Should your US employment agreement have a notice requirement?

Employees in the UK are typically entitled to statutory and contractual notice prior to termination. Under Section 86 of the Employment Rights Act 1996, once an employee has been in employment for a month or more, he or she is typically entitled to receive a minimum period of notice before employment can be terminated. Most UK employment agreements supplement these statutory rights with contractual provisions that require longer notice periods, often for several months.

It is understandable, therefore, that UK companies doing business in the US would look to include notice provisions in their contracts. Before doing so, here are a few points to consider:

• Every US state except Montana has adopted the “at-will” employment doctrine. Under at-will employment, absent a contractual provision to the contrary, employees can resign or be terminated with no notice and without cause at any time. Federal, state, and local laws that prohibit termination based on prohibited factors (like race or gender) are the only restrictions on an employer’s ability to terminate.
• At-will employment is culturally accepted in the US. Employees usually don’t ask for notice periods and notice periods are almost never provided. The US is the land of rugged individualism. It is part of the ethos that if you don’t want to be in business with someone then you shouldn’t have to be.
• Although the US does not have redundancy, employers are required to contribute to the state government unemployment insurance fund where their employee resides. Employees who are terminated other than for misconduct are entitled to receive benefits from the fund. This provides a safety net in the event of termination and can help employees bridge the gap from one employer to the next.
• It is almost impossible for an employer to enforce a notice provision against an employee. A court will not order an employee to work out the notice period. In addition, state laws almost uniformly prohibit employers from withholding pay based on an alleged breach of contract. Although it is theoretically possible to sue the employee for damages resulting from the failure to give notice, this almost never happens. Actual damages are difficult to prove, litigation is expensive, and the employer would undoubtedly suffer reputational harm from bringing an action that many would consider punitive.
• There is a non-binding cultural norm in the US that employees offer two weeks’ notice when resigning. Employers, of course, are not required to accept two weeks’ notice. Particularly when the employee has access to sensitive information, it is common for an employer who receives such notice to terminate employment immediately and shut off access to all company systems.
• Sometimes you don’t want the employee to continue to work during a notice period. During the notice period employees can cause significant damage to a company, including the company’s morale and culture. You have the right to insist that the employee not work during the notice period. In such cases, your notice requirement effectively becomes a severance payment obligation.

If despite the above you still conclude that a notice period is needed, consider including a clause that allows for immediate termination in the event of certain instances of misconduct.