Overview – Understanding Employment at Will
Termination, while often unpleasant, is simply a necessary part of the employment relationship. Once an employment relationship no longer serves the needs of both the employer and employee, then it’s likely time to end the relationship.
Fortunately, employment is generally considered at will, which means that either the employee or the employer may terminate an employment relationship at any time and for any legal reason. Employment at will can end because “it’s just not working out” or even for no reason at all.
Of course, as with nearly all legal principles, there are limits to the employment-at-will principle. For example, if an employment relationship is established and protected by contract, the agreement limits the parties’ rights to unilaterally terminate employment. Contracts change the nature of the employment relationship such that it is no longer considered to be at will.
Additionally, note that termination can be for any legal reason. Numerous state and federal laws, several discussed below, supersede and limit an employer’s otherwise absolute right to terminate employment. For example, when the reason for termination is based on a protected class, status, or activity.
Finally, note that public employers and employers in the state of Montana generally do not have the at-will principle at hand. So for these employers they may have to follow specified discharge procedures.
In addition to the laws governing why termination may occur, employers may also be required to abide by specific practices. Employees may be entitled to receive notice, continuation of health benefits, and timely payout of earned compensation.
Understanding – Common Exceptions to Employment at Will
While employment at will is the law in most states, there are a number of exceptions to this general rule that have been created both by statute and by the courts. Several key exceptions are discussed in detail in the segments below.
Through these exceptions, and contrary to an almost common belief, employers cannot necessarily terminate employees for any reason.
Discrimination (Protected Class or Status)
Federal anti-discrimination laws protect employees from losing their jobs based on their race, color, national origin, sex, religion, disability, pregnancy, age, or genetic information. Employees can sue their former employers under a variety of anti-discrimination laws, including:
- Title VII of the Civil Rights Act of 1964
- Americans with Disabilities Act (ADA)
- Pregnancy Discrimination Act (PDA)
- Equal Pay Act
- Age Discrimination in Employment Act (ADEA)
- Genetic Information Nondiscrimination Act (GINA)
In addition, most states have enacted their own laws prohibiting discrimination in employment, some of which include additional protected classes such as sexual orientation, marital status, and military membership.
Retaliation (Protected Activity)
An employer may not terminate or otherwise discriminate against an employee in retaliation for engaging in an otherwise protected activity—for instance, making a discrimination complaint or participating in the investigation of a discrimination complaint.
An employer may be found liable for retaliatory discharge if the employee can prove that:
- He or she engaged in a protected activity
- The employer was aware of the protected activity
- The employer subjected the employee to an adverse employment action because of the protected activity
Statutes addressing retaliation
The principal federal civil rights law, Title VII, prohibits employers from retaliating against employees who oppose any unlawful employment practice or who make a charge, testify, assist, or participate in any investigation, proceeding, or hearing under the law. Illegal retaliation includes termination, as well as other employment actions such as suspension, demotion, altered work schedules or assignments, and negative performance evaluations.
Similar anti-retaliation protections are also extended to employees under the ADEA, the ADA, the Equal Pay Act, and the Family and Medical Leave Act.
What is retaliation?
The U.S. Supreme Court has ruled that retaliation includes any action taken by an employer—whether job-related or not—that is “materially adverse” and could dissuade a reasonable employee or job applicant from exercising protected rights.
Who is protected from retaliation?
Title VII prohibits two types of retaliation:
- the “opposition” clause protects employees from retaliation when they oppose any practice that is unlawful under Title VII
- the “participation” clause protects employees from retaliation when they make a charge, testify, assist, or participate in an investigation, proceeding, or hearing brought under Title VII.
Retaliation against former employees
An employer may be held liable for retaliation under Title VII if an unfounded and negative employment reference is given for a former employee. In Robinson v. Shell Oil Co (1997), the Court allowed a worker to sue a former employer for providing an unfavorable job recommendation to another employer in retaliation for the worker’s filing a discrimination complaint.
Accordingly, the term “employer,” within the context of Title VII, may encompass former employers.
Document, document, document—retaliation risk management
In recent years claims alleging retaliatory behavior have steadily increased. Nearly half of the charges filed with the EEOC, are claims alleging unlawful retaliation.
