US Termination Laws

May 27th 2024

Understanding US termination laws is the first step towards treating your employees fairly and minimizing the risk of litigation. In the United States, termination is governed by a detailed framework of laws that promote ethical termination practices and prevent discrimination. This article provides an overview of US termination laws, offering guidance on how to navigate the United State’s unique laws and practices. It will answer common questions, equipping you with vital information going forward in your career.

This Guide Covers

Legal Considerations for Termination in the US
“At-Will” Employment in the US
Lawful Termination in the US
Legal Protections During Termination in the US
Terminated Employee Benefits in the US
Layoffs in the US
Resignations in the US
Legal Cases Related to Wrongful Termination in the US

Legal Considerations for Termination in the US

  • Federal and State Laws: Employment termination in the US is regulated by a combination of federal and state regulations. Federal statutes such as the Americans with Disabilities Act and the Age Discrimination in Employment Act prevent terminations based on discriminatory reasons. Additionally, state laws add extra layers of protection or specify different requirements. 
  • Company Policies: Companies often establish their own policies regarding termination to ensure that there is a clear, standardized approach that all employees understand. These policies typically outline the grounds for termination, the process to be followed, and any disciplinary measures that precede termination. While employers have the freedom to create their own policies, they must align with federal and state laws. Employers should consistently abide by any policies included in the company handbook. 
  • Documentation: Terminating an employee requires thorough and accurate documentation of their tenure. Documentation might include everything from performance evaluations and written warnings to correspondence and disciplinary meetings. Without these records, US employers have limited defense against potential claims that the termination was unjust or illegal.
  • Employment Contracts: Employment contracts may include details about how and when an employee can be fired. For employees working under fixed-term contracts, termination rules can be particularly stringent. These contracts specify the duration of employment, and terminating the contract prematurely without a valid reason could lead to breach of contract claims. 
  • Working Conditions: Hostile working conditions caused by the employer may be legally scrutinized. Employees who resign under these conditions can potentially file legal claims against their employer, and be eligible for unemployment benefits.
  • “At-Will” Employment: One of the fundamental principles of employment in most US states is the doctrine of “at-will” employment. This means that an employer or employee can terminate the employment relationship at any time, for any reason, or for no reason at all, as long as the termination does not violate specific legal protections. The concept of “at-will” employment will be explored in more detail below.

“At-Will” Employment in the US

What is “At-Will” Employment?

“At-will” employment is a term used to describe the employment arrangement in most US states where either the employer or the employee can terminate the employment relationship at any time, without advance notice, and for any reason—or for no reason at all—as long as the termination does not violate the law. This means that an employer can legally fire an employee for reasons ranging from poor job performance to misconduct or company downsizing. Similarly, an employee is free to leave their job without reason or notice. However, there are important exceptions to the “at-will” doctrine that aim to balance the employer’s ability to manage their workforce with protections against unfair treatment of employees.

What are the Exceptions to “At-Will” Employment in the US?

In the US, the “at-will” employment doctrine has several key exceptions that restrict an employer’s ability to terminate employees arbitrarily. These exceptions provide essential protections for employees against unfair dismissals. Here are the main exceptions to at-will employment:

  • Discrimination: Under federal law, employers are prohibited from terminating employees based on protected characteristics, such as race, color, religion, sex (including pregnancy, sexual orientation, and gender identity), national origin, age (for individuals 40 or over), disability, or genetic information. These protections are mandated by statutes such as Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act (ADA), the Age Discrimination in Employment Act (ADEA), and others. 
  • Retaliation: Retaliation occurs when an employer punishes an employee for engaging in legally protected activity. This can include firing an employee for filing a complaint of discrimination, participating in a discrimination proceeding, or otherwise opposing discrimination. Federal laws protect against retaliation, ensuring that employees can exercise their rights under employment laws without fear of losing their jobs. For instance, the Occupational Safety and Health Administration (OSHA) protects employees who report violations of workplace safety laws.
  • Implied Contract: Even in the absence of a formal employment contract, implied contracts can arise from company policies or employee handbooks. For instance, if an employer’s handbook states that employees will only be fired for cause, or after certain disciplinary steps are taken, a court might find that this creates an implied contract.
  • Violation of Public Policy: This exception prevents employers from terminating employees if the dismissal would contravene public policy. Violation of public policy involves firing an employee for reasons that society recognizes as illegitimate grounds for termination. Examples include terminating an employee for refusing to perform illegal acts on behalf of an employer, fulfilling jury duty, exercising voting rights, or filing for workers’ compensation.
  • Covenant of Good Faith and Fair Dealing: Some states recognize this exception, which requires employers to only terminate employees for fair reasons. Examples might include firing an employee to avoid paying a due bonus or commissions, or terminating an employee in a manner that undermines the intention of the employment agreement.

Employment Under Contract in the US

Not all employees have “at-will” employment status in the US. Some employment arrangements are under contract. This means that the employment relationship is governed by the contract, not the “at-will” principle. Contracts outline the terms of employment, including the duration, compensation, responsibilities, and conditions under which termination can occur. They will sometimes specify that termination can only happen for “cause” and often define what constitutes “cause.” This can restrict an employer’s ability to terminate the employment compared to “at-will” situations.

Explore our comprehensive guide to firing employees in the US for further information.

Lawful Termination in the US

Legal Grounds for Termination in the US

Some termination decisions may seem unfair, but they are not necessarily unlawful. Keep in mind that wrongful termination is a strictly legal concept which refers to cases where the dismissal violates federal or state laws. That said, a termination decision that is not supported by a fair and legitimate reason might not withstand scrutiny if challenged with a wrongful termination claim. Here are some legal grounds for termination in the US:

  • Misconduct: Engaging in behavior that is detrimental to the company’s operations or violates ethical standards, such as theft, fraud, or violence, can warrant dismissal.
  • Poor Performance: Consistently failing to meet job performance standards or productivity targets despite feedback and opportunities for improvement is fair and legal grounds for dismissal. 
  • Redundancy: Economic downturns, organizational restructuring, or changes in business direction can lead to job positions being eliminated.
  • Attendance Issues: Chronic lateness or absenteeism can lead to termination if it significantly impacts job performance or operational efficiency.
  • Violation of Company Policy: Failing to adhere to company policies, such as those related to confidentiality, technology use, or professional conduct, can result in dismissal.
  • Failure to Pass Probation: Many companies have probationary periods during which a new employee must demonstrate their suitability for the position. Failure to meet the required standards during this time can lead to termination.
  • End of Contract: Employees on temporary or fixed-term contracts can be let go when their contract ends and is not renewed.

How Do I File a Wrongful Termination Claim in the US?

If you believe you’ve been wrongfully terminated, several avenues are available for recourse. Employees who are terminated in retaliation for whistleblowing on unsafe or illegal practices should seek protection under whistleblower laws by reporting to the Occupational Safety and Health Administration (OSHA). Consulting with legal counsel is advisable if your termination scenario falls outside these defined categories. 

In cases of discrimination, employees must first file a report with the Equal Employment Opportunity Commission (EEOC) before pursuing any lawsuit; the filing deadline varies from 180 to 300 days, depending on local or state laws. 

When preparing to file any claims, particularly with the EEOC, employees should bring all relevant documentation such as termination notices and performance evaluations, and have contact information for witnesses ready to support their case.

Legal Protections During Termination in the US

US law not only governs when an employee can be terminated but also how the process must be conducted, including which rights and entitlements are due to the terminated employee. Such protections include: 

  • Payment of Final Wages: In the US, state laws dictate the timing and requirements for paying final wages to terminated employees. These laws vary by state but generally require that final wages (including accrued vacation or other owed benefits, if applicable) be paid on the next regular payday or within a specified number of days after employment ends. Some states require immediate payment if an employee is terminated.
  • Notice Requirements: While most employee terminations do not require employers to give notice, in certain scenarios, the Worker Adjustment and Retraining Notification (WARN) Act comes into play. This federal law requires employers to provide 60 days’ notice to employees in the case of large-scale layoffs or plant closings. For individual terminations, a notice period is not required, unless stipulated by the terms of an employment contract or collective bargaining agreement.
  • Contractual Protections: Employees with employment contracts or those covered under collective bargaining agreements may have additional protections spelled out in those agreements, including conditions under which termination can occur and procedures that must be followed.

Terminated Employee Benefits in the US

Post-termination, employees in the US are entitled to several types of benefits under the law:

  • Unemployment Insurance: One of the most immediate forms of support for terminated employees is unemployment insurance. This benefit provides temporary income to eligible workers who are unemployed through no fault of their own and who meet other state-specific eligibility requirements. The program is funded by employers’ taxes and administered at the state level, so the duration and amount of benefits can vary by state.
  • COBRA: The Consolidated Omnibus Budget Reconciliation Act (COBRA) gives workers and their families who lose their health benefits the right to choose to continue group health benefits for limited periods under certain circumstances.
  • Severance Pay: While not mandated by federal law, severance pay may be offered by employers as part of the employment contract or as part of an employer policy. Severance pay agreements might include not only cash benefits but also extended benefits such as health insurance, life insurance, and assistance with job search efforts.
  • Retirement Plans and Pensions: Depending on the terms of the employment and the company’s policy, terminated employees may be able to retain or access benefits accrued under employer-sponsored retirement plans. Options may include leaving the retirement savings in the company’s plan, rolling them over to a personal retirement account, or cashing out any contributions made, subject to applicable taxes and penalties.
  • Educational and Training Benefits: Some employers may offer access to career counseling, job training, or other educational resources to help terminated employees transition to new jobs. This can be part of a severance package or as a standalone offer.

Layoffs in the US

In the US, there are specific regulations for conducting layoffs that employers must be aware of: 

  • Objective Business Criteria: Employers must establish clear, objective criteria for determining which employees will be laid off. These might include factors such as seniority, job performance metrics, and the necessity of specific roles to the business’s operations. This is to avoid allegations of bias or discrimination. 
  • Worker Adjustment and Retraining Notification (WARN) Act: This federal act requires employers with 100 or more employees to provide at least 60 days’ notice of intended mass layoffs or plant closings.
  • Anti-Discrimination: Layoff criteria can sometimes lead to an unintentionally disproportionate impact on protected groups  (e.g., older workers, a specific gender, or race), which violates anti-discrimination laws. 
  • Contractual Obligations: Employers must also consider individual employment contracts that may affect the terms of severance, notice periods, and other rights that laid-off employees might have.

Resignations in the US

Resigning is the act of quitting one’s job or position. This decision can stem from various personal or professional reasons, such as accepting a new job opportunity, relocating, retiring, or other personal life changes. However, resignations can also be classed as involuntary, if the employee was forced to resign due to intolerable working conditions. 

Voluntary Resignations

Voluntary resignations, though initiated by the employee, entail a set of legal obligations for US employers and employees:

  • Employment Contracts and Agreements: In cases where an employment contract is in place, the terms of the contract may specify conditions around resignations, including required notice periods and potential consequences for not adhering to these terms.
  • Final Paycheck: In some states, the legal timeframe for issuing a final paycheck differs for resigning employees. Typically, employers are required to provide the final paycheck on the next regular payday, but some states may require that it be provided immediately or within a certain number of days following the resignation.
  • Unemployment Benefits: Generally, employees who voluntarily resign are not eligible for unemployment benefits unless they can prove that they resigned for “good cause” related to the work or employer, such as unsafe working conditions or significant changes to the terms of employment.
  • Notice Periods: While not legally required under federal law, many employers have policies that employees provide notice—commonly two weeks—before leaving their job. Providing notice is considered a professional courtesy that allows employers time to plan for a transition or begin the hiring process to replace the departing employee. However, unless bound by an employment contract that specifies a notice period, employees are not legally obligated to provide advance notice.

Involuntary Resignations

Involuntary resignation, or constructive discharge, happens when an employee is forced to resign due to actions by the employer that make the working environment intolerable. This could include severe harassment, drastic changes in job terms without consent (such as pay cuts or demotions), or unsafe working conditions.

The Equal Employment Opportunity Commission (EEOC) uses a three-part test to assess claims of constructive discharge. This test checks: (1) whether a reasonable person in the complainant’s position would view the working conditions as intolerable; (2) whether these intolerable conditions were the result of discriminatory actions against the complainant; and (3) whether these conditions directly led to the complainant’s compelled resignation.

Involuntary resignations or constructive discharge can occur when working conditions or employer actions violate the following employment laws: 

