Legal employee termination requires careful documentation and process to protect both the business and the employee. Following proper procedures helps minimize legal risks while ensuring a professional separation. A well-executed termination process maintains workplace morale and reduces potential disputes. Here are the key steps:
The four important steps to terminating an employee include documenting the reason, gathering the needed paperwork, notifying the employee, and providing the final paycheck.
Step 1: Document the Termination Reason
Without documentation, a court will almost always favor the employee in a wrongful termination case. Your reason for termination 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: This is a type of involuntary termination, so it should be supported by documents that support your decision to terminate an employee. This may include performance review forms showing poor/unsatisfactory scores.
- Business slowdown: 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 for any reason, including the employee being a poor culture fit. This could mean many things, such as having interpersonal conflicts with colleagues or lacking commitment at work.
You also need to be careful of any discriminatory practices. For example, if the culture fit issue is because everyone else is in their 20s but the employee in question is in their 50s, that will fall as age discrimination.
Every US state, except Montana, abides in some way by the at-will employment doctrine. Although this allows either the employee or the company to terminate the employment relationship at any time for any reason—or for no reason at all—it won’t prevent you from being sued for wrongful termination. That’s why having documentation to support your termination reason helps.
The more comprehensive documentation that you have showing that you didn’t fire the employee for illegal reasons, the better off you’ll be. It is also easier 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, but having more 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 forms that document verbal warnings for infractions
- Written warnings of policy violations
- A timeline of the events showing a pattern of issues
- 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.
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 ensure that the reason you’re terminating an employee is work-related and not something that the court might see 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. Use the 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 for an easier time drafting one.
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 contributions 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.
Step 3: Notify the Employee Being Fired
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 and 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. Give them time to 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.
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
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.
There are a number of things that can happen during a termination meeting, including interruptions, outbursts of emotions, excessive questioning, and a refusal to leave.
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. 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
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.
Gather your team and notify them by email or team collaboration channels and tell 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.
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.
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.
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.
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.
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.
Start by directly stating, “I need to inform you that we are terminating your employment effective [date]” and then briefly cite specific, documented performance issues or business reasons that led to this decision. Follow up with clear, practical information about the final paycheck, benefits continuation, the process for returning company property, and any last day logistics. Ensure to maintain a professional and respectful tone throughout the conversation.
