Key Takeaways
- At-will employment is the norm in the United States, allowing employers in most states to terminate employees at any time, for any lawful reason, without advance notice.
- Federal and state anti-discrimination laws, employment contracts, and public policy protections limit when and why employers can terminate employees.
- Employers must pay employees their final paychecks after termination, but severance pay is only required in certain circumstances.
Compared to many other countries, the United States has relatively flexible employee termination laws. In most states, employers can terminate employees without giving advance notice or establishing just cause.
But that doesn't mean employers can fire employees for any reason. Federal and state laws still protect employees from discrimination, retaliation, and other unlawful termination practices. Employers must also follow laws governing final paychecks, layoffs, and other termination requirements.
How Does At-Will Employment Work in the United States?
Most U.S. states follow a system known as at-will employment. This means employers can terminate employees at any time, with or without giving a reason, as long as the termination is lawful.
The one exception is Montana. Under the state's Wrongful Discharge From Employment Act, employers generally need a legitimate reason to terminate employees once they've completed their probationary period, such as poor performance, misconduct, or other work-related issues.
Even in at-will states, though, limits still apply to when and why an employer can terminate someone.
Federal and State Anti-Discrimination Laws
Several federal anti-discrimination laws, enforced by the U.S. Equal Employment Opportunity Commission (EEOC), protect employees from being fired for discriminatory reasons. The rules vary depending on the size of the employer:
- Employers with 15 or more employees can't terminate someone because of their race, color, religion, national origin, sex (including sexual orientation, gender identity, and pregnancy), disability, or genetic information.
- Employers with 20 or more employees are also prohibited from terminating employees because of their age if they're 40 or older.
- Retaliation is prohibited when employees report discrimination, file a discrimination charge, or participate in an investigation or lawsuit involving employment discrimination. The applicable employer-size thresholds depend on the law involved.
Many states also have their own anti-discrimination laws that protect employees from additional types of discrimination or apply to companies with fewer employees than federal law requires.
In California, for example, employers with five or more employees can't terminate someone based on characteristics such as marital status, medical condition, military or veteran status, or reproductive health decisions, in addition to other protected characteristics.
Other states extend anti-discrimination protections to smaller employers. In Minnesota, the Minnesota Human Rights Act applies to employers with as few as one employee.
Employment Contracts and Collective Bargaining Agreements
Some employment contracts and collective bargaining agreements limit at-will employment by requiring employers to have just cause for termination, such as misconduct or poor performance.
Employment contracts and collective bargaining agreements can also require employers to follow specific procedures before terminating someone, such as issuing written warnings or providing employees with an opportunity to improve their performance through a performance improvement plan (PIP).
Public Policy Protections
Most states also protect employees from being fired for exercising certain legal rights or refusing to participate in unlawful activities. Depending on the state and applicable laws, these protections can cover employees who:
- Report illegal, unsafe, or fraudulent workplace practices to the appropriate authorities.
- Refuse to follow an employer's instructions to break the law.
- Take legally protected time off for voting, jury duty, military service, or other qualifying leave.
- File a workers' compensation claim after a workplace injury.
What Are the Legal Grounds for Employee Termination in the United States?
Under at-will employment, employers don't need to establish just cause to terminate an employee. However, having a legitimate, documented reason for termination can help protect employers if the decision is challenged.
Termination for Performance or Misconduct
Employers can terminate employees for reasons such as:
- Poor job performance
- Repeated violations of company policies
- Attendance issues
- Workplace misconduct
Federal law generally doesn't require employers to issue formal warnings or take disciplinary action before terminating an employee. However, documenting performance problems and policy violations helps establish a clear record of the reasons behind the decision. Employers should also follow any disciplinary procedures required by applicable laws, employment agreements, or company policies.
Termination Due to Layoffs or Restructuring
Employers can also terminate employees for legitimate business reasons unrelated to their performance or conduct. These include company restructuring, downsizing, declining revenue, or other economic pressures that require eliminating positions.
How Much Notice Is Required When Terminating an Employee in the United States?
In most cases, employers aren't required to give advance notice before terminating an at-will employee in the U.S. However, notice may be required under an employment contract or during large-scale layoffs.
Under the Worker Adjustment and Retraining Notification Act (WARN), employers with 100 or more employees generally must provide at least 60 days' written notice before certain plant closures or mass layoffs. The law applies when specific employee thresholds are met.
Some states also have their own WARN laws with stricter requirements. For example, Maine requires 90 days' notice and severance pay for certain covered closures and relocations.
What Final Payments and Benefits Are Required When Terminating an Employee in the United States?
Employees are entitled to any outstanding wages regardless of why their employment ends. However, the deadline for issuing their last paycheck depends on the state. Some states require employers to pay terminated employees immediately, while others allow payment on the next regular payday or within a specified period.
Unused Vacation and Paid Time Off (PTO)
Federal law doesn't require employers to pay terminated employees for unused vacation or PTO, but state laws and employer policies can require it. Colorado and Massachusetts, for example, require employers to pay out earned vacation time and don't allow "use it or lose it" policies that forfeit earned vacation. In Indiana, accrued vacation is generally payable upon termination unless an employer's policy or employment contract establishes conditions that limit payout.
Outstanding Commissions and Bonuses
Employers must pay any commissions or bonuses an employee has already earned before leaving the company. However, whether an employee is entitled to these payments depends on state law and the conditions outlined in their commission or bonus plan.
Employer-Sponsored Health Insurance
When employment ends, employer-sponsored health coverage typically ceases either on the termination date or at the end of the month, depending on the plan.
Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), workers at companies with 20 or more employees can generally continue their employer-sponsored health insurance for up to 18 months after termination, provided they pay the required premiums.
Employees have at least 60 days to opt into COBRA coverage. That period begins when their health insurance ends or when they receive their COBRA election notice, whichever happens later. Employees fired for gross misconduct aren't eligible for COBRA coverage following their termination.
Is Severance Pay Required in the United States?
Federal law doesn't generally require employers to provide severance pay when terminating an employee. However, an employment contract, collective bargaining agreement, company policy, or state law may require severance. For example, New Jersey requires covered employers to provide one week of severance pay for each year of service during certain mass layoffs.
Many employers choose to provide severance pay, particularly during layoffs. To receive the payment, employees often must sign severance agreements that waive certain legal claims against their former employer. However, employees retain the right to file discrimination charges with the EEOC or participate in EEOC investigations.
Severance agreements must also comply with federal and state laws. Under the Older Workers Benefit Protection Act (OWBPA), agreements that waive age discrimination claims must provide specific review and revocation periods for employees aged 40 and older. California also prohibits severance agreements from restricting employees' ability to disclose information about unlawful workplace conduct, including harassment and discrimination.
How Should Employers Handle the Employee Termination Process?
When terminating an employee in the U.S., employers should take the following steps to help ensure compliance with applicable employment laws.
Review Employment Agreements, Policies, and Laws
Check the employment agreement, company policies, and applicable federal and state laws to understand the employer's obligations. State requirements are especially important for companies with employees in multiple states.
Confirm and Document the Reason for Termination
Make sure the termination reason is lawful and gather supporting records, such as performance reviews, disciplinary notices, or documentation of a business-related layoff.
Check Notice and Procedural Requirements
Determine whether applicable laws, employment agreements, or company policies require advance notice or other steps before termination.
Calculate Final Payments
Confirm the employee's outstanding wages, accrued PTO, and any applicable severance, along with the deadlines for making those payments.
Prepare Documentation and Coordinate Offboarding
Arrange the termination meeting, prepare any required documentation, and coordinate with HR and payroll to handle final payments, benefits, and offboarding.
What Happens if an Employee Challenges Their Termination?
Employees who believe they were wrongfully terminated can challenge the decision by filing a complaint with the appropriate government agency or pursuing legal action. Where they file depends on the nature of the claim:
- Discrimination or harassment: Employees can file a complaint with the Equal Employment Opportunity Commission (EEOC) or their state's civil rights agency. These agencies also handle retaliation claims related to discrimination.
- Wage or leave violations: Employees can file complaints with the U.S. Department of Labor's Wage and Hour Division or the appropriate state labor agency, depending on the violation.
- Workplace health and safety retaliation: Employees can report qualifying retaliation to the Occupational Safety and Health Administration (OSHA).
- Other wrongful termination claims: Depending on the circumstances, employees can pursue claims through a state agency or the courts, including claims involving employment contracts or public policy violations.
If an employee's claim is successful, the employer could be required to reinstate the employee, pay lost wages or damages, or cover certain legal fees.
Simplify U.S. Employment Compliance With RemoFirst
Employing people in the U.S. comes with its share of compliance challenges. Federal employment laws are only part of the picture. Companies also need to keep up with state-specific rules around final paychecks, unused vacation time, and employee benefits.
With RemoFirst, companies can employ workers across the U.S. while relying on us to manage all the HR details, including employment contracts, payroll, benefits administration, compliance with federal and state employment laws, and, when necessary, employee terminations.
Ready to make hiring employees in the U.S. easier? Book a demo to see how RemoFirst can help.