  • Title VII of the Civil Rights Act of 1964 (Title VII): This federal act protects employees from discrimination based on race, color, religion, sex, and national origin. Constructive dismissals arising from hostile work environments or discriminatory policies violating Title VII could lead to legal claims against an employer.
  • Americans with Disabilities Act of 1990 (ADA): Forcing an employee to resign by not accommodating their disability or by worsening their working conditions due to their disability could violate the ADA.
  • Equal Pay Act of 1963 (EPA): This law requires that men and women in the same workplace be given equal pay for equal work. If changes in pay or demotions are used strategically to coerce a resignation, this could constitute a violation of the EPA.
  • Age Discrimination in Employment Act of 1967 (ADEA): This protects employees 40 years of age and older from discrimination based on age in hiring, promotion, discharge, compensation, or terms, conditions or privileges of employment. Involuntary resignation induced by discriminatory practices against older employees would contravene the ADEA.
  • Change in schedules to force an employee to quit: If an employer deliberately changes an employee’s schedule to make it difficult or impossible for them to continue working—especially if this change targets specific employees—it could be considered a constructive dismissal.
  • Favoritism or bias without reason or explanation: Favoritism or bias could lead to an intolerable work environment that affects job performance or opportunities for specific employees. This could be seen as a contributing factor to a constructive dismissal scenario.

Legal Cases Related to Wrongful Termination in the US

1. Former Chipotle Manager Wins $7.97 Million in Wrongful Termination Suit After Retaliatory Firing Over Worker’s Comp Claim

On May 10, 2018, a jury in Fresno County Superior Court awarded Jeanette Ortiz, a former general manager at Chipotle Mexican Grill Inc., $7.97 million in compensatory damages after finding she was wrongfully terminated. 

Ortiz was dismissed in January 2015 under allegations of stealing $626, but Chipotle failed to provide the video evidence they claimed to have, which had been taped over. The situation was complicated by inconsistent testimonies about the timing of the alleged theft. The jury concluded that Ortiz’s termination was retaliatory, linked to her filing a workers’ compensation claim for a wrist injury a month before her firing while on medical leave. She was awarded $1.97 million for lost earnings and $6 million for emotional distress, citing anxiety and humiliation among other impacts.

Key Lessons Learned From This Case: 

  • Termination decisions must be well-supported by evidence.
  • Retaliatory terminations, especially following lawful claims like workers’ compensation, can lead to significant legal and financial repercussions.
  • Employers should prepare for the possibility of legal challenges to termination decisions, especially in contentious situations with conflicting evidence. 

2. Napa Jury Awards Former Rancho Gordo Worker $252,000 in Pregnancy Discrimination Case

A jury in Napa awarded Martha Martinez, a former temporary worker at Rancho Gordo, $252,000 in damages after finding the company responsible for discrimination and retaliation related to her pregnancy. Martinez had worked at Rancho Gordo from late 2019 to 2020 and filed a lawsuit accusing the company of sex, national origin, and pregnancy discrimination, which led to her wrongful termination. 

The jury eventually confirmed that her pregnancy was a factor in her termination and that the company retaliated by not rehiring her due to her complaints about the dismissal. However, the jury did not support her claims of national origin discrimination. The awarded damages included compensation for lost earnings, medical expenses, and past and future emotional distress. Despite the verdict, Rancho Gordo and its representatives denied knowledge of her pregnancy at the time of her firing and refuted all claims.

Key Lessons Learned From this Case: 

  • Awareness and consideration of the timing of termination decisions, especially when they could coincide with knowledge of an employee’s pregnancy or other protected status, are essential.
  • Employers should take legal claims seriously and prepare to respond adequately in court.

3. Whistleblower Awarded $20 Million After Exposing Fraudulent Sales Tactics on Elderly by Wyndham Timeshare 

Trish Williams reported fraudulent practices aimed at elderly customers at Wyndham Timeshare. After whistleblowing, she was terminated, leading to a jury awarding her $20 million. The case involved allegations that Wyndham salespeople engaged in unethical practices such as opening and maxing out credit cards without customer knowledge and misleading customers about interest rates, maintenance fees, and rental income potential from timeshares.

The trial unveiled that Wyndham employees employed high-pressure sales tactics, misleadingly known as “pitching heat,” and had specific days called “TAFT” days, where the motto was “Tell Them Any F@#*ing Thing” to secure sales, as long as no false claims were recorded in writing. 

Key Lessons Learned From this Case: 

  • Employees who report illegal or unethical practices are protected from retaliation, including wrongful termination, and can receive substantial compensation for their losses and suffering if they are retaliated against.
  • Companies can be held accountable for the actions of their employees, especially when unethical behavior is encouraged or condoned at higher levels of the organization.

Learn more about US Labor Laws through our detailed guide.

Important Cautionary Note

This content is provided for informational purposes only. While we make every effort to ensure the accuracy of the information presented, we cannot guarantee that it is free of errors or omissions. Users are advised to independently verify any critical information and should not solely rely on the content provided.