Montana's Wrongful Discharge From Employment Act was adopted in 1987 and is codified at Montana Code Annotated § 39-2-901, et seq. (about five years before I studied it at the University of Michigan Law School from one of the law professors who had a hand in drafting it).
Initially Limited Remedies
It was originally much less different from the applicable legal standards for lawful termination than it seemed, and had very limited remedies.
Originally, unlike a case where an employee is fired for a racially discriminatory reason, or due to age discrimination, or was fired in retaliation, for being a whistle blower or exercising some other legal right, an employer who fires an employee without good cause was merely obligated to pay an unemployment check sized severance payment, rather than "actual damages" determined by a judge together with non-economic damages and punitive damages. And, any award under the act has always been offset against unemployment payments, severance payments, and any other form of compensation for lost wages provided by or in connection with the employer.
There is also a short statute of limitations that can keep stale discharge claims from looming over an employer. There are also incentives in the statute to resolve the case in arbitration rather than the courts (and here).
The availability of a simple, relatively informal, and widely understood remedy also heads off what were initially, at least, higher stakes claims under discrimination lawsuits even when the discrimination angle wasn't a great fit to the facts, that produced unpredictable outcomes over whether firing an employee without good cause was for a discriminatory reason or a non-discriminatory reason.
Also, unlike the remedies for firing someone without good cause in union-management collective bargaining agreements, or in civil service employment arrangements in government agencies, or under Japanese lifetime employment contracts, an employee who is wrongfully discharged does not have the remedy of having their job reinstated. The reinstatement remedy has always been one of the biggest headaches of employers subject to it and is one of the important reasons that employers fiercely resist becoming unionized.
Unemployment Systems In Other States
In most U.S. states, most employers (often with very limited exceptions for very small businesses and religious organizations), are required to obtain state managed unemployment insurance by paying regular premiums, which is only payable if the employee is did not voluntarily quit, and was not fired for good cause (or quit in a "constructive discharge" situation), in an amount based upon the amount that the employee was paid over a specified time period, often aggregated over several past employers up to a maximum amount. Thus, employees who are laid off or otherwise fired without cause are entitled to unemployment insurance (with disputes typically resolved in state administrative hearings).
The unemployment insurance premium is set based upon payroll, the job classification of the workers involved, and an employer's claim history.
Employers routinely contest unemployment awards in these states that they disagree with to keep their unemployment rates low, although, as much as anything, it is a matter of the employer's honor rather than dollars and cents, as the dollar amounts at stake for an employer in a disputed unemployment case, due to premium adjustments that result from a claim being allowed where an employer believes that it should not be allowed, are modest.
This system is widely replicated by individual states, because state unemployment benefit systems are designed to integrate neatly with a Federal Unemployment Tax (FUTA) against which there is a dollar for dollar credit for state unemployment tax insurance premiums paid except for what amounts to a nominal annual federal head tax for each employee each year.
The Realized Fear Of Expanded Remedies
Montana's law limited discharge to discharge for cause, like that of many foreign countries' laws of this kind, was originally intended to operate as a tort-law based alternative to the government bureaucracy based unemployment tax system. It imposes an obligation based upon payroll and length of service for an employer to make severance payments to employees who are not fired for good cause that closely (although probably not exactly) overlaps with the category of employees who would otherwise be eligible for unemployment insurance payments.
Pro-business lobbyists in other states have also resisted formally abrogating "at will" employment out of the fear that the legislation in a less securely conservative state could get out of their control and end up providing remedies less like unemployment benefits, and more like discrimination lawsuit damages or union-management reinstatement rights, that many people inaccurately believe that the Montana statute provides.
This fear was not unfounded. The money damages remedies available under the act now, set forth at MCA § 39-2-905 are significantly greater than they were originally in 1987 when it was adopted. The maximum compensatory damage award was expanded in 1993. Punitive damages awards were authorized in 2001. But, in 2021, non-economic damages such as damages for emotional distress, were expressly prohibited, something that had originally been implicit.
Original Motives For Adopting The Law
To some extent it was a "compassionate conservative" experiment designed to provide fair treatment to workers, without considering "identity politics" issues like race, gender, and in later times, sexual orientation, which Montana conservatives found distasteful and which had a small constituency in a state that was mostly non-Hispanic white (except for a significant Native American population which was often not as tuned into the national identify politics and civil rights conversation at the time and was outvoted in any case) when it was adopted in 1987.
Another original motivation, I think (and I don't have first hand confirmation of this at this time, although I will see if I can find some), was basically, a conservative preference for direct private law rules governing employer-employee obligations as a primary approach, rather than the "stealth" requirement of "for cause" termination imposed through the unemployment insurance system involving a significant state bureaucracy.
Disputes between employers and employees over whether there was good cause to fire an employee, or whether an employee quit voluntarily or was constructively discharged, are litigated in state courts or in an arbitration forum, rather than in administrative law hearings.
Another motivation was to address the psychological dissonance felt by employers and employees at having an "at will" employment system where someone can be fired for any reason at all, while simultaneously having discrimination laws that authorize significant money damages awards for firing someone for certain particular reasons. It seems illogical and contrary to common sense to many people for it to be legal to fire someone because its Tuesday and you feel like firing someone, but not legal to fire someone, for example, because of their national origin. Requiring termination of employment to be for good cause resolves this common sense logical problem ,even though in practice, the other U.S. states have managed well enough at coping with this paradox with an elaborate doctrine related to pre-textual reasons for terminating someone's employment.
This rule is also a better fit to the de facto reality of how decent, honest employers act, and fits somewhat better relationship based emotional reactions to a termination that the cold utilitarian approach of unemployment insurance, while slightly more generous to a laid off employee who has worked at many positions in the past couple of years, doesn't redress in the same way.
I don't actually know how unemployment insurance itself works in Montana, since FUTA still exists. The initial idea of securing a wholesale transition from the unemployment insurance style system to Montana's right to severance pay system that would sweep the nation never went anywhere. This didn't happen, of course, and I believe that Montana now has an unemployment system similar to that of other states.
Why Has It Persisted?
The system has persisted anyway, however, mostly for reasons that don't have a lot with the bureaucracy v. private law considerations, and without regard to how it interacts with the federal unemployment tax system and unemployment insurance. There are at least three main reasons for this.
First, from a conservative perspective (in this "red states") because of its "propaganda value" in assuring individual employees in Montana that they have greater job security in other states as a means of discouraging unionization (mostly in natural resources and mining and hospitality industries).
Second, telling an employee who formally can only be fired for cause that they can now be fired "at will" is politically harmful, even if a return to the more traditional unemployment insurance system would be roughly equivalent and maybe better for workers since it has third-party assurances of solvency and allows employees to aggregate work from multiple prior employers. But expectations drawn from other wrongful discharge statutes eventually created political pressure that expanded the remedies that were available under Montana's law.
Third, from a liberal perspective, the lack of "at will" employment changes the attitudes of employers about what is normatively acceptable in the employer-employee relationship in a much more visible and corporate culture influencing manner than the "stealth" regulation of this with the same effect under an unemployment insurance regime, and that influence on corporate culture may provide significant additional benefits to employees. Small employers (who are predominant in Montana) are often unaware that the unemployment insurance system penalizes them for firing long time workers without good cause, while they are often aware of a formal legal requirement like the one in Montana and many foreign countries. These norms helped pave the way for stronger remedies for individual employees as well.