Enforcement trends like this reinforce the importance that employers must document legitimate reasons for disciplining and terminating employees. The best protection is a written disciplinary record demonstrating a legitimate and nondiscriminatory reason for the action. An employer should be able to show that clear work rules and policies were communicated to the employee.
While employers do not have to state a reason for discipline, understand that “the best defense is a good offense.” Being able to proactively demonstrate a fair and legitimate reason for an action saves time. As well as, resources, and frustration otherwise spent defending legal claims that a termination for “no reason” was unlawful.
Employers should be aware that retaliation claims may—and often do—survive even when the underlying discrimination claim is dismissed. In other words, employers that may have initially done nothing wrong can still find themselves in trouble. They could be stuck paying out hefty fines and settlements if the employee is later retaliated against for exercising, or attempting to exercise, an employment right such as filing a complaint.
Discharging an employee who has engaged in a protected activity is a matter that should be approached with extreme caution. Nonetheless, the fact that a worker has filed a complaint should not alone prevent terminating an otherwise undesirable employment relationship. As long as the termination is warranted and is consistent with past practice, the employer is theoretically secure from liability.
Whistleblowing (Protected Activity)
Several federal laws also specifically protect employees from retaliation for engaging in whistleblowing activity. The following list details a few key examples:
- Affordable Care Act (ACA)
- Consumer Product Safety Improvement Act of 2008 (CPSIA)
- The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank)
- Fair Labor Standards Act (FLSA)
- Occupational Safety and Health Act (OSH Act)
- Public employees, protected speech, and testimony in court
- Sarbanes-Oxley Act of 2002 (SOX)
Implied Contracts (Alteration of the At-Will Relationship)
An employment contract is generally understood to be a written agreement entered into by the employer and the employee. Although, an employer could be bound to a promise made during an interview, during the worker’s employment, or in a memo posted on a bulletin board. A promise, or “contract,” may also be implied in an employee handbook. Most often, the promise boils down to this: no discharge except for good cause.
Enforcement of such promises varies considerably from state to state. Employers should be extremely careful about the promises and representations that are made to employees before and during employment. Training managers to avoid making promises regarding terms or conditions of employment to job applicants or employees can safeguard employers. Some careless promises can place an employer in an undesirable contractual relationship and removes any to terminate an employee.
Disciplinary policies
Many companies have specific disciplinary procedures set forth in a policy manual or employee handbook. If the employer has failed to follow such established procedures or the policies limit the employer’s discretion to terminate its employees, the employee may have a state law cause of action for breach of implied employment contract or wrongful discharge.
Concerted Activity Under the National Labor Relations Act (Protected Activity)
Although the federal National Labor Relations Act (NLRA) is mostly associated with unions, its protections extend to nonunion workforces too. Section 7 gives employees numerous rights, including the right to engage in “concerted activities” for the purpose of collective bargaining.
Section 8 then makes it an unfair labor practice for an employer to interfere with employees in the exercise of these rights. Thus, employers are forbidden from discharging employees who engage in “concerted activity” to bargain with the employer; challenge employer policies or practices; or advocate for better pay, benefits, or working conditions—regardless of whether the employees are unionized.
“Concerted activity” can be defined quite broadly and may include any lawful act undertaken by two or more employees.
Military Service (Protected Status and Activity)
The Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA) provides protection for employees who are returning home from active military service and protects them from discharge without cause.
Cat’s paw liability
The U.S. Supreme Court has ruled that an employer may be held liable under USERRA for an adverse employment action taken by an unbiased HR manager when the action is based on the recommendation of a supervisor who had discriminatory intent.
Under the standards established by the Court, an employer may be liable if all the following are established:
- A supervisor performs an act motivated by unlawful bias
- The act is intended to cause an adverse employment action
- The act is the proximate cause of the ultimate employment action
Caution: This case illustrates the importance of having a process in place to effectively review disciplinary actions. Additionally, although this case was brought under USERRA, the Court noted that USERRA’s language regarding a “motivating factor” is very similar to Title VII. Thus, “cat’s paw liability” maybe applied by courts in cases brought under Title VII.
Jury Duty (Protected Activity)
Federal law makes it illegal to discharge an employee for performing jury service in any U.S. court.
