Involuntary Termination of Employment in the United States

Overview

Involuntary termination of employment may occur at the end of the employment life cycle, but it also has implications for recruiting, retention, employee relations, morale, productivity and more.

Using effective termination practices not only makes good business sense but also serves to minimize the numerous legal risks that can arise whenever an employer fires an employee. Depending on the particular circumstances, a discharged employee may take legal action against the employer, the managers involved in the decision or the discharged employee's co-workers.

In the United States, the doctrine of "employment at will" or "at-will employment" refers to an employment relationship between an employer and an employee, under which either party can terminate the relationship without notice, at any time and for any reason not prohibited by law.

The at-will doctrine is the fundamental rule of employment in the United States and is the presumed relationship between employer and employee except when a formal contract or agreement exists.

State and federal legislation and court-created exceptions, however, have limited the circumstances under which an employer can terminate its employees without being subject to challenge. Legal claims arising from involuntary terminations may be based on common law, federal or state statutes, or local ordinances. Montana is currently the only state that requires a just cause for termination after completion of a probationary period; and the cities of New York and Philadelphia require the same for fast food workers and parking workers respectively.

This article is organized into five main topics:

• Pre-termination planning.
• Notification of the termination decision.
• Post-termination interactions with former employees.
• Legal issues under common law.
• Legal issues under federal and state statutes and local ordinances.

Pre-Termination Planning

Managing the risks associated with involuntary terminations of employment requires planning that begins before hiring and continues throughout the term of employment. Unanticipated circumstances are inevitable, so the prudent course of action is to control those variables that can be controlled.

Before hiring

Applications

A strategic approach to involuntary terminations begins with a strategic approach to hiring. Accordingly, organizations should have one or more standardized employment applications that require applicants to fully disclose their prior work history without gaps in time and the reasons for termination of prior employment. Applicants should be informed that false information on the application, or material omissions of requested information, will be deemed grounds for rejection and, if employed, termination of employment. Applications should be used for all positions, not just lower-level positions, because resume fraud is a problem that occurs at all levels. Either the application or a stand-alone document should authorize the employer to conduct appropriate background investigations and reference checks. Ordinarily, the organization will want to emphasize in the application that employment is being considered solely on an at-will basis.

Interviews

During the interview process, interviewers should clearly convey to applicants what the employer's expectations will be, including standards for attendance, performance, workplace conduct and employee ethics. Making these standards clear during the hiring process may increase new employees' understanding of workplace rules and eliminate the need for an involuntary termination later.

Release agreements

The organization should consider whether to address severance pay in exchange for a release of claims on an ad hoc basis or by means of an established severance plan subject to the Employee Retirement Income Security Act of 1974 (ERISA). As to employers covered by the Age Discrimination in Employment Act of 1967 (ADEA), a release of claims under the ADEA must comply with the detailed requirements set forth in the Older Workers Benefit Protection Act of 1990 (OWBPA).

Devoting attention to these considerations during the hiring stage will prove beneficial in the event that a decision to terminate employment is made later.

New hires

Policy review

New hires should be given a copy of the organization's employee handbook and any written employment policies and practices, including the organization's employment-at-will policy. The employer should obtain the employee's written acknowledgment of having received and read the handbook and policies.

Employment agreements

For some positions—particularly for executive, temporary or seasonal positions—it may be appropriate to enter into written contracts with new hires.

It may also be appropriate for some positions to have new hires sign agreements that protect intellectual property, prohibit competitive employment for a specific period and geographic area after termination of employment, or prohibit solicitation of co-workers to leave the employer. 

See Is it less risky to terminate a new hire within his or her first 90 days of employment?

Ongoing considerations

Planning for involuntary terminations continues during employment. Employers should develop and consistently apply uniform performance standards for each position. These standards may be established in job descriptions, management-by-objective agreements, policies and procedure manuals, and performance evaluation forms. Serious misconduct such as harassment, workplace violence, and theft or destruction of organization property should be promptly and thoroughly investigated, and appropriate remedial measures should be taken if necessary.

Recognizing that an appropriate course of corrective action for disciplinary issues may be different from an appropriate course of corrective action for performance improvement, organizations should consider whether to adopt policies on progressive discipline and corrective action. See Firing Without Progressive Discipline and One and Done: When to Skip Progressive Discipline.

Often, employees disagree with the employer about the appropriateness of corrective action. Consequently, an employer may want to develop an internal dispute resolution program to ensure that termination decisions are made only after the affected employee has been afforded due process. See Managing Workplace Conflict.

If a manager concludes that an employee should be discharged, this decision should be carefully and independently reviewed by at least one other person—perhaps someone in the human resource department, the manager's own supervisor or legal counsel—before the termination occurs. Such a review should include a careful examination of all facts leading to the manager's desire to terminate the employee and a thorough review of the employee's entire personnel file.

A supervisor's recommendation to terminate an employee raises a red flag when:

• The employee has an established record of satisfactory performance.
• The supervisor's recommendation is based on subjective reasons that are not substantiated by written documentation.
• The reason for the recommendation is based solely on "he said/she said" evidence and there is no clear indication of what really occurred.

Documentation of the termination review process and the ultimate decision to terminate should be prepared before the termination meeting.

Notification of the Termination Decision

Notifying an employee that his or her employment has been terminated is a delicate task, and employers should think things through carefully before delivering the news. See 12 Tips for Handling Employee Terminations and Disciplinary Actions.

Who

Typically, the employee's direct supervisor and a human resource representative attend a termination meeting. This approach helps avoid a situation in which it is one person's word against another's as to what occurred during the meeting. Generally, an employee should not be allowed to bring a co-worker, family member or attorney to the meeting.

What

Individuals in charge of delivering the news of a termination should always plan out what to say in advance. Essential topics to cover include the following:

• That a decision has been made to terminate employment.
• The reason(s) and key facts supporting the decision.
• The effective date of separation.
• A review of the separation package and benefits.
• A review of the policy and procedures for giving references.
• A review of applicable post-termination restrictions, such as noncompetition or nondisclosure agreements.
• What will happen immediately following the meeting (e.g., cleaning out the employee's workspace, returning organization property, being escorted from the building).
• Other exit activities (e.g., an exit interview questionnaire or outplacement meetings).
• Whom to contact about post-termination issues.

See:

Should a company provide a terminated employee with a reason for the termination?

Reasons Given for Termination Are Critically Important

How to Have the Termination Discussion

When

There is no "right" day of the week or time of day for every discharge. A Friday afternoon termination may allow the employee to cool off over the weekend and make it more difficult to immediately contact an attorney, but it may also give the employee an entire weekend to stew with a spouse, friends or attorney-acquaintances. A midweek termination may permit the employee to take immediate constructive steps, such as seeing a counselor or outplacement advisor, revising a resume, applying for unemployment benefits, or networking to find a new job. Recent data indicate that Tuesdays are the most popular choice for termination meetings, as HR will be available the rest of the week to answer any follow-up questions the terminated employee may have.

Termination at the end of the day may make sense if the employer has reason to believe the employee may be disruptive or threatening. Termination midday may allow the employee time to say goodbye to co-workers and clean out his or her workspace. A termination first thing in the morning may relieve managers from worrying about the meeting all day long, but it may leave the employee feeling as though the employer wasted his or her time by making the employee come to work unnecessarily.

Where

Termination meetings are best held in a neutral, private setting such as a conference room. Individuals delivering the news should select seats that minimize the risk that an angry or violent employee will be able to block the exit.

How

Employers should be prepared in advance to do the following:

• Block computer system access.
• Change pass codes.
• Remove the employee's name as a signatory to bank accounts or post office boxes.
• Collect keys, identification badges and organization property.
• Obtain adequate personal security if the situation becomes hostile.

See How to Fire an Employee Safely and How should an employer terminate a remote employee?

Post-Termination Interactions

Employers should prepare for a variety of post-termination communication challenges, including inquiries from other employees, government agencies, prospective employers and the former employees themselves. Discharged employees are justified in expecting to be treated professionally and courteously in post-termination communications concerning their employment, including having telephone calls returned promptly.

Announcements

The employer should prepare a clear, brief and general explanation about why the employee is no longer with the organization to share internally with those affected by the employee's departure. A general announcement to all employees should indicate who will be handling the former employee's responsibilities for the time being. If the termination is causing disruption or rumors among the remaining employees, the employer may wish to work with counsel to craft a statement for dissemination.

Exit interview

Employers should consider whether to use an exit interview or questionnaire to collect the discharged employee's views about areas of concern for the business. Although most organizations do not conduct exit interviews in discharge situations, hearing about employee complaints this way may be better than learning about them later from an employee's attorney or the Equal Employment Opportunity Commission. Additionally, a discharged employee may speak more candidly about very real problems with the organization than any employee on staff ever would.

References and employee records

Reference inquiries about the discharged employee from prospective employers should be handled in accordance with the organization's reference policy and procedures. See Verification of Employment Disclosure Policy and Reference Release Authorization – Post Employment.

Employers should consider whether a former employee has the right to obtain a copy of his or her own personnel file, if requested, under company policy or as required by state law. Some employers permit this even when not legally mandated to do so. This is because refusing to provide a copy of or access to the personnel file may provoke the terminated employee into calling an attorney and may later appear to a jury to have been an unnecessary and hostile act on the part of the employer. See Access to Personnel Files Policy.

Employment records relating to former employees should be retained as required by applicable laws. When records are no longer needed to satisfy legal retention requirements or business needs, they should be destroyed to prevent misuse of the sensitive information they contain, some of which could be used to perpetrate identity theft. Employers should be careful to thoroughly destroy electronically stored information as well as paper records. See Complying with Employment Record Requirements.

Legal Challenges to Termination: Common-Law Claims

The at-will doctrine is the fundamental rule of employment in the United States. All states recognize some form of the at-will doctrine, except for Montana where terminations outside of a probationary period must be for cause. The Bureau of Labor Statistics provides information on the employment-at-will doctrine and its exceptions; however, employers should seek current state guidance as well. See Employment-at-Will Training for Supervisors.

Under common-law exceptions, some U.S. courts recognize that there are instances when an employee may be entitled to enhanced job security based on contract or tort theories. These include:

• Claims that the employee was wrongfully discharged (i.e., contractual and quasi-contractual claims).
• Claims that the discharge wrongfully subjected the employee (or another party) to financial injury, emotional distress or bodily injury (i.e., tort claims).

Contractual claims

An employee may allege that he or she was discharged in violation of the following:

• A written or oral contract.
• A contract implied in the terms of an employee handbook.
• Written or verbal promises that the employee would be treated in a certain way, which the employee relied on to his or her detriment, under the legal theory of promissory estoppel.

Employers must be careful and consistent in what they say, both in writing and orally, to avoid claims for wrongful discharge on these bases. See Employment-at-Will Versus the Discharge-for-Just-Cause-Only Standard: A Critical Employment Law Distinction and 'Employment at Will' Isn't a Blank Check to Terminate Employees You Don't Like.

Tort claims

Some of the torts that a discharged employee may claim occurred in connection with his or her involuntary termination include the following:

• Defamation. Occurs when a person makes a false, derogatory statement of fact about the discharged employee, perhaps in response to a reference inquiry or when making an announcement to co-workers.
• Invasion of privacy, or intrusion. Occurs when a person improperly intrudes into an employee's legally protected zone of privacy, such as during an invasive and unreasonable search of the discharged employee's body or personal belongings during an investigation of employee misconduct.
• Intentional infliction of emotional distress. Occurs when a person does something outrageous or malicious in the termination process, causing emotional distress to the discharged employee.
• Intentional interference with contract or employment. Occurs when a person, out of malice rather than legitimate business interests, causes an employee to be fired.
• Intentional interference with prospective contract or employment. Occurs when a person prevents a discharged employee from obtaining a new job without having a legitimate business justification for doing so.

Other common-law claims

Two additional types of common-law claims are:

• Constructive discharge claims that can arise when an employer made working conditions so intolerable that the employee had no reasonable alternative other than to resign.
• Claims of discharge in violation of public policy that can arise when an employee was discharged because he or she refused to do something that would:
• • Require the employee to perform an illegal act as part of work-related duties (e.g., overbilling on a government contract).
  • Violate a specific law relating to public health, safety or welfare (e.g., occupational safety and health laws).
  • Undermine clearly expressed public policy relating to the employee's basic responsibility as citizen (e.g., performing jury duty).

Legal Challenges to Termination: Claims Based on Federal, State and Local Legislation

Since the 1960s, a complex system of federal, state and local laws has been enacted, prohibiting discriminatory discharges and retaliation against employees for exercising protected rights. These have greatly limited an employer's right to terminate an employee at will. See How to Fire Someone Without Getting Sued.

Federal equal employment opportunity laws

The following federal equal employment opportunity (EEO) laws prohibit discrimination in employment actions—including termination—on the basis of protected characteristics, including  race, color, religion, sex (including gender identity, sexual orientation and pregnancy), national origin, age (40 or older), disability, military service or genetic information:

• Title VII of the Civil Rights Act of 1964 (race, color, gender, national origin, religion, sex) as amended by the Pregnancy Discrimination Act of 1978 and the Civil Rights Act of 1991.
• Age Discrimination in Employment Act of 1967 (ADEA) (people age 40 and older).
• Rehabilitation Act of 1973 and Americans with Disabilities Act of 1990 (ADA) (disability).
• Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA) (military service).
• Genetic Information Nondiscrimination Act of 2008 (GINA) (genetic information).

Two general types of illegal discrimination exist: disparate treatment and disparate impact (or adverse impact) discrimination. Disparate treatment discrimination occurs in terminations when an employer consciously takes the employee's protected status into consideration when making a discharge decision. Disparate impact discrimination occurs when an employer adopts a policy or practice that seems neutral and nondiscriminatory on its face (such as a method for selecting employees who will be let go during a reduction in force) but that has a disproportionately negative impact on members of a protected class. 

See:

Avoiding Adverse Impact in Employment Practices 

EEOC: Prohibited Practices

Differing Explanations for Termination Results in ADA Case Going to Trial.

Federal laws prohibiting retaliation

Federal EEO laws also prohibit retaliation on account of an employee exercising his or her rights under the particular law at issue. For example, Title VII of the Civil Rights Act of 1964 makes it illegal for an employer to discriminate in retaliation against an employee because that employee:

• Opposed any discriminatory practice.
• Made a charge of discrimination.
• Testified, assisted or participated in any manner in an investigation, proceeding or hearing.

See Facts About Retaliation and How to Prevent Workplace Retaliation Claims.

Other federal laws outside the EEO area also protect employees against termination in retaliation for the employee exercising rights under the statute, such as the Fair Labor Standards Act (FLSA), the Occupational Safety and Health Act (OSH Act, administered by the Occupational Safety and Health Administration), the Sarbanes-Oxley Act, and the National Labor Relations Act (NLRA).

Federal laws providing job-protected leave

The Family and Medical Leave Act of 1993 (FMLA) and the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA) also have provisions prohibiting the termination of employment in retaliation for protected absences.

State and local laws

Most states have laws similar to Title VII, the ADEA, the ADA, USERRA, the OSH Act, the FMLA and the FLSA. Frequently, the state statutes provide greater protections or apply to broader classes of people than do their federal counterparts. So, for example, some state statutes provide protection against termination for the following:

• Serving as a witness.
• Voting.
• Whistle-blowing in the private sector.
• Legal off-duty conduct.

State laws also frequently address various aspects of the termination process, including the following:

• Laws regulating payment upon termination.
• Employee benefits.
• Employee access to personnel records.
• Post-termination communications about the employee (for example, reference checking, service letters and blacklisting).
• Enforceability of noncompetition and nondisclosure agreements.

Local legislation (such as municipal ordinances) sometimes goes beyond what federal and state legislation has guaranteed employees in terms of grounds for termination.

Templates and Tools

Sample Forms

Termination Checklist

Termination Notice—Service Letter

Termination: Older Worker Act (OWBPA) Waiver

Return of Company Property Letter

Termination Without Cause Example Letter

Exit Interview Questionnaire #1

Policies

Involuntary Termination of Employment Policy

Job Abandonment Policy

At Will: Policy Statement