Knowing how to terminate an employee legally will protect your business from costly wrongful termination and anti-discrimination lawsuits. While most states allow businesses to terminate employees at will, following some important steps—like documenting the reason for termination and sending final paychecks on time—can make the process easier for both you and the outgoing employee.
Step 1: Document the Termination Reason
This is the most crucial step when firing an employee, as missing this step can land you in legal hot water should an employee sue you for wrongful termination. Without documentation, a court will almost always favor the employee.
Your reason for termination doesn’t have to be difficult, complex, or wordy. In fact, it should be concise, business-related, and to the point. Due to the at-will employment doctrine that the majority of US states follow, you can often simply state a business or performance reason.
Here are the three most common reasons cited for termination.
- Performance issue: An employee is being terminated from employment due to less than satisfactory work performance. Since this is a type of involuntary termination, it should be supported by documents that support your decision to terminate an employee. This may include recent manager feedback or performance review forms showing poor/unsatisfactory scores.
- Business slowdown: An employee is being terminated from employment due to an unexpected downturn in company business. When firing an employee for this reason, you should give your employee(s) ample notice before the termination as stated in the Worker Adjustment and Retraining Notification (WARN) Act.
- Not a culture fit: Per an at-will employment doctrine, an employee is being terminated from employment because the employee is a poor culture fit. This could mean many things, such as having interpersonal conflicts with colleagues or lacking commitment at work.
Every US state, except Montana, abides in some way by the at-will employment doctrine. In theory, that means that either the employee or the company may terminate the employment relationship at any time for any reason—or for no reason at all. However, in practice, the at-will employment doctrine won’t prevent you from being sued for wrongful termination, and that’s why having documentation to support your termination reason helps.
For example, you cannot terminate an employee for a discriminatory reason, such as race, pregnancy, or age. The more comprehensive documentation that you have showing that you didn’t fire the employee for illegal reasons, the better off you’ll be and the easier it will be to defend yourself if the employee asks to see their personnel file or hires a lawyer.
If you are in a situation where an employee should be terminated due to a specific policy violation, you likely have ample evidence of the issue somewhere in your paperwork. These could include surveillance camera videos, manager meeting notes, or timecards. You may only need one of these items as evidence that the reason for termination was not discriminatory—but having more evidence will secure your decision as a legal termination.
Policy violation documentation might include any or all of the following:
- Time cards showing a pattern of late punches, long lunches, or excessive breaks
- Hand-written meeting notes regarding conversations about policy issues (these should be signed and dated by the note taker)
- Employee write-up form that documents verbal warnings for infractions, like rudeness to a customer
- Written warnings of policy violations, such as cashing personal checks in the register
- A timeline of the events showing a pattern of issues, like derogatory jokes or actions
- A signed employee handbook showing when it was received and reviewed
- A signed employee policy statement outlining company rules
- The employee’s job description
These documents should be gathered in real time and placed in the employee’s personnel file, as well as discussed with the employee in advance of your decision to terminate. Do note that personnel files are usually accessible to employees, although some states require a court order.
While not a legal requirement, we recommend asking employees to sign disciplinary warnings after delivering them. This proves that the employee acknowledges receipt and understands the warning.
Take note that refusal to sign does not invalidate the letter. If an employee refuses to sign a warning letter, you can document the refusal with a witness’s signature or a note indicating the employee’s refusal to sign.
Poor performance is a common reason that employees are terminated. It’s also one of the easier termination reasons to defend. That’s because you will typically have data to show—such as poor employee performance reviews, customer complaints, co-worker emails, mistakes found in the output of the employee, manager’s notes, photos of damages caused by the employee, performance metrics, or other evidence of performance issues.
