Employment Law: How to Terminate the Employment of an Employee

Employment Law: The Process of Termination
We are not always 100 percent successful in choosing the right person for a position we need filled, and that leads to termination. Other times, because of economic situations, we have to let good people go. What is most important about terminating employees is the reason we give for their termination.

Remember that there are three types of employees: those you hired "at will," those to whom you may have given an "implied contract," and those you hired after signing a contract.

Employment at will: For employees who were hired "at will," we can discharge them at any time, without notice, and for any reason as long as the reason is not illegal.

There are two categories of illegal reasons that will get you into trouble:

  • anti-discrimination or anti-retaliation laws;
  • public policy exception.

Anti-discrimination laws at federal and state levels cover instances such as height, weight, sexual orientation, marital status, arrest record, lawful off-duty conduct, jury duty, and military duty.

Anti-retaliation laws prevent you from firing an individual who is trying to enforce his or her rights under federal and state laws. Whistle-blowers are protected under these laws. Again, these laws vary from state to state.

Public policy exceptions fall under what is considered to be in the best interest of the public. These include such cases as firing an employee for the following reasons:

  • refusing to perform an illegal act;
  • reporting a state law violation;
  • exercising rights protected by law;
  • performing acts that state public policy encourages.

Contract employees: These employees are not covered by the employment-at-will understanding. The contract they signed should contain specific information regarding circumstances for which they can be fired.

Implied contract employees: To avoid the belief of an implied contract, you must use clear language in the employee handbook that the written policies are not meant to create a contract. This information should also be included on the job application, with language describing the job as "at-will" employment and specifying that the employee may be discharged at any time, for any reason, and no one in the company is authorized to promise anything different.

The Process

The exit interview: An exit interview can give you valuable information if the employee voluntarily terminates employment. This could alert you to potential problems with morale, environment, or sexual or racial harassment. This should be a private interview with one witness and should be as brief as possible.

During the interview:

  • Collect keys, security badges, identification badges, cell phones, computers, parking passes, and other property belonging to you as the employer.
  • Confirm current address and phone number.
  • Have the employee collect all personal belongings, preferably in front of a witness.
  • Make arrangements for the final paycheck.
  • Discuss continued benefits under the Consolidated Omnibus Budget Reconciliation Act (COBRA) or continuation of any other benefits, such as life insurance and retirement.
  • Remind the employee of any non-compete and confidentiality agreements.
  • Discuss your policy on post-employment inquiries.
  • Discuss and sign any severance package agreements.
  • Have the employee sign a copy of all the points discussed above and keep a copy of this in the employee's personnel file.

After the exit interview:

  • Notify the human resources department and payroll and request a final paycheck.
  • Issue a final W-2.
  • Arrange for COBRA benefits to be transferred to the employee.
  • Terminate signature authority on bank and other financial accounts.
  • Notify other employees and personnel about the termination without going into specifics.
  • Notify anyone expecting payroll withholdings or wage garnishments of the employee's change in status.
  • Notify your insurers and retirement plan facilitators of the employee's change in status.

Guidelines for Terminating Employees

When an employee is hired "at will," you have more freedom to terminate that individual as long as your reason does not violate the law.

If, however, you have a contract employee, the contract must stipulate what constitutes just cause for dismissal, which must be included in the employee handbook. This can include such violations as:

  • excessive absences;
  • abuse of sick time;
  • chronic tardiness;
  • disrespect;
  • unprofessional conduct;
  • insubordination;
  • disobedience to company work rules, policies, and/or regulations;
  • negligence or neglect of duty;
  • dishonesty;
  • stealing trade secrets or confidential information;
  • theft;
  • falsifying records;
  • leaving company premises without approval;
  • assault;
  • disobedience (unless the request disobyed would have been hazardous to the employee);
  • sexual harassment;
  • abuse;
  • drug or alcohol use on company premises;
  • unauthorized removal of company property;
  • unauthorized possession of weapons/firearms on company property;
  • willful hindrance of production;
  • intentionally creating an error or making mistakes;
  • engaging in criminal activity;
  • gambling at work;
  • disclosing company trade secrets to outsiders.

Suggestion: Do not allow an employee's direct supervisor to have sole say in whether this person should be terminated or not. That individual may be too close to the situation to make an objective decision. Always get reports of misconduct verified by another source.

Preventing Legal Claims

Always be sure that you have a documented cause for dismissal, one that is listed in the employment contract or employee handbook/manual. Whenever possible, interview other supervisors or employees to get more information. During such interviews, you cannot indicate your feelings about the matter, nor can you give specific information about the employee to others, as this may violate the privacy rights of that individual.

Alternatives to Termination:

Sometimes trying to find an alternative to termination is a better course and can reduce your risk of a wrongful discharge suit. Sometimes the employee merely needs to be reassigned to another job, or devise a change of duties. If a personal problem is at the root, you may wish to offer counseling.
Continuation of Benefits

If you have more than 20 employees and you offer a health insurance plan, your employee is eligible for COBRA benefits. This federal law allows for continuation of health care coverage for a period of time after termination. State laws also provide for this benefit, so know the laws of your state.

Unemployment Compensation

For the employee who leaves voluntarily, or for the employee who is discharged for a gross violation of his contract, unemployment compensation does not apply.

Interested in learning more? Why not take an online Employment Law Fundamentals course?

For the employee who is terminated because of cutbacks or is just not a good fit for the job, unemployment compensation is available.

Each state has different rules regarding the application for unemployment compensation; most follow this process:

  • File the claim: The employee does this and you will receive a copy. You may write an objection if you believe the person does not qualify. Usually you have seven to 10 days in which to object.
  • Eligibility for benefits is determined by the state agency.
  • Referee's hearing: If you file an objection, you have the opportunity to back up your position with documents and witnesses. Unless you fear a complicated legal issue such as sexual harassment, illegal discrimination, or retaliation, you will not need a lawyer at this stage.
  • Administrative appeal: This is available to either party.
  • Judicial appeal to a state court: This is fairly rare.

Should you protest an unemployment claim? Unless the employee was terminated because of a flagrant rule violation, it is likely he or she will be granted unemployment compensation. It is costly to fight these claims, emotionally, time-wise, and in expense. A few claims against your employment compensation insurance is unlikely to greatly increase your premiums. It is also likely that within a few weeks of termination, your former employee will go back to school or take another job. Both instances may discontinue unemployment benefits.

Post-employment Inquiries

Here you are still bound by legal constraints. Stick to the facts as they pertain to the job. Do not speculate. Do not gossip. Do not give vent to your feelings and emotions. Doing so will only set you up for a defamation of character lawsuit. Many companies are going to a computerized system that can only be accessed by a prospective employer with the previous employee's consent. It gives verification of employment dates and position.

Keep your counsel even at business and trade meetings. An unthinking comment can lead to a court case because it could be established that you poisoned the job market in your industry for a former employee. It is best to let a bad employee go and you move on with your business.
Employee Compensation and Benefits
The FLSA (Fair Labor Standards Act) is the main federal law that covers all issues related to wages and pay. It sets minimum wage and overtime payment standards. It prevents gender-specific pay. In short, you are required to pay employees for the time that they are under your control. It also sets the rules for workers under the age of 18.

There are a couple of employee categories to which the FLSA does not apply: farmworkers and those employed in the transportation business, such as truckers, who are regulated by the federal Motor Carrier Act.

Where state and federal requirements differ, you must follow the more stringent requirement. Always contact your state labor department to learn about the laws that affect the state where you plan to do business.


According to well-known dictionary developer Merriam-Webster, "Wage is a payment of money for labor or services, usually according to a contract and on an hourly, daily, or piecework basis."

Minimum Wage and Overtime

Currently the federally established minimum wage is $7.25 per hour. There are some states that have an additional amount that is considered to be part of their state's minimum wage requirement, so you must be aware of the minimum wage policy in your state.

There are some workers who are not paid minimum wage. The most common example includes workers who rely mostly on tips. The requirement here is that between their tips and what you pay, they must make at least minimum wage for each hour they work. The way some states calculate this is to pay the employee a direct wage equal to the current minimum wage, minus $4.19 which is the current tip credit under the federal FLSA, enacted January 1, 2009.

There are some exemptions to the minimum wage rule; be sure to check with your local employment regulatory agencies for details.

Exempt vs. Non-exempt

You must know these terms. To not know them can cost you a great deal of money.

If you have trouble determining whether your employees are exempt or non-exempt, you are well-advised to contact an employment attorney to make the determination for you. If you do not, you risk paying fines, back pay, and the ever increasing costs of litigation.

Non-exempt employees are always entitled to minimum wage and overtime pay. They are never exempt from the FLSA regulations. Two categories of employees who are always non-exempt are:

  • Blue-collar employees (carpenters, mechanics, plumbers, electricians, iron workers, craftsmen, operating engineers, construction workers, laborers, etc.)
  • First responders (workers on the front lines of protecting the safety and health of the country as defined by the U.S. Department of Labor, including public employees, police officers, firefighters, paramedics or emergency medical technicians, ambulance personnel, and hazardous materials workers.)

For these employees, it does not matter what their title is, they are always considered to be non-exempt employees.

Exempt employees are never entitled to overtime pay or minimum wage; they are exempt from following the FLSA regulations. These include:

  • seasonal and recreational business employees, such as those at ski resorts;
  • local newspaper employees with a circulation of less than 4,000;
  • newspaper delivery workers;
  • some switchboard operators;
  • some farmworkers.

Exempt white-collar employees include those who make a minimum of $455 per week and are paid on a "salary" basis. Being on a salary basis means that an employee is paid a preset amount each pay period, regardless of the number of hours the employee works. The reasoning behind this is that an exempt employee often works overtime to get a job done, and so should not be docked in pay if he or she takes a couple of hours off to handle personal business. To be exempt, the employee must also perform certain duties that involve an executive, administrative, or a professional skill.

There are some instances in which you may wish to dock an employee's pay, regardless of exempt status, but always seek professional advice before doing so.

Calculating Work Hours

This can be a very gray area, necessitating the acquisition of a time clock where your employees punch in and punch out. Exempt employees are often on an honor system, but frequently are required to bill their time according to particular categories and totaling eight hours per working day.

Some areas where you may have to calculate work hours that are not actually spent working include:

  • commuting time between jobs;
  • on-call time;
  • sleep time for employees on duty for 24 hours straight;
  • training, lectures, and meetings;
  • breaks and meals spent "on duty."


The FLSA requires all non-exempt workers to be paid time and a half for anything over 40 hours per week. Some states require time and a half to be paid for anything over eight hours worked in one day, so be aware of your state's requirements. Your workweek can be begin on any day you wish. You cannot average two or more weeks in order to avoid paying overtime. You also cannot change the day on which your workweek begins just to avoid paying overtime.


You are required by the FLSA to keep records of all the wages and hours for all employees.

For each non-exempt employee, your records must include:

  • personal information (name, address, occupation, and gender);
  • birth date if younger than 19;
  • hour and day each workweek begins;
  • total hours worked each workday;
  • total hours worked each workweek;
  • total earnings each day;
  • total earnings each week;
  • hourly pay rate;
  • when overtime was reached;
  • total overtime for the week;
  • deductions or additions to wages;
  • total wages paid each pay period;
  • date of payment and pay period covered.

Payroll Withholding

By federal law, you are required to withhold income taxes, Social Security, and Medicare contributions from each paycheck for each employee. There are some states and municipalities that require additional withholdings, so be sure you know what these are.

Other Withholdings

You may also deduct the cost of meals, housing, transportation, loans, and debts owed to you, child support, and alimony. There may be requirements for you to also keep part of an employee's earnings if you have received an order to garnish wages.

Health Care

This is one of the most important benefits to the vast majority of employees. In fact, a recent study indicated that health care is the primary reason employees stay in their place of employment, even if they do not have a high level of job satisfaction. However, providing health care is not mandatory.

There are numerous types of health care coverage available, and it is usually procured through an indemnity or reimbursement plan. There are also plans that offer the traditional coverage, allowing employees to seek their preferred provider.

An HMO is a health maintenance organization that includes a group of doctors and hospitals that provide certain medical services to employees for a fixed monthly fee. The employee must use the required doctors and hospitals.

PPO is a preferred provider organization. This includes a network of hospitals and doctors who provide medical care on a specified fee schedule. The network is often put together by an insurance company that administers the program.
Retirement Plans

Should you decide to offer a retirement plan, be sure to meet the specified Internal Revenue Service guidelines because then your financial contribution to these plans is considered a completely deductible business expense.

Depending on the size of your organization, you will want to evaluate different plans and find one that meets your needs. Again, this is a good area in which to seek professional advice.

Tuition Assistance

In times of economic recession, better benefits can attract more employees. Tuition assistance is not a common benefit and can attract the caliber of employee you are looking for. Just be sure to not discriminate on the basis of any other criteria when you hire an employee.

Altering Benefits

If you have written personnel policies, you have the right to alter or amend benefits or promises of benefits at any time. This is for your own protection. This disclaimer must appear in bold, obvious language in your employee handbook and any policy statements you hold in writing.