How to terminate an employee without risk

Do you know how to terminate an employee properly? No one looks forward to the moment they have to terminate an employee, but for most business owners, firing staff simply comes with the territory. Even in the best of situations, terminating an employee is an awkward, unpleasant experience.

More importantly, firing an employee the wrong way can expose you and your company to a costly wrongful termination lawsuit.

If you need to fire someone on staff, it’s important to make sure you follow the correct legal processes to avoid a potential lawsuit. In this article, we’ll guide you through the proper steps to avoid legal consequences.

How to terminate an employee: Step-by-step process 

Businesses should be careful and intentional with their firing processes. An unfair termination can cause an employee to become disgruntled, which could lead them to file a wrongful termination lawsuit. Let’s take a look at the best way to terminate employees effectively while simultaneously avoiding risk and damaging legal action.

Do your research

All U.S. states except Montana have “at-will employment” laws, which allow employers to terminate employees without explanation or warning unless specific terms were laid out in the hiring contract.

At-will employment goes both ways, meaning that the employee also has the right to terminate the contract without justification.

However, there are exceptions to this law that vary from state to state, and federal law prohibits firing an employee for certain specific reasons (like discrimination or retaliation), so it’s important to do your research before moving forward with a termination.

Understand the exceptions to at-will termination

There are certain exceptions to at-will employment laws that vary depending on which state you’re in. They include:

• Just cause: If you put company guidelines in place or offer assurances to employees that they can only be fired for a “just cause,” this supersedes your right to at-will termination, and you can be sued for violating your own company rules.
• Public policy: In 42 states (plus Washington, D.C.), it’s illegal to fire an employee for behavior that’s protected by public policy or statute, like reporting workplace safety hazards or refusing to participate in criminal activity.
• Covenant of good faith: In most states, companies can be sued for termination “in bad faith” — for example, terminating an employee to avoid paying retirement benefits. The only states that do not have a covenant of good faith exception are Florida, Georgia, Louisiana, Maine, New York, and Rhode Island.
• Implied contract: In some states, an employer’s actions, policies, or statements create an unwritten agreement that limits their ability to terminate an employee without cause. This can arise from things like consistent verbal promises of job security or employee handbooks that outline specific termination procedures. If an employer repeatedly assures an employee that they have job security as long as they meet specific performance metrics, it could be viewed as an “implied contract.”

Have a solid reason for termination

While you may not necessarily need to provide a reason for firing an employee, it’s generally advisable to do so. Having clear and documented grounds for termination will help maintain transparency and professionalism. As mentioned, in most states, there are limitations to at-will terminations, so being transparent throughout the termination process reduces the risk of legal disputes.

Here are some common reasons for terminating employees:

• Ongoing performance issues
• Behavioral issues (harassment, misconduct, insubordination, etc.)
• Attendance issues
• Breach of contract
• Company restructure
• Internal cost-reducing measures

Though at-will employment makes it legal to fire an employee without justification or warning, actually doing so is rarely in alignment with a well-run company’s mission and values.

Good leadership isn’t just an ethical decision — it’s also good business. Treating employees with empathy, even throughout the termination process, will earn respect from your remaining staff as well as your peers in the industry.

It will also prevent the likelihood of a negative reaction, like a lawsuit or even lashing out with violence, from the employee being fired.

Understand federal termination laws

While each state has its own employment and termination laws, there are also federal laws that prevent employers from terminating employees for specific reasons. Even if your state allows at-will employment, it’s important to document everything leading up to an employee’s termination — this can help protect you and your business from accusations of wrongful termination.

Discrimination

Federal law makes it illegal to fire an employee based on things like their race, gender, disability, religion, age, pregnancy status, immigration status, etc. Some states also have additional protected classes, such as sexual orientation and marital status.

