One of the most difficult aspects of running a business is hiring and firing employees. Terminating an employee can be complex regardless of the circumstances, and how it is handled affects both the departing worker and the company’s legal exposure.
Even when an employer or employee can end employment at any time, this “at-will” relationship does not eliminate risk. A poorly handled termination can lead to hard feelings, reputational harm, or a lawsuit from the former employee.
In at-will jurisdictions, employers must avoid actions that could be interpreted as undermining that status. For example, verbal assurances that a job is secure may be construed as creating a promise of continued employment and could be used as grounds for a claim.
When performance is the issue, employers should not move directly to termination. Instead, schedule a clear evaluation meeting to document specific performance shortfalls, set attainable goals, and agree on a reasonable timeframe for improvement.
That meeting should result in a signed action plan that states the goals, the timeframe, and the consequences if the goals are not met. Monitoring and documenting progress during that period creates evidence that termination was a last resort if the employee does not improve.
If the reason for termination involves alleged misconduct, employers need a thorough, unbiased, fact-finding investigation focused on whether company policy was violated. The investigation should document findings and avoid conflating company-policy violations with criminal guilt.
To help manage the costs and risks of employment-related claims, some companies consider insurance products designed for these situations, such as Employment Practices Liability Insurance (EPLI) Overview. Such coverage can help with defense costs and settlements arising from allegations like wrongful termination or discrimination.
When layoffs occur, federal and state notice and severance laws may apply. Larger employers should be aware of the Worker Adjustment and Retraining Notification Act (WARN) and similar state laws, which generally apply to significant mass layoffs and include eligibility limits for short-term or part-time employees.
If a separation involves older workers, employers must follow the requirements for waivers of age-discrimination claims under the Older Workers Benefit Protection Act; courts have enforced these statutory requirements strictly.
To explore specific coverage that can protect your business against employment-related risks, consider policies such as Wrongful Termination Insurance and discuss options with your insurance representative. If you want help evaluating options, talk to an agent.
This article should not be relied upon as legal advice. Consult an attorney familiar with the laws in your state before taking action on employment or termination issues.
Frequently Asked Questions
What does "at-will" employment mean?
At-will employment generally means either the employer or employee can end the relationship at any time for any lawful reason, subject to statutory and contractual exceptions.
Can a verbal promise prevent an at-will termination?
Yes—under some circumstances, a documented verbal assurance or consistent practice could be interpreted as creating an exception to at-will status, so employers should avoid unqualified promises.
What should an employer include in a performance improvement plan?
Include specific performance issues, measurable goals, a reasonable timeframe for improvement, and a clear statement of consequences if goals are not met.
When might the WARN Act apply to layoffs?
The WARN Act generally applies to large employers planning mass layoffs or plant closings and includes notice requirements and eligibility rules for affected employees.