It is important to be sure that the reason you’re terminating an employee is work-related and not something that might be seen by the court as a federal or state labor law violation. Here is a table outlining whether various employment actions constitute discrimination or retaliation based on specific scenarios:
Discrimination | Retaliation |
|---|---|
Firing someone for getting older despite good performance | Terminating an employee for coming to work late after voting is considered retaliation |
Firing an employee for being pregnant | Firing a person who has made harassment complaints against another co-worker. |
Firing an employee for having a disability | Firing an employee for refusing to do hazardous work |
Firing someone because of their religious attire | Firing an employee for threatening to make complaints to appropriate authorities (whistleblower) |
Step 2: Gather Termination-related Paperwork
Once you’ve confirmed that your termination reason is valid, non-discriminatory, and documented, gather all data before you notify the employee. This may be difficult when you want to terminate an employee on the spot, such as if they’ve instigated a fight with a co-worker or client. In that case, it’s best to perform a preventive suspension and give yourself time to gather these documents.
Prior to the termination meeting with the employee, you should gather the following information and paperwork, some of which are mandated by law.
- Termination letter: This document will need to be created per state requirements and should include company information, employee name, and the termination date.
- Termination or severance agreement: If you are offering to pay an employee severance, this letter will convey the terms and timing of payments. For example, some employees are required to sign a non-disclosure document or return company equipment before getting severance pay.
- Benefits information: If you currently provide the employee with health insurance benefits, you will need to prepare Consolidated Omnibus Budget Reconciliation Act (COBRA) documents that provide insurance coverage options to the employee.
- Unemployment information: While not required unless you are doing a layoff, you may want to bring documents to help the employee apply for unemployment. Note for mass layoffs (over 50 people) within 30 days, you’ll need to abide by the Worker Adjustment Retraining and Notification (WARN) Act.
- State-required paperwork: For example, California requires an additional Health Insurance Premium Payment (HIPP) notification to be provided by companies with 20 or more workers. Your state and locality may have unique requirements.
- Final paycheck: In some states, depending on the reason for termination (quit or fired), you must provide the final paycheck on the day of termination. Other states allow you to wait until the next business day or the next pay period.
Once you gather the termination documents, you’ll want to create two copies. One copy of these documents you will give to the employee during the meeting and the other copy you’ll save for your own termination records (stored in the now-terminated employee’s file).
Drafting the Termination Letter
Your termination letter should get right to the point. Ensure that it has the basic information included, such as the business name, employee name, and date of termination. It’s best to use company letterhead to make it official and avoid listing the termination reason in case the employee wants to dispute it. You can download and customize our sample termination letters.
Termination Letter Clauses
Here are sample clauses you may want to add to your termination letter based on the situation, such as whether you offer health care insurance, severance, or pay out PTO balances upon termination:
- COBRA: Your current Healthcare coverage is with <provider name>, and it will remain in effect until <date>. Please find the information enclosed regarding your continuation of coverage rights.
- Legal: <Company name> retains the right to take legal action should you violate the terms of our non-compete agreement, which you signed upon hire.
- PTO: You have earned unused PTO in the amount of <number> days. The dollar amount of this company-paid benefit will be paid to you on your final paycheck dated <date>.
- Paycheck: Per state law, your final paycheck can be picked up in person on the next payday <date>, or it will be mailed to you, whichever you prefer.
- Severance (optional): As a measure of good faith to the contribution you provided to the company, a severance package is being offered to you at this time. Please review the severance documents and sign, date, and return to HR within 10 business days.
Also, if the employee is over age 40, your termination agreement will need to have special anti-discrimination clauses and a timeline to align with federal law. Due to the risk of a wrongful termination lawsuit and rules that vary by state, it’s best to confer with your labor law attorney or work with an online legal firm before finalizing any termination forms.
Step 3: Notify the Employee Being Fired
As tempting as it may be to end the employment immediately, only after you’ve properly prepared a termination packet should you communicate with and notify the employee that they are being let go. When it’s time to notify the employee of their termination, it’s best to find a trustworthy witness to join in your termination meeting. This is often someone in senior leadership, such as an HR manager, the business owner, or another supervisor.
Here are some best practices for how to terminate an employee in person:
- Use a private office or meeting room: A private conference room protects the individual’s dignity as well as prevents distracting other workers on the job.
- Provide a termination packet: A prepared package that includes all necessary documentation should be presented to the employee.
- Don’t rush the employee: The worker may have an emotional reaction. It’s best to let them compose themselves before gathering their things and leaving.
- Bring the final paycheck: Even when not required by state law, that final paycheck ensures a clean ending to the employment relationship. The worker doesn’t have to worry about or make a trip back to pick up their check at a later date.
When done, it’s best to stand up to signal that the meeting is over. Your three biggest priorities within the termination meeting are to provide the severed worker with any required paperwork, treat the individual with respect (so things don’t escalate), and get the employee off the premises quietly once they’ve gathered their things.
What to Expect During and How to Handle Termination Meetings
There are certain scenarios to expect and prepare for handling a termination. These typically include interruptions, anger, crying, incessant questions, and a refusal to leave. In those cases, it’s best to keep your composure, take each line of your script one at a time, refer (and stick) to the information in your documentation, and be prepared for the worst.
Step 4: Provide the Final Paycheck
As stated, it’s best practice to provide the employee with their final paycheck during the termination meeting—however, that’s not always possible, since there are different laws surrounding this. For more information, read our comprehensive guide on final paycheck laws.
In most cases, you’ll have at least a business day to prepare the final paycheck. Read our final paycheck laws guide for more insight and information. Additionally, there are other options to speed things along, such as using online payroll calculators for states that require a check to be provided immediately. Take note that if you later determine that you’ve underpaid the employee, it’s crucial you correct that error by issuing a final check immediately.
Best Practices When Terminating an Employee
With so much emotion, it’s easy to forget that you must also address the remainder of your workforce regarding the personnel change. In addition, any vendors, clients, or business partners the staff member interacted with will need to be notified so that they know who their go-forward contact will be. And, if the terminated worker had managed others, those employees will need to know who to report to in the interim.
Communicate to the Team
Consider calling your team together in a conference room or notifying them by email or team collaboration channels and telling them that the individual is no longer with the firm. While transparency and candor are applauded, there is no need to explain beyond the fact. You’ll want to protect the former worker’s reputation so that you’re not later accused of slander or malicious behavior.
While the announcement may cause current employees stress and to question their own job security, most terminations, especially for behavior or performance, are not a surprise to anyone. Try to end on a positive note and assure your team that the company is solid. You may also want to ask for their support during the transition.
Best Practices for Offboarding a Remote Employee
Firing a remote employee works much the same way as firing a regular employee, however, you should take into consideration the following:
- Have all paperwork in place ahead of time
- Alert all required departments prior to the termination (HR, IT, etc.) so that the employee can be removed from all company systems immediately upon termination
- Perform the termination on a video call with the employee
- Follow up the video call with a formal letter of termination sent via email to the employee’s personal email address
Determine Who Will Take the Former Employee’s Responsibilities
Once the former employee is no longer with the company, you’ll likely need to assign work to different team managers and employees. You can do this in a meeting or craft a simple email announcing the organizational change in a positive way to employees. This may serve as an opportunity to cross-train, praise, or promote your remaining hard-working team members.
Clean Out Their Work Area
If there are personal items left behind, put them in a box and notify the former employee to pick them up after hours or from a secure location. If the items are few and small, it may be worth mailing them. A clean, restocked workspace will help existing employees move on, as well as provide a working space for a new or transitioning employee.
Remove All Systems Access
It’s helpful to keep an offboarding checklist of company property that employees have so that you can get it all back when they depart. That includes software logins, like email accounts and business apps, or company-owned equipment, like key cards, credit cards, company phones, and laptops.
You may also want to forward the former employee’s incoming phone and email messages to another account. If you have an IT administrator, ask them to turn off system access at the same time as you conduct the termination meeting.
Offer Severance (Optional)
Severance pay is optional. It’s a “benefit” that many managers and executives request prior to accepting a job with your firm. It is essentially the amount of money you want to give someone in thanks for their service.
Examples of severance policies may include statements like:
- The employee will receive one week’s pay for every year spent with the company.
- The worker will receive an amount equal to 10% of their salary for every year of service.
If you decide to pay severance, the best practice is to make it conditional. For example, you may require them to return the company car, sign a non-disclosure agreement, and state they have been lawfully terminated. An attorney can draft such a document to ease your mind that the entire situation is over. Learn more about this in our guide to severance agreements.
Here are some common scenarios in which severance pay makes sense:
- No fault: A salaried management employee is being let go in a tenuous situation that might not be the worker’s fault.
- Senior staff: A salaried employee is being let go after many years with your company.
- Risky business: An hourly employee is in a protected class, and you fear retaliation if you don’t compensate them in some way.
Severance Pay Outs
Upon termination, you can pay a lump sum on the employee’s final check, wait until they’ve signed a severance agreement or returned equipment, or—to preserve your cash flow—you can pay it out in pay-period increments.
For example, let’s say you offer four weeks of severance and pay your employees weekly. You could pay out that severance amount in a lump sum check made out to the worker or keep them on the payroll for four additional weeks, providing severance pay over four pay periods.
Employee Benefits Continuation
Benefits continuation only applies if you provide employer-sponsored health insurance and meet other state requirements, such as company size. If your business has under 50 employees and health insurance wasn’t provided, you can skip this item.
Those who do provide COBRA typically have 14 days in which the healthcare provider needs to send benefits continuation documents to the employee. That’s something you’ll want to check to be sure it gets done.
Continue Business as Usual
It shouldn’t take more than a few days for your business to get back to normal after an employee is terminated. Use this time to consider the best way to reassure your team that staffing decisions are made based on what’s best for the business and the team as a whole.
Protecting Your Business from Legal Action
Once an employee has been terminated, you get a chance to reflect. If you didn’t have sufficient documentation, now is the time to protect your business from legal action if you ever need to terminate another employee. We’ve provided best practices documents that every small business should have along with downloadable starter templates below.
- Employee handbook: An employee handbook sets rules for employees, reminds your staff of the at-will doctrine, and demonstrates a good faith effort to avoid labor issues.
- Job descriptions: Employee job descriptions clarify performance expectations for each job role and can support your decision to let someone go due to poor performance.
- People management: People management involves providing ongoing feedback, coaching, and often recognition and incentives. These efforts demonstrate your willingness to assist an employee to reach peak performance.
- Discipline policy: A progressive discipline policy is a framework for managers to coach and discipline poorly performing employees.
- Labor law posters: Labor law posters remind both employers and employees of their rights and responsibilities under the law. They can be downloaded from federal and state websites; many payroll processing firms also provide these posters as a service offering.
In addition to having your attorney view these documents for federal, state, and local law compliance, it’s a good practice to update them annually. Labor laws change often—and keeping yourself updated is the way to ensure full compliance with the law.
How to Fire an Employee Legally Frequently Asked Questions (FAQs)
It is important to avoid getting into too much detail about why the employee was terminated—keep both the termination discussion and employment termination letter brief. You can simply state that the employee is being terminated under your at-will employment policy.
Be sure to check with your employment lawyer to ensure you comply with all local labor laws and not say anything that could get your company into trouble.
While there is no general consensus on when the best day or time is to fire an employee, some suggest doing it at the end of the day to give the employee more privacy from other employees. As for the day, some suggest doing it at the start of the week to give the terminated employee the opportunity to find a new job.
Bottom Line
How you fire an employee makes a huge difference in whether the termination will go smoothly or not. By following the steps and best practices we’ve outlined above, you can ensure that your termination process is lawful, fair, and ultimately beneficial. After all, firing an employee legally reduces business disruption and can prevent costly and avoidable wrongful termination and/or discrimination lawsuits.