Retaliation

It’s also against federal law to fire an employee in retaliation for engaging in any legally protected activity. Examples include:

• Reporting a workplace violation
• Refusing to participate in illegal activity
• Complaining about discrimination or harassment
• Cooperating in an investigation by the Equal Employment Opportunity Commission (EEOC)
• Taking legally protected family leave

Refusal to take a lie detector test

It is illegal for most employers to fire an employee for refusing to take a lie detector test, thanks to the federal Employee Polygraph Protection Act. (In many states, it’s illegal to administer polygraph tests in general.)

Reporting an OSHA violation

The Occupational Safety and Health Act (OSHA) makes it illegal to fire workers for complaining about safety hazards or work conditions that violate state and federal regulations.

For a real-world example, CSX Transportation was ordered to pay two former employees more than $450,000 in 2024 after illegally terminating them when they reported workplace safety concerns. The company was also ordered to rehire the wrongfully terminated employees.

Union activity and labor organization

According to the National Labor Relations Act of 1935, it’s illegal for an employer to terminate or otherwise punish an employee for engaging in protected union activity. It is a violation of federal employment law for an employer to fire or threaten to fire an employee for any activity related to union organization or collective bargaining.

Document early and often

Be sure to start putting things in writing at the first sign of trouble with an employee. The best way to document the process leading up to dismissal is to give the employee in question direct feedback about the issue. Instead of surprising an employee with termination, you should give multiple warnings about behavior or performance issues.

Communicate your expectations and concerns clearly, and state explicitly that failure to correct the issue at hand will result in termination.

Additionally, you should obtain written acknowledgment of these communications from the employee. This creates a clear paper trail that will back up your defense in the event of claims of unfair firing practices. We recommend recording notes from disciplinary meetings, HR interactions, or additional training to establish a timeline of events from the first warning to the ultimate dismissal.

The best-case scenario is that the employee will correct the issue as a result of your feedback, and termination will no longer be on the table. After all, termination is a worst-case scenario, and in most cases, employers would prefer not to dismiss the employee. If the employee doesn’t improve, you’ll have a solid record of evidence you can use in case of a wrongful termination lawsuit.

Break the news in person

Because firing someone is such an uncomfortable experience, it can be tempting to do it over the phone or via email to put some distance between yourself and the employee.

Avoid this temptation. An in-person conversation is more respectful to the employee, and allows you to break the news to the employee more gently, which in turn decreases the likelihood of a negative reaction.

In-person termination meetings will also allow you to answer any questions about the dismissal and reassure the employee that the company still cares about their well-being. 

If it’s not possible to meet in person, try to arrange a web call with video so you can deliver the news face-to-face. As a last resort, a personal phone call is preferable to a dismissal in writing.

Plan ahead

In addition to starting the documentation process well ahead of the termination meeting, you should also plan to ensure you’re ready to facilitate the offboarding process quickly and cleanly to prevent complications and negative reactions.

Here are a few key steps to prepare for a termination meeting:

• Choose a strategic time and location. You need to be able to effectively limit the employee’s interaction with company staff and equipment once they’ve been let go. Many HR professionals choose late Friday afternoons for this reason.
• Disconnect relevant accounts. Shut down the employee’s company email accounts, chat platforms, and access to documents as soon as you let them go, but not before you’ve started your meeting.
• Collect all company property. Make sure you establish clear protocols for returning any equipment that is kept off-site, like company laptops or phones.

If a disgruntled ex-employee still has access to internal systems or company devices, they may pose a cybersecurity risk. You should ensure that ex-employees do not have access to any internal company data or proprietary information after the termination is complete. Disgruntled employees are often the source of data breaches. For example, in 2022, a terminated employee for the IT firm NCS deleted 180 servers, causing nearly $700,000 in damage.

So, even if you don’t have reason to believe the employee is a cybersecurity risk, it is always good to be cautious.

Provide severance when appropriate

Severance pay is not a legal requirement, but it’s good practice to provide severance to employees you terminate, especially if you are letting them go due to issues that are not related to their performance or behavior.

Severance payments often prevent ex-employees from feeling like they have been wronged by the company. Additionally, many severance agreements include clauses that protect the employer from future claims.

Many companies pay severance if they are letting employees go due to a company restructuring, such as a merger. In some cases, severance may even be provided if the termination is due to performance issues — it can be a way for your company to claim some responsibility for making a ”bad” hiring call.

Of course, it isn’t always necessary to pay severance. If you are firing an employee for misconduct, breach of contract, or other serious issues, severance pay is not necessary.

Keep it simple

While you don’t want to rush the termination meeting, you also don’t want to allow it to drag out or become complicated and emotional. Limit your meeting to the following key points:

1. Inform the employee that they are being terminated. Explain that you’re happy to answer any questions the employee may have but that the decision itself is final.
2. State the reason for termination and, if applicable, recap the steps that were taken to attempt to solve the issue before resorting to termination.
3. Outline the terms of the severance package. Include information about opting into COBRA and unemployment insurance, if applicable.
4. Explain what will happen next. Give instructions on how to collect any desk items, return company equipment, and exit the office building.
5. Answer any questions the employee may have.
6. Thank the employee for the time and good work they invested in your company, wish them the best, and end the meeting.

Refrain from engaging in any prolonged argument or debate if the employee becomes agitated. Never discuss potential litigation without a member of your legal department present.

Things to avoid when terminating an employee

One simple misstep in the firing process can lead to a wrongful termination lawsuit, so it’s advisable to be cautious and prepared when terminating an employee. Here are some common mistakes employers make when firing a staff member.

Leaving things open

When terminating an employee, you should avoid any ambiguity or unclear language. Make sure that the employee understands that the decision is final, as a lack of clarity can leave room for misinterpretation, which may lead to future disputes. Provide clear steps for finalizing the process, explaining final pay, severance package (if any), and any final responsibilities.

Having inconsistent or ambiguous expectations

Most founders and CEOs pride themselves on establishing a company culture where employees are respectful and respected, and one of the best ways to do this is to ensure all communication is transparent.

Employees thrive when they know what’s expected of them, and unclear expectations can lead to confusion, frustration, and, ultimately, performance issues. It’s important to ensure that all employees are clear on their responsibilities and understand what is expected of them in their roles. If expectations aren’t met, a consistent performance improvement plan can show that you’ve given the employee a fair chance. Failure to set clear performance expectations can cause you to lose trust with your employees and damage your company’s reputation.

Terminating without a prior performance review

Conducting a performance review before firing an employee isn’t a legal responsibility, but it’s a good practice to avoid backlash. A performance review allows you to discuss your concerns with the employee’s work and provide feedback on improvements that could be made. The employee then has a chance to improve their performance and address weaknesses. Firing an employee without a prior performance review can come across as unfair and may open the door to litigation or other issues.

Not investing in employment practices liability insurance

Committing to fair firing practices is your best way to avoid employment lawsuits. However, no matter how careful you are, there is always a chance that a frustrated ex-employee could file an employment claim against your company. That’s why it’s important to pair best practices with comprehensive EPLI coverage.

Employment practices liability insurance (EPLI) protects your company from all employment-related claims, including wrongful termination. You can think of EPLI as protection from the worst-case scenario — if your organization is found responsible for wrongful termination, an EPLI policy will cover any resulting legal fees, settlements, and judgments.

Not having a witness present

Terminating an employee without a witness can create a “he said, she said” scenario, which may escalate into legal challenges or workplace rumors. This is why we recommend having a neutral third party present during the process, such as an HR representative. Doing so creates accountability and allows you to accurately record what was said during the meeting.  

Termination without the risk

It is important to tread carefully when firing employees, as improper termination procedures can lead to major issues for your company. Following these steps to firing an employee properly can go a long way toward preventing wrongful termination lawsuits. But, no matter how well you prepare, there are no guarantees.

Should you find yourself facing steep legal costs or settlement fees, wrongful termination insurance can help cover those expenses and keep your company safe.

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