Firing People: What Employers Can and Cannot Do

Firing an employee in the United States is legal in almost any circumstance because employment is presumed at-will, but what employers can and cannot do when firing an employee is shaped by anti-discrimination statutes, retaliation protections, contractual promises, and a set of procedural rules covering final pay, benefits continuation, and advance notice. Get the reason right and the paperwork right, and a termination is routine. Miss a deadline, skip documentation, or fire someone close in time to a protected complaint, and the cost can run from waiting-time penalties to a six-figure damages award.

At-Will Employment and the Three Exceptions

Under the at-will doctrine, you can end the relationship at any time, for any reason that isn’t illegal, or for no reason at all. The employee has the same freedom to walk out.1National Conference of State Legislatures. At-Will Employment – Overview This is the default across the 50 states, and it applies even without a written contract saying so.2Cornell Law Institute. Employment-at-will Doctrine

Three exceptions cut into that default. A written employment contract or collective bargaining agreement can require just cause, meaning you have to prove misconduct or poor performance before you can fire someone. About 40 states recognize a public policy exception, so you generally cannot fire someone for refusing to break the law, for performing a legal duty like jury service, or for exercising a legal right like filing a workers’ compensation claim. And in some states, courts have found an implied contract based on language in employee handbooks or verbal assurances of job security. If your handbook says employees will only be terminated “for cause,” a court may hold you to that.

Reasons You Cannot Fire Someone

Discrimination

Federal law prohibits firing someone because of race, color, religion, sex, or national origin.3U.S. Equal Employment Opportunity Commission. Title VII of the Civil Rights Act of 1964 Age discrimination against workers 40 and older is separately prohibited.4U.S. Equal Employment Opportunity Commission. Age Discrimination The Pregnant Workers Fairness Act, in effect since 2023, requires covered employers to provide reasonable accommodations for limitations related to pregnancy, childbirth, or related conditions unless doing so would cause undue hardship.5U.S. Equal Employment Opportunity Commission. Pregnant Workers Fairness Act

Disability alone is not a ground for termination if the employee can perform the essential functions of the job with or without reasonable accommodation. You can fire a worker with a disability when the termination is unrelated to the disability, when the employee cannot meet legitimate job requirements even with accommodation, or when the employee poses a direct threat to workplace safety.6U.S. Department of Labor. Employers and the ADA: Myths and Facts

Retaliation

You cannot fire someone for exercising a legal right. That covers filing a workers’ compensation claim, reporting workplace harassment, cooperating with a government investigation, and asserting rights under wage and hour laws.7U.S. Department of Labor. Retaliation Whistleblower protections run through more than 20 federal statutes covering industries from aviation to financial services, and OSHA investigates retaliation complaints under all of them.8Occupational Safety and Health Administration. OSHA’s Whistleblower Protection Program

Timing matters. Firing someone shortly after they file a complaint or take part in an investigation creates a presumption that the two are connected.9USAGov. Wrongful Termination Documentation showing the termination decision was already in motion before the protected activity is often the only way to defeat that inference.

Constructive Discharge

Even without an actual firing, you can be on the hook. Constructive discharge occurs when working conditions become so intolerable that a reasonable person in the employee’s position would feel compelled to resign, and courts treat the resulting quit as a termination.10Legal Information Institute. Green v. Brennan Slashing someone’s hours, reassigning them to demeaning work, or tolerating harassment after a complaint are the changes that fuel these claims.

Which Laws Apply to a Business Your Size

Federal employment laws kick in at different headcount thresholds. Small employers sometimes assume they are exempt from everything, and mid-size employers sometimes miss laws that apply at higher levels.

Headcount is typically measured by the number of employees on payroll for at least 20 calendar weeks in the current or preceding year, not by how many people are physically present on a given day. Part-time employees generally count toward the discrimination-statute thresholds but are excluded from the WARN Act calculation.

What Unlawful Termination Costs

When a termination violates federal anti-discrimination law, courts can order back pay, reinstatement, and compensatory and punitive damages. Congress capped the combined compensatory and punitive award based on employer size:15U.S. Equal Employment Opportunity Commission. Remedies For Employment Discrimination

  • 15 to 100 employees: $50,000
  • 101 to 200 employees: $100,000
  • 201 to 500 employees: $200,000
  • More than 500 employees: $300,000

Back pay, front pay, and attorney fees sit outside the caps and can push total exposure well past those numbers.

Building a Record Before You Terminate

The time to build your defense is before you schedule the termination meeting. If you fire someone for performance reasons and can’t produce documentation of the problems you claim existed, that gap becomes the centerpiece of a discrimination or retaliation claim.

Every written warning, coaching conversation captured by email or memo, and performance review belongs in the personnel file. If the employee was placed on a performance improvement plan, that document should identify specific deficiencies, set measurable goals, establish a deadline, and state the consequences of failing to improve. A vague PIP that says “needs to do better” protects no one. The goals need to be concrete enough that a third party reading the document later would know whether the employee met them.

Review the signed offer letter or employment agreement for notice requirements, severance obligations, non-compete clauses, or any language that could be read as modifying at-will status. If a collective bargaining agreement covers the position, check the grievance and arbitration provisions before proceeding. Draft the termination letter in advance. It should include the effective date, the reason for termination stated simply, and information about final pay, benefits continuation, and any post-employment obligations like non-competes or return of confidential materials.

The Termination Meeting

Hold the meeting in a private office or conference room with an HR representative present as a witness. Keep it short: state the decision, hand over the termination letter and benefits information, and explain next steps for final pay and COBRA. This is not a negotiation. Lengthy explanations invite arguments that can be quoted back at you later.

Collect all company property during or immediately after the meeting: keys, badges, laptops, phones, and any documents containing proprietary information. Revoke access to email, internal systems, and building entry at the same time. Staggering these steps creates a window in which a disgruntled employee still has access to sensitive data. Walk the employee to their workspace to collect personal items, then escort them out. How the last interaction goes often decides whether the person feels motivated to pursue a claim.

Severance Agreements and Claim Waivers

Severance is not required by federal law, but many employers offer it in exchange for a release of legal claims. A properly drafted severance agreement can waive an employee’s right to sue for wrongful termination, discrimination, or other employment-related claims. Employees can waive most statutory claims. They cannot waive the right to file a charge with the EEOC or to claim unemployment benefits.

When the departing employee is 40 or older, the Older Workers Benefit Protection Act imposes strict requirements on any waiver of age discrimination claims. The waiver must be written in plain language, must specifically refer to rights under the Age Discrimination in Employment Act, and must offer something of value beyond what the employee is already owed. The employee must be advised in writing to consult an attorney and given at least 21 days to consider the agreement (45 days if the termination is part of a group layoff or exit incentive program). After signing, the employee has a mandatory 7-day revocation window that cannot be shortened.16Office of the Law Revision Counsel. 29 USC 626 – Recordkeeping, Investigation, and Enforcement

For group terminations, the employer must also disclose the job titles and ages of everyone eligible for the program and everyone in the same job classification who is not eligible. Missing any of these requirements makes the age waiver unenforceable, even if the employee signed and cashed the severance check.17eCFR. 29 CFR 1625.22 – Waivers of Rights and Claims Under the ADEA

Final Pay and Unused PTO

Federal law does not require you to hand over a final paycheck immediately. The Fair Labor Standards Act requires payment of all earned wages but sets no specific deadline for the last check.18U.S. Department of Labor. Last Paycheck State laws fill the gap and range from same-day payment to the next regular payday. Some states impose waiting-time penalties that accrue daily when employers miss the deadline, so check your state’s rule before you schedule a termination.

The final paycheck must include all earned wages and any commissions owed. Accrued but unused vacation or PTO is a separate question. No federal law requires payout of unused vacation time. Whether you owe it depends on your state’s law and your company’s own written policy. A handful of states treat accrued vacation as earned wages that must be paid out at termination; others let employers set “use it or lose it” policies. If your handbook promises a payout, you are generally bound by that promise regardless of state law.

COBRA Notice Deadlines

Employers with 20 or more employees must offer departing workers the option to continue their group health coverage under COBRA.13Centers for Medicare & Medicaid Services. COBRA Continuation Coverage Questions and Answers The former employee pays the full premium, combining the employer and employee shares, typically plus a 2% administrative fee.

The notification process is a two-step trap. You have 30 days after termination to notify your group health plan administrator. The plan administrator then has 14 days to send the COBRA election notice to the former employee. If you are both the employer and the plan administrator, you have the full 44-day window to get the notice out.13Centers for Medicare & Medicaid Services. COBRA Continuation Coverage Questions and Answers For employees terminated for reasons other than gross misconduct, coverage can last up to 18 months.

Missing the deadline triggers an excise tax of $100 per day per affected individual, or $200 per day when multiple family members are involved. If the violation isn’t corrected before an IRS examination, the minimum penalty is $2,500 per occurrence, jumping to $15,000 when violations are more than minor. For unintentional failures, the annual cap is the lesser of 10% of what you spent on group health plans the prior year or $500,000.19Office of the Law Revision Counsel. 26 USC 4980B – Failure to Satisfy Continuation Coverage Requirements

Mass Layoffs and WARN Notice

If you are cutting a large number of workers at once, the federal Worker Adjustment and Retraining Notification Act likely applies. Employers with 100 or more full-time employees must provide at least 60 days’ written advance notice before a plant closing or mass layoff.20Office of the Law Revision Counsel. 29 USC 2102 – Notice Required Before Plant Closings and Mass Layoffs The notice goes to affected employees or their union representative, the state dislocated-worker unit, and the chief elected official of the local government where the closing or layoff will happen.

A plant closing means shutting down a site or operating unit in a way that costs at least 50 full-time employees their jobs. A mass layoff is a reduction that eliminates 50 or more positions at a single site when those workers make up at least a third of the workforce, or 500 or more positions regardless of percentage.14U.S. Department of Labor. Plant Closings and Layoffs

Skipping the 60-day notice makes you liable for back pay and benefits to each affected worker for every day of the violation, up to 60 days. There is also a civil penalty of up to $500 per day payable to the local government, waived if you pay each affected worker within three weeks of ordering the shutdown.21Office of the Law Revision Counsel. 29 USC 2104 – Liability Several states have their own mini-WARN laws with lower thresholds or longer notice periods, so the federal rule isn’t always the whole picture.

Unemployment Insurance Consequences

Every employer pays unemployment insurance tax, and the rate is experience-rated: the more former employees who successfully claim benefits against your account, the higher your rate climbs. Your state maintains a reserve account tracking your contributions and the benefits charged against you, and your rate moves up or down based on that balance.

When you fire someone, they will almost certainly file. Employees terminated without fault (layoffs, position eliminations, restructuring) generally qualify. Employees fired for documented misconduct may be disqualified, but the bar for misconduct in the unemployment context is higher than most employers expect. Inability to meet performance standards, isolated mistakes, and poor judgment typically do not count. The conduct usually needs to be intentional, repeated, or show a serious disregard for the employer’s interests. If you contest a claim and lose, the benefits still get charged to your account. Contesting claims you’re unlikely to win wastes administrative time and doesn’t change the outcome.

References After a Termination

What you say about a former employee carries legal risk. A negative or inaccurate reference can lead to a defamation claim if the employee learns you said something false to a prospective employer. Most states recognize a qualified privilege that protects honest, good-faith disclosures to parties with a legitimate interest, such as another employer checking references, but the privilege evaporates if the employee can show the statements were false and made with spite or reckless disregard for the truth.

Many employers use a dates-and-title-only reference policy to minimize exposure. That approach is safe but not required. If you choose to provide more detail, stick to documented, verifiable facts. Opinions about character or vague characterizations like “not a team player” are harder to defend than concrete statements tied to specific incidents in the personnel file. Whatever your policy, apply it consistently. Giving positive references for some former employees and “no comment” for others can itself become evidence of discriminatory intent.