Employee Termination Policy and Compliance Explained

Gabrielle Sinacola | Jun 26, 2024

Employee Termination Policy and Compliance Explained

Employee termination can be a difficult situation. It’s never good to lose your job, and it’s never good to be in the position to tell someone else that they’ve been terminated. However, termination policies can help protect both the employer and the employee from legal or civil issues that can arise from termination.

Employers must comply with state and federal termination laws. Here’s how Mosey’s business compliance platform can help your business remain compliant with these requirements.

What Is an Employee Termination Policy?

Most companies have a clearly defined policy for what to do when they hire or fire an employee. An employee termination policy protects both the employer and the employee from claims of unfair workplace treatment or unlawful termination.

Most employers have the ability to terminate employees whenever they see fit, but doing so may give the appearance of impropriety. Your policy should outline when and why an employee can be terminated, as well as what should happen upon termination.

Your termination policy should reflect both state and federal laws. Firing decisions cannot be made based on someone’s status as a protected class or disabled individual. Employees cannot be fired as retaliation for whistleblowing, utilizing health insurance, or receiving Workers’ Compensation benefits.

Your termination policy should also explain when and how employees can expect to receive their final paycheck. Your company’s policy needs to be aligned with your state’s final paycheck laws. You can award final paychecks sooner than your state requires, but never later.

How To Create an Employee Termination Policy

Your written employee termination policy needs to coexist with other important guides like your job descriptions and code of conduct. To contextualize your termination policy, your employees need access to a clear explanation of all expectations. These documents work together to explain the progression and trajectory of employees within the company, including the circumstances that can lead to termination.

Think of your employee termination policy as a clear outline of before, during, and after someone’s employment with your company. If every step is clearly defined, it’s easier for everyone involved to understand and follow protocol.

Create a List of Duties for Each Role

Duty lists are helpful for every employee, including those who want to show up and deliver their best work. They can also create a system of accountability for employees who fail to meet their duties.

A thorough job description, including a list of responsibilities and duties for each role, will clearly establish your expectations of your employees. Thorough role descriptions reduce the potential for misunderstandings about the job’s expectations.

Write an Employee Code of Conduct

Many companies use a code of conduct and a dress code to enforce professional behavior in the workplace. Your code of conduct may include a tardiness policy or policies regarding how employees are allowed to use social media as it relates to the company.

Codes of conduct can prevent misunderstandings and protect a company’s reputation. They also give a company a basis to reprimand an employee for harming customer or client relationships, other members of your organization, or your brand’s image.

Detail Clear Reasons for Termination

As an at-will employer, you don’t necessarily require clear reasons for terminating an employee. It still helps to have possible termination causes outlined in your policy. Describing reasons for termination can prevent your employees from claiming they were unjustly terminated.

You should also include information about what at-will termination means. By making it clear that you reserve your right to terminate employees however and whenever you see fit, you’re covering your bases in the event that an employee challenges your termination decision.

Describe Disciplinary Action

Firing an employee out of the blue is more likely to result in an employee feeling the need to challenge their decision.

If you describe a process of disciplinary action or employee probation where issues can be addressed prior to termination, employees will always be forewarned. Utilizing disciplinary action or intervention prior to terminating an employee removes the element of being blindsided by a termination.

Information About Last Paycheck Laws

Each state has laws describing when employees can expect their last paycheck. States impose penalties on employers who don’t deliver final paychecks within the period of time described by the law. Your termination policy should inform employees of final paycheck laws, explaining how and when they can expect their last check.

Determine How to Handle Unused Paid Time Off

States have their own laws regarding how employees should handle unused paid time off for their employees. Non-exempt employees can acquire PTO they haven’t yet used at the time they’re fired or leave the company. Some states have laws mandating that employers compensate employees for unused PTO.

In states that don’t require PTO payout, some companies choose to voluntarily compensate employees for PTO. If you aren’t mandated to pay out, consider how your company should handle the matter and write it into your policy.

Explain How To Return Company Property

If your employee uses a company vehicle or company technology, like a phone or a laptop, explain how and when they should return any property that belongs to the company.

Note that if an employee fails to return company property, you’re usually legally allowed to pursue them for the monetary value of the property.

Decide on an Exit Interview Process

You don’t need to conduct an exit interview if you don’t want to, but many HR departments find the information obtained from exit interviews helpful. Assessing miscommunications, unclear policies, or misaligned expectations can improve employee-employer relationships moving forward.

Where To Explain an Employee Termination Policy

Most employers thoroughly outline their employee termination policy in their employee handbook. They may also post information about it in their HR department or explain it when they extend an offer of employment to a candidate. If you have online resources for your employees, you can outline your termination policy on your employees-only website.

The most important thing is that every employee has equal access to your termination policy at all times. It’s never a wise idea to put yourself in a situation where your employee feels blindsided by disciplinary action or a discussion about the possibility of termination.

What To Do Before You Terminate an Employee

Employees may be able to pursue legal action against you if they feel they’ve been unfairly terminated. A lawsuit can be expensive and time-consuming even if the concerns are deemed unfounded.

Utilizing an HR policy that provides a clear path between intervention and termination can document the process of an employee’s termination and serve as proof that an employee was terminated for a valid reason.

Intervene With the Employee

Before deciding to terminate the employee, discuss your concerns with the employee in question. Have a sit-down where you explain the issue and put the employee on notice that the situation needs to change if their employment with your company is going to continue. Take notes and document this meeting, noting the date of the conversation.

Set Goals for the Employee

The easiest way to determine if the employee is making an active effort to rectify the issue is to set achievable goals. Let the employee know what you expect them to do and when you expect them to do it.

For example, an employee who routinely returns 15 minutes late from lunch can have a goal to check in with HR when they clock back in. An employee who doesn’t answer the phone can have a goal of taking notes on every call they receive.

Measure the Employee’s Progress or Performance

Review the employee’s progress towards achieving their goals after a few weeks. If improvement is consistent and significