Q: What Are the Laws on Firing an Employee?

You’re considering firing an employee? Well that’s no fun, and probably a little scary, too. To stay compliant, you need to know what the federal and applicable state laws are on terminating employees so you can breathe easy and avoid a lawsuit down the road.

First, it’s important to know why you’re terminating an employee, and to document the reasons. Termination typically falls into one of two categories: firing or laying off. 

  1. Firing: When you fire someone, it’s likely because they’ve failed to perform their job or have violated important workplace policies. You should know that being fired can cause a person to be ineligible for unemployment insurance.   
  2. Laying off: When you lay off an employee, it’s for business-related reasons (like downsizing) and not the fault of the employee. 

Below are the five main laws and requirements you need to double (and triple!) check before terminating an employee—regardless of whether you’re firing them or laying them off:

  1. Wrongful termination: Make sure you’re not firing someone for an illegal reason.
  2. At-will employment: Check if your state has any exceptions to at-will employment laws. Also, if your employee works remotely, check the laws in the state where your employee resides.
  3. Last paycheck: Make sure you give their last paycheck when and how your state mandates.
  4. COBRA Insurance: Provide your employee with COBRA insurance information.
  5. Unemployment Insurance: Offer unemployment insurance to employees who qualify.

Still confused? Below is an overview of each specific requirement and how it affects you.

1. Wrongful termination: Common illegal reasons for firing an employee

Some of the main illegal reasons for terminating an employee include:

  • Discrimination: You cannot fire an employee because of their race, gender, national origin, immigration status (so long as the person has the right to work in the United States), religion, age (if they’re over 40), or disability, among other protected traits. (Click here for a full list.) Some states have additional protected classes, so check on your local laws by visiting your state DOL website or asking a local HR expert.
  • Retaliation: You can’t terminate an employee for lodging an internal or legal complaint against their employer. An employee who has shed light on an illegal activity is known as a whistleblower. In addition to regulating safety requirements in the workplace, the federal Occupational Safety and Health Act (OSHA) protects whistleblowers who lodge complaints about unsafe conditions from wrongful termination.
  • Protected leave: It’s also illegal to terminate employees who are on protected leave. Protected leave is covered by the Family and Medical Leave Act (aka FMLA) and includes jury duty, military leave, maternity leave, and more.

A quick note: The above are common scenarios that are protected by multiple laws, including labor laws, employment laws, anti-discrimination laws, and at-will employment exceptions. It’s important that you check with a local expert to ensure that your reason for firing someone is not illegal.

2. Common exceptions to at-will employment

Unless you live in Montana, your state assumes that employment arrangements are at-will. At-will employment means that you can terminate an employee at any time without a reason. It also means that an employee can leave the company at any time without a reason, too.

However, some states have exceptions that override an at-will employment agreement. The three common exceptions to at-will employment include:

  • Public Policy: Employees cannot be fired for doing something that is to the public’s good, like refusing an employer’s request to commit perjury, reporting fraudulent behavior, or performing activities for public good like jury duty.
  • Implied Contract: If proven, implied contracts can override at-will employment agreements, like an oral promise or language in an employee handbook that promises a “permanent” job after a 30 day probation period.
  • Contract: If you have an employment contract with an employee that explicitly states an agreement to specific employment terms other than “at will” employment, you could risk being in breach of contract by firing them for a reason that is in violation of your contract. For example, a time-based agreement, like a one-year employment contract, could prevent you from firing the employee without good cause.
  • Implied Covenant of Good Faith and Fair Dealing: This means that you can’t terminate an employee for bad intentions, like firing a salesman just before a large commission.

So, if you don’t have a sound reason for firing an employee, check your state for what exceptions to at-will employment laws are in place. 

3. Last paycheck requirements

Check with your state on this one. Most states have very specific requirements for when and how terminated employees need to be given their final paycheck.

Federal law also has specific requirements, though most states have stricter timelines, thereby overriding federal mandates. For example, in California an employer must give an employee their final paycheck immediately if they were fired or laid off, and within 72 hours if the employee quit. In Texas, a terminated employee must get the final check within six days if they’re fired or laid off, and the next scheduled payday if they quit.

4. COBRA Insurance requirements

In many states, like California, you’re required to give a terminated employee information on how to enroll in COBRA. COBRA insurance is a federal program that allows terminated employees to temporarily extend the health insurance provided by their previous employer. Employers with more than 20 employees are actually required to offer COBRA as part of their health insurance plan. All terminated employees, whether they are fired, laid off, or quit, are eligible for COBRA.

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5. Unemployment insurance requirements

Fired employees, like those who quit voluntarily, are generally not entitled to unemployment insurance. Employees who were laid off due to no fault of their own are eligible, however, and employers are required to accept that laid off employee’s claim. If a fired employee tries to claim unemployment insurance, you can contest it. 

While the process can vary from state to state, in the event that an employer challenges a former employee’s claim for unemployment benefits, the employer will have to provide a reason for the employee’s separation or termination, and should most likely have documentation to support their reasoning to submit to the appropriate adjudicator,” said Jonathan Illari, an attorney in New York who has practiced employment law for over a decade. “This is just one of the many reasons that it benefits any employer to keep detailed employment files during, and for a reasonable period of time after, an employee leaves the company.  If an employee is being terminated for cause, it’s best to be honest about the reason, even if it is awkward at the time.  If the employee decides to leave on their own, keep a written record of their resignation.”

Read more on how unemployment insurance works here.

What does it mean to fire someone with good cause?

Firing someone with good cause means that you have a legitimate business reason for discharging the employee. 

Next Steps

While not required by law, you may want to consider having a separation agreement prepared for your departing team member to sign. This agreement typically outlines the terms of the separation, including a waiver of any legal claims related to the discharged employee’s employment and subsequent termination. When and if appropriate, you may wish to offer a severance package (pay and/or benefits for the departing employee) as well. Severance is often provided in exchange for the terminated employee’s agreement to and signature on the separation agreement.

This post was originally published on November 1, 2019.

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