Modifying At-Will Employment Contracts

[E]very social structure . . . has a fundamental problem with conflicting needs for certainty and for flexibility.1-Ian R. MacneilLong-term employment relationships are constantly in flux. Worker re-sponsibilities, terms of compensation, job titles, company policies, employ-er-provided benefits, and a variety of other conditions of work are routinely altered over the course of what is often a multi-year, highly dynamic profes-sional and personal relationship. In cases involving at-will employment-the vast majority of such relationships-the economic realities and power dynamics are such that changes in terms are likely to be introduced unilat-erally by the employer for purposes of advancing its own business inter-ests.2 The worker is often presented with a set of non-negotiable terms, less favorable than the ones ostensibly governing the parties, and asked to ac-cept on the implicit or explicit threat of termination.3The contractual enforceability of these "mid-term modifications,"4 as this Article refers to them, has significant ramifications for the economic success of corporate actors and the livelihood and wellbeing of individual workers. Employees want to be able to rely on consistent compensation and benefits. Employers genuinely require flexibility to deal with changes in personnel matters and external economic circumstances. Despite this, the common law has developed neither a coherent legal framework for analyz-ing mid-term modifications, nor a theoretical basis for understanding exist-ing doctrine.Judicial treatment of mid-term modification controversies reveals two broad categories of approaches. Under what this Article calls the "unilateral modification" approach,5 courts typically permit employers to change terms at their discretion.6 These courts theorize that because at-will employment may be terminated at any time, continued employment constitutes consider-ation for any changed terms the employer might chose to impose.7 In con-trast, some courts follow what this Article calls the "formal modification" approach.8 These courts require the employer to provide an additional bene-fit beyond continued employment-such as a raise, bonus, or other employ- er promise-in recognition of the fact that the employer remains free to terminate the employee at will subsequent to the changed terms. 9 Under this view, the mere promise of continued at-will employment is illusory and cannot supply the requisite consideration for a change in contract terms.10This Article problematizes the assumptions underlying both approach-es. First, it argues that the unilateral and formal modification approaches give undue attention to consideration in determining the enforceability of contractual modifications. Contemporary modification doctrine has system-atically moved away from the historical inquiry into consideration in favor of an approach grounded in fairness and voluntariness.11 Courts' use of con-sideration as the touchstone for enforcement reflects a retrograde under-standing of modification law that aims to satisfy formalistic rules of con-tract formation at the expense of assessing the legitimacy of the employee's assent to modification. In reality, at-will employees have no "choice" in consenting to mid-term modifications, irrespective of whether they receive "new" or "separate" consideration in supposed exchange for the new terms.Second, the Article argues that neither the unilateral nor formal modi-fication approach properly balances the competing policy goals that animate contemporary modification law. The historical rationale for a strict new consideration requirement in determining the enforceability of a modifica- tion was to protect against possible coercion. 12 The flip side of that concern is the need for flexibility, particularly in long-term relationships where mar-ket circumstances and the needs of the parties will likely change over time.13 Commercial law's rejection of the consideration rule reflected a de-sire to better balance these goals, requiring a good faith showing of the need for the modification and making the inquiry into coercion direct and explic-it. …