What You Need to Know About Termination of Employment

Termination of Employment

Also referred to as a separation from employment, a termination can be voluntary (the employee's decision) or involuntary (the employer's decision). When an employer discharges (fires) an employee, it will usually do so for cause (unacceptable performance or behavior), or for economic or restructuring reasons called layoffs or a reduction in force (RIF). 

Employment at Will

In all states with the exception of Montana, some form of employment at will is recognized, meaning either the employer or the employee can terminate the employment relationship for any legal reason with or without cause, with or without notice, and at any time. There are exceptions to employment at will that vary by state, and the presence of an employment contract or collective bargaining agreement can override the employment-at-will status. Local laws may also prohibit employment at will such as in New York City and Philadelphia, which require a just cause for termination for fast food workers and parking employees respectively. The United States is unique in its application of employment at will, as most other countries (for example Canada) only allow termination of employment for cause.

Voluntary Termination

Resignation: Most employees quit their job by providing either verbal or written notice of resignation. Often, a two-week notice is provided by the employee; however, this is not a requirement to end an at-will employment relationship, even if company policy requests such.

Job abandonment: Job abandonment occurs when an employee stops showing up for work but does not notify the employer of his or her intention to quit. Employers should develop a policy defining how many days of no-call/no-show will be considered job abandonment and communicate to the employee that the absence is being treated as a voluntary resignation.

Involuntary Termination

For Cause:

Policy and/or conduct violations: Policy and conduct violations may constitute gross misconduct and warrant immediate dismissal, but most will likely be suitable for a progressive discipline practice meant to put an employee on notice of both unacceptable behavior and how to correct it. With a consistent policy and practice in place, and an employee's knowledge that his or her employment is in jeopardy, employers can feel relatively confident in terminating an employee after progressive discipline has failed.

Unsatisfactory performance: When clear performance standards are conveyed, substandard job performance is often best addressed through progressive discipline before termination. Certain egregious performance errors may also warrant immediate dismissal, such as a major accounting error that resulted in costly penalties. New hires who are clearly not suited to the work might also be terminated in their first few weeks of employment. In general, unemployment benefits may be available to the separated employee, as an inability to perform to standards is often not seen as the employee's fault by state unemployment agencies.

Without Cause:

Medical reasons: When an employee is unable to return to work after an extended medical absence, employers may find that terminating employment is necessary. However, employees have extensive protections under federal and state medical leave laws, and employers should consult with an attorney prior to making this decision.

Layoff or Reduction in Force: Employers may need to reduce headcount due to economic or restructuring reasons that are no fault of the employee. Often, employees are selected for layoff or RIF by seniority or other non-discriminatory criteria, and these individuals may be offered a severance package and will typically be eligible for unemployment benefits.

Not a Good Fit: The at-will relationship allows an employer to terminate an employee without cause. That is, the employer can decide that an employee is simply not a good fit for the job and may terminate employment without good reason as long as there is no illegal reason, such as retaliation or discrimination. For example, an employer may find that an employee hasn't violated any rules, but his or her personality is conflicting with the team dynamics. There isn't a specific incident that would trigger discipline, but rather an inability to mesh with the team in general. Before deciding to terminate, employers should thoroughly review the situation to identify hidden bias or unlawful discrimination and document the circumstances. Termination for not being a good fit for the job should be used sparingly, as these types of separations can be ripe for complaints.

Termination Date

An employee's last day of work is often the termination or separation date. However, there may be times where an employee is no longer working, but the actual date of termination is delayed. For example, an employee who is being investigated for misconduct may be placed on leave starting Monday, but not actually terminated until the investigation is concluded on Thursday. The date the termination decision is made will be important for purposes such as final pay, while the last day worked may be necessary for unemployment and benefits decisions.

Termination Pay

The timing of an employee's final pay and what must be included is largely governed by state law. While federal law allows the final paycheck to be issued on the next regularly scheduled payday, some states require payment immediately at the time of termination or within another specified time frame. State law also differs on whether unused vacation or sick leave hours must be cashed out to the employee upon termination. SHRM's Multistate Law Comparison Tool provides a summary of termination pay requirements by state under the wage payment section.

Termination Meetings

Employers should ensure that employees are treated with dignity and respect when communicating the decision to terminate employment. Employers can be clear and to the point without coming across as cold and unsympathetic. These meetings may also be used to conduct exit interviews for those employees who voluntarily leave employment. This data helps employers understand why good employees are leaving the organization.

Common Issues

Progressive Discipline

When an employer offers a progressive discipline process, that is, graduated steps for dealing with problems related to an employee's conduct or performance, the employer should be consistent in following the process and only deviate when an offense is egregious enough to warrant immediate dismissal.

Resignation in Lieu of Termination

Allowing an employee to resign in lieu of termination is a debated practice but may be appropriate in some circumstances. For example, an employee who is not fitting in well at the company may be given the opportunity to resign instead of having a record of being fired.

Terminating a Remote Employee

When terminating an employee who works remotely, employers should use the most personal form of communication available. When face-to-face meetings aren't an option, videoconferencing or a phone call may be the next best option.

Probationary Periods

Placing newly hired employees in a probationary period during the initial employment period can be problematic, as this may negate the employment-at-will status of an employee who successfully completes the probationary period. Generally, terminating an employee during the first few months of employment is no less risky than terminating an at-will employee at any other time.

Rescinding a Resignation

Employers must decide if they will allow employees to rescind a resignation, and should have a consistent policy/practice to follow. 

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