an employment agreement. Courts have not enforced mandatory alternative resolution mechanisms designed to keep the parties out of court if an employee is seeking a remedy that the chosen mechanism does not afford them.
Tips for Employers: Practices to Avoid
For all of the reasons we have discussed to this point, termination decisions should be made very carefully and with proper documentation. The good news is that we know of ways to avoid or at least minimize the most common legal pitfalls. If you are a large company, for example, then first and foremost you should develop a disciplinary policy that adheres to common principles that are not always codified in your company handbook. If you are a small employer, these policies would be helpful even if you could not have a comprehensive handbook. Likewise , the best practice recommendations above should be adopted regardless of the size of the employer.
When you develop your disciplinary and termination policies, here are some more practical considerations that may help you stay within the bounds of the law, reduce your liability, keep your employees productive, and make fewer trips to court:
If you keep these few tips in mind, you may avoid many of the common legal pitfalls related to termination decisions.