Additional Considerations
Termination due to Layoff or Plant Closing
If an employee is being terminated as part of a layoff, reduction in force, or plant closing, under the federal Worker Adjustment and Retraining Notification Act (WARN Act), an employer must give 60 days’ notice of any plant closing or mass layoff. Some states have additional “mini-WARN” laws that cover smaller employers.
Voluntary Discharge (Resignation)
Recall that the employment-at-will doctrine applies to both employers and employees. This means that employees may also voluntarily terminate their employment at any time, for any reason, with or without notice.
Employee notice requirements
Of course, some advance notice of a resignation gives the company time to find a replacement. As well as provides them with time to discuss a counteroffer, time to process paperwork, and allows coworkers to make an easier transition.
Exit Interviews
An exit interview should be conducted with every employee who leaves the company voluntarily. Many employees feel more comfortable providing honest feedback once the employment relationship has ended. Exit interviews may yield important new information and insight on an employee’s overall employment and company experience.
The best practice for exit interviews is to have the interview in person immediately before the employee’s final departure date. Of course, this may not always be logistically possible, so consider alternatives such as e-mail, phone, or direct mail interviews.
Sample questions
The content of an exit interview will certainly vary from employer to employer; however, the following questions provide a standard template:
- Why are you leaving the company?
- How did you feel about working here?
- Were your job duties clearly explained to you?
- Do you think the company benefits and compensation programs are adequate? Do you have any suggestions for improving the programs?
- Would you recommend future employment with the company to a friend or relative?
Keep questions open-ended
Try to incorporate as many open-ended questions as possible during an exit interview. “Yes or no” questions undermine the value of the exit interview, as they fail to elicit personal experiences, anecdotes, and valuable insight.
Handling troubling information
If an employee shares particularly troubling information during an exit interview, such as an allegation of sexual harassment, the shared information, as well as the employee, should be handled with extreme care.
Gather as much detailed information as possible from the employee and document the facts thoroughly. Convey a sincere appreciation for the information given and assure the employee that the allegation(s) will be investigated and resolved immediately.
Terminating an employee is one of the most difficult and important steps an employer or supervisor can take. It should not be taken lightly, because its repercussions go beyond the employee and the employer. Coworkers can be unnerved by the firing of another employee, even if they felt the person was a poor worker, exhibited a poor attitude, or simply wasn’t a good fit. A firing may engender feelings of uncertainty and vulnerability in others. Also, a firing may result in a wrongful discharge claim, which, even if not legitimate, is costly, unsettling, and a distraction to the workplace.
Despite the freedom, discussed above, afforded by the at-will employment doctrine, for many employers it will be preferable to err on the side of caution, terminating employees only for substantial business reasons such as demonstrating a continued inability to meet performance standards, consistently violating company policy, exhibiting violent behavior against another in the workplace, or engaging in criminal activity, such as embezzlement.
Managing the Discharge Process – Best Practices
The Termination Meeting
The actual termination is never a pleasant experience. Therefore, every termination meeting should be planned carefully and executed quickly and competently. To achieve this, an employer may want to incorporate the following practices as part of its overall termination policy:
- Conduct the meeting as privately as possible, at either the start or end of the workday. By doing so, an employee’s potential embarrassment when later retrieving personal belongings from the work area may be reduced (e.g., fewer employees may be in the work area).
- At least one other member of management should attend the meeting as a witness.
- Keep the meeting brief. Discourage any further or potentially volatile discussion regarding the reason for the termination. The purpose of the meeting is to communicate the message, not to discuss the reasons, or rights and wrongs, behind the decision. Stay focused.
- Remain compassionate, but do not compromise the company’s position by “siding with” the employee.
- Arrange for security if an employee has a history of violence or could react violently.
- Prepare a final paycheck, including all outstanding vacation, sick time, etc., when applicable. Full payment for the day of the termination meeting should be made, regardless of the time of day that it occurs.
- Provide information and forms regarding the continuation of group health insurance, unemployment insurance, etc., in order to reduce the need for a former employee to return to the workplace and possibly cause disruption.
- At the conclusion of the meeting, have the employee retrieve his or her personal belongings and immediately leave the premises. In some cases, it may be necessary to physically escort the employee to and from the work area.
Making a clean break
When terminating an employee, the employment relationship should end at the conclusion of the termination meeting.
Absent an intervening contract, there is no legal requirement for an employer to provide an employee with a notice period following the termination. In fact, it is not recommended. If the employer has promised a notice period, the employer may be bound to it. Most employers offer pay covering the period and dismiss the employee from further work.
There is little to gain by allowing an otherwise deficient employee to continue working for an extended period after the termination meeting. In almost every case, the employee’s emotional connection to the employer is effectively severed, and the more important issues of employee morale, productivity, and risk to company property should take precedence.
If you believe the former employee might damage company property or cause some other disruption in the workplace, have someone escort the former employee to his or her desk to pack up and then escort him or her out. But do this only under extraordinary circumstances.
Releases/Waivers
Employers may ask an employee who is resigning, being terminated, or laid off to release potential legal claims the employee may have against the employer in exchange for additional compensation. Some state and federal laws prohibit the release of claims under those acts. For this reason, any general waiver of claims must be written carefully.
If the employee is aged 40 or over, the Older Workers Benefit Protection Act (OWBPA) contains specific requirements for such a waiver and release of claims that must be followed to ensure that the release is enforceable. If the format is not followed, the employee may ignore the release and sue the employer.
Regardless of the age of the employee signing the release, the employer should consult with an attorney when drafting the legally binding document in order to guarantee that all legal requirements are fulfilled.
Severance Pay
No federal law requires that an employer pay severance pay upon terminating an employee. However, severance benefits are often offered in conjunction with waivers and releases of claims. Additionally, some employers opt to provide severance benefits to ease the transition for discharged employees, particularly those with lengthy tenure with the organization.
Final Paychecks
There are no federal laws regulating the payment of final wages, although many states have such laws. For administrative simplicity, when termination is involuntary (firing or immediate layoff), many employers provide the final paycheck immediately upon discharge. For voluntary separations (resignations) or non-immediate layoff, the final paycheck might be provided within the standard pay cycle.
In choosing the appropriate final pay practice for your organization, ensure that it complies with applicable state laws on final paycheck timing—otherwise, penalty wages could be assessed.
Questions regarding vacation pay, severance pay, or debts or obligations owed to the company should be addressed well in advance of the termination date. Postponing any of these actions until after the employee departs can lead to serious misunderstandings and possible legal problems.
COBRA
The Consolidated Omnibus Budget Reconciliation Act (COBRA) and many state laws require that employees be offered the option to continue group health insurance coverage after the employment relationship has ended.
Return of Company Property
Employers should assign responsibility for seeing that discharged employees return any company property, such as uniforms, keys, or credit cards, before departure.
In the case of employees with access to trade secret information, software, or product development plans (e.g., computer programmers), and particularly in the case of telecommuting arrangements, it may be necessary to take additional measures to protect company property (e.g., terminating the employment relationship immediately upon receipt of a resignation letter and escorting the employee from the premises, making arrangements to retrieve company computers, software, etc., from the employee’s home office).
Deductions from Pay
A common concern raised by employers during the termination process is whether, and to what extent, employees can be charged for outstanding debts owed to the employer—for example, negative balances in a paid time off bank, damaged or unreturned company property, losses due to fraud or theft, previously authorized loans or paycheck advances, and clawbacks of bonuses or incentives the employee failed to earn.
Whether these amounts can be recovered via a deduction from pay or whether they will require separate reimbursement (and, perhaps, legal action) depends on several factors, including the amount owed, the reason owed, whether the employee authorized the deduction in writing, and the jurisdiction.
The best practice is for employers to refrain from advancing funds that would be sizable enough to warrant seeking a deduction from final pay; however, to the extent that hindsight is often 20/20, limited deductions approved in writing by the employee may be permissible.
Form W-2
Form W-2 may generally be issued at any time after termination, no later than January 31 of the following year.
However, if an employee requests issuance of Form W-2 (either verbally or in writing) and there is no prospect that the employee will be rehired by the company, the W-2 must be issued within 30 days of the request or within 30 days of the last payment of wages, whichever is later.
Employment References
While an employer may be subject to liability for giving a deliberately inaccurate or misleading job reference, an increasing number of states have enacted job reference immunity laws that exempt employers from liability when accurate job reference information is given.
Record-keeping and Retention
All documentation associated with a termination should be filed in the employee’s personnel file. If departmental personnel files are also maintained, they should be kept in a confidential and secure place.
Some states have laws that specifically govern the maintenance and retention of all employee personnel files.