Legal Checklist for Termination of Employment: Ensuring Compliance

By Cam Velasco

CEO & Co-Founder
Published: Feb 23, 2024
Employers likely agree that properly terminating an employee is critically important, yet complex and risky. This checklist will provide a clear, legally-compliant framework for employee terminations to prevent lawsuits and reputation damage.
A printed checklist with several items checked off, resting on a wooden surface, with a white marker pen lying on top of it.

Employers likely agree that properly terminating an employee is critically important, yet complex and risky.

This checklist will provide a clear, legally-compliant framework for employee terminations to prevent lawsuits and reputation damage.

You’ll get step-by-step guidance on termination compliance, documentation, protected classes, severance, unemployment benefits, references, and more to ensure a smooth transition for all.

Introduction

When an employer needs to terminate an employee’s employment, following proper legal protocols is crucial. Terminating employment can open companies up to potential lawsuits if not handled carefully. This checklist overviews key considerations when ending the employee-employer relationship to minimize legal risks.

Definitions

  • Termination: The end of an employee’s job. This can occur due to either the employer or employee initiating separation.
  • Severance: Optional compensation employers may offer to ease the employee’s transition. Common severance components include salary continuation, health insurance contributions, career coaching, and more.
  • At-will employment: A legal doctrine allowing employers to dismiss employees without cause or advanced warning. However, terminations cannot violate anti-discrimination laws or contractual agreements.

Common Reasons for Termination

  • Performance issues: Consistent underperformance, failure to meet goals, declining work quality.
  • Restructuring: Eliminating roles due to broader company changes like downsizing departments or closing locations.
  • Policy violations: Breaches of company policies around issues like harassment, confidentiality, substance abuse.

Close-up view of a clipboard with a checklist, showing items marked as complete with a black pen resting on the side.

What should be included in a termination checklist?

When terminating an employee, it is important to have a checklist to ensure proper compliance and avoid potential legal issues. Here are some key items to include:

Final Pay and Benefits

  • Calculate final wages owed and confirm benefit end dates
  • Distribute final paycheck in a timely manner per state laws
  • Have employee sign receipt of final pay paperwork

Company Property Retrieval

  • Collect keys, ID badges, laptops, cell phones, etc.
  • Document items returned and note any missing equipment

Record Updates

  • Disable network, system, and building access
  • Update employee records and directories (email, payroll, etc.)
  • Notify relevant teams like IT, HR, payroll

Compliance Paperwork

  • Have employee sign acknowledgement of voluntary resignation
  • Conduct exit interview to gather feedback
  • Provide info related to benefits continuation (COBRA)

Following a structured offboarding process ensures departing staff transitions smoothly while protecting the company. Being prepared with a termination checklist helps make separations amicable.

What paperwork is needed when terminating an employee?

When terminating an employee, there are a few key documents that need to be prepared and provided to ensure compliance:

Checklist

  • [ ] Termination Letter: This formal letter states that the employee’s employment has been terminated effective immediately or on a specified date. It should clearly state the reason for termination.
  • [ ] Severance Agreement (if applicable): For eligible employees, a severance agreement should be drafted outlining the severance package details and conditions. This needs to be signed by the employee.
  • [ ] WARN Notice (if applicable): For layoffs involving a certain number of employees, you may need to provide advanced notice under the federal WARN Act or state mini-WARN Acts.

Streamlining the Process

Having templated versions of these documents ready makes the termination process much more efficient. You can customize with employee specifics when needed.

Be sure to consult legal counsel to ensure you have the proper paperwork in order. Proper documentation can help avoid potential litigation issues down the road.

What is always required when an employer terminates an employee?

When terminating an employee, there are a few key requirements employers should follow to ensure compliance:

Provide Advanced Notice

  • If the termination is not “for cause”, provide employees with advanced written notice of the termination date based on tenure:
    • Less than 6 months – No notice required
    • 6 months to 2 years – 1 week notice
    • Over 2 years – 2 weeks notice

Pay Out Accrued PTO

  • Pay out any accrued but unused PTO per state law requirements

Continue Health Insurance

  • If employees have company health insurance, continue coverage per COBRA guidelines

Final Paycheck

  • Provide employees with their final paycheck on the last day of work per state payday laws

Following these termination requirements helps protect employers from potential litigation while treating separated employees ethically and legally. It’s always advisable to consult an employment lawyer when developing termination procedures.

What is termination compliance?

Proper termination compliance involves following legal protocols when ending an employee’s contract. This protects the rights of both parties and reduces legal risks for the employer.

Key elements of termination compliance include:

  • Providing appropriate notice periods based on contract terms and local regulations
  • Continuing compensation and benefits during the notice period
  • Settling any outstanding payments owed to the employee
  • Returning company property and securing proprietary information
  • Documenting reasons for termination
  • Ensuring non-discriminatory practices are followed

By carefully executing a compliant termination process, employers can avoid potential lawsuits while maintaining positive relations with former employees. This involves understanding all legal obligations as well as communicating respectfully and transparently.

With the proper framework in place, organizations can ensure fair, ethical and low-risk employee departures. Consulting with HR and legal counsel is highly recommended when developing termination compliance procedures.

Core Legal Considerations

When terminating an employee, it is critical for companies to ensure full legal compliance. This involves carefully reviewing employment contracts, avoiding discrimination, and properly handling severance and benefits.

Employment Contracts

  • Review all signed employment agreements to identify notice periods, restrictive covenants, termination clauses, and other binding conditions.
  • Send formal written notice of termination to the employee in accordance with contractual notice provisions.
  • Document communications and termination processes to demonstrate contractual compliance.

Protected Classes

  • Avoid terminating employees based on protected characteristics like race, gender, religion, etc. as defined by labor laws. Discrimination can lead to lawsuits.
  • Consult legal counsel if an employee alleges wrongful termination due to discrimination. Proper documentation is key.

Severance and Benefits

  • Provide severance packages and payments if contractually obligated or in accordance with company policy.
  • Clearly communicate details on benefit eligibility, COBRA health insurance options post-employment, 401k plans, etc.
  • Ensure timely, accurate payment of all owed compensation up to termination date.

Following proper termination protocols minimizes legal risks and provides fairness to departing employees. Companies should involve HR and legal teams to guarantee full compliance.

Person at a desk holding a coffee cup in one hand and operating a mouse with the other, with a laptop screen displaying a presentation slide titled 'BEST PRACTICE' featuring various business icons.

Termination Process Best Practices

Communication

Clear, compassionate communication is essential when terminating employment. Schedule an in-person meeting to notify the employee. Explain the reasons for termination while expressing care and concern for their situation. Provide details on severance, benefits continuation, and transition assistance. Ask if they have any questions and do your best to answer transparently. Though difficult, thoughtful termination conversations lay the groundwork for maintaining dignity and goodwill.

Documentation

Properly documenting performance issues and termination details is vital. Keep records of disciplinary meetings, improvement plans created, warnings issued, and relevant communications. Outline termination reasons and date in a letter given to the employee. Later, submit paperwork on their last day, final pay, severance, benefits, COBRA, and unemployment eligibility per legal protocols. Thorough documentation protects the interests of both employer and employee while ensuring compliance.

Transition Assistance

Support transitioning employees by detailing available career services, references, training opportunities, and outplacement assistance. Provide ample time to ask questions about transitions. Connect employees with HR regarding logistics like benefits, 401K rollovers, and contacting former colleagues. Offer recommendations and introductions to your network if agreed upon. Respectful, personalized transition assistance enables employees to smoothly move forward.

Managing Potential Issues

Managing employee terminations can be complex, but being proactive and thoughtful can help prevent issues down the line.

Preventing Lawsuits

To reduce the risk of wrongful termination lawsuits:

  • Document performance issues thoroughly and objectively over time. This creates a paper trail showing valid business reasons for termination.
  • Consult HR and legal counsel when considering termination, to ensure compliance with regulations.
  • Communicate respectfully when informing the employee of termination, avoiding inflammatory language. Provide the reason and date of termination in writing.
  • Offer a severance package contingent upon signing a release of claims. This helps prevent litigation.

Unemployment Benefits

Terminated employees may be eligible for unemployment benefits, which are determined on a case-by-case basis.

To contest an approved claim:

  • File an appeal within 10 days of the eligibility notice, including documentation refuting the claim.
  • Prepare documentation showing misconduct or voluntary resignation. Attend hearings to present your case.

Appeals do not guarantee a reversal but allow you to share your side.

References and Reputation

Avoid making negative statements about past employees. Simply confirm dates employed and job title.

Protect your reputation by:

  • Handling terminations privately to maintain company morale.
  • Ensuring compliance with regulations throughout the process.
  • Communicating respectfully and providing references neutrally.

Following best practices preserves company culture and deters negative publicity.

Conclusion

As this article has shown, terminating an employee’s contract is a complex process that requires careful attention to legal compliance. By following the checklist outlined here and working closely with your legal counsel, you can ensure your company avoids potential litigation and protects the rights of the employee.

Key takeaways to keep in mind:

  • Document performance issues thoroughly before deciding to terminate
  • Consult an employment lawyer to review termination policies
  • Notify the employee of termination in a clear, compassionate way
  • Offer a severance package when possible
  • Be cautious of discrimination claims – focus on performance factors only

Terminating an employee is never easy, but it is a reality most companies face at some point. With thoughtful preparation guided by legal advice, the process can be handled smoothly while minimizing legal risks. Protecting both the company and the employee should be the top priority.

Cam Velasco

CEO & Co-Founder

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