Knowing how to fire 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.
- Business slowdown: An employee is being terminated from employment due to an unexpected downturn in company business.
- Personality conflict: Per an at-will employment doctrine, an employee is being terminated from employment due to interpersonal conflict with co-workers, affecting morale.
It’s important to note that even in states that abide by the at-will employment doctrine, it’s helpful to have documentation supporting your termination decision. For performance issues, for instance, these documents may include recent manager feedback or performance review forms showing poor/unsatisfactory scores. Often, it can be as simple as handwritten meeting notes jotted in the employee’s file regarding on-the-job issues observed.
Firing an Employee At-Will
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 later asks to see their personnel file or hires a lawyer.
If you wish to not have to pay more in unemployment than required, it’s best to state in your documentation why the employee was terminated—such as “policy violations” or “performance” as documentation of the cause. Most HR software provides a field to store this data for easy tracking.
Firing an Employee for a Policy Violation
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)
- Written documentation of 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.
Firing an Employee Due to Poor Performance
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.
Performance issues can often be avoided with proper employee management. This includes constant communication with the employee, periodic evaluations, and proper training.
Precautions When Documenting a Termination Reason
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. The following should be taken into consideration when determining and documenting a reason for termination:
- Discrimination: Take care not to fire something for something superficial that may put you in a case for discrimination. For instance, firing someone because they are getting older is age discrimination. However, if they were forgetting orders and getting too many customer complaints, that may be a valid reason for termination. Be sure to document the performance concerns, not their age.
- Retaliation: Terminating an employee for coming to work late after voting is considered retaliation against an employee for exercising their civic rights. However, if your policy states that they needed to call first, and they didn’t, then you could terminate them for a company policy violation.
- Sexual harassment reporting: Firing a person who has made harassment complaints against another co-worker may also be considered retaliation. All complaints of sexual harassment should be taken seriously and investigated.
- Safety issue: Firing an employee for refusing to do work that is hazardous can be seen as discrimination. You can’t legally fire a worker for abiding by OHSA rules or any labor or safety law. Instead, see it as an opportunity to train managers and employees on safety and work requirements.
- Pregnancy: Some employers think it’s OK to fire an employee for being pregnant. However, that’s strictly forbidden by federal laws like the Americans with Disabilities Act (ADA) and many state laws. Instead, it’s best to find a reasonable accommodation (such as limited work hours or a work-from-home setup) if an employee is having trouble doing the job due to her temporary medical condition.
- Whistleblower: Whistleblowers are protected under the law. You cannot fire an employee for threatening to make complaints to appropriate authorities.
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 send the employee home (with pay if needed) and give yourself time to gather these documents.
Before 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 nondisclosure 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 next pay period. We’ll cover this in more detail later.
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).
Draft a 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 noncompete 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: 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 in order 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.
Prepare a Termination Script
To ensure a smooth transition, we recommend that you prepare a script ahead of time that outlines what you will tell the employee. This can be prepared at the same time as the termination letter to ensure everything is ready for the termination meeting.
Here’s a sample of a termination speech:
”Thank you for coming in. We are having this meeting to tell you that your employment is being terminated.
We have your official termination letter and a termination agreement for you to sign. If you sign the agreement, you are entitled to severance. This agreement and letter also clarify your benefits and how you will get the rest of the pay you are owed through today.
Please take the time you need to look it over right now, and you are welcome to take it with you. If you have questions after today you can call or email me (or your HR person if you have one).
The deadline for signing is also in these documents. If you do not sign the paperwork, unfortunately, the severance will be unavailable.
It is now time for you to leave the premises. We’ll provide you a box, help you clear your things, and escort you out. We will also be taking your keys and any other company property you have on hand.”
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 Might Happen at the Termination Meeting
Every person reacts differently. Some common examples of what might happen during the termination meeting include:
- Interruptions: If the employee interrupts you, ask them to wait until you are finished sharing information. Let them know they’ll have time to ask questions at the end.
- Anger erupts: If the employee storms out, have your witness try to calm them and bring them back into the room. If they refuse to come back in, hand them the termination documents and allow the documents to be returned the day after. Then escort them out and remove their access to the building to avoid any complications brought by another outburst.
- Crying: It’s not uncommon for a person being fired to cry. Be respectful, and ask if they need a moment. Do not apologize or qualify the termination with hugs or excuses. Stick to the script as best as possible.
- Incessant questions: If you have solid documentation of a performance issue or policy violation, you may refer to that. However, if the employee continues to challenge the reason for termination, it’s best to ask them to leave.
- Refusal to leave: If the terminated employee refuses to leave, or the situation escalates, call 911 or contact your building’s security guard for help.
Per the at-will employment doctrine, you do not owe the employee an explanation in most states. If you would like to have a follow-up conversation or conduct an exit interview in the following days once tempers have cooled and termination papers have been signed, that is up to you; it’s advisable to consult your attorney before doing so.
Step 4: Provide the Final Paycheck
As stated, it’s a best practice to provide the employee with their final paycheck during the termination meeting—however, that’s not always possible.
In most cases, you’ll have at least a business day to prepare the final paycheck. 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.
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 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 nondisclosure 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.
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 provided 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.
Getting Ahead of Your Next Employee Termination
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 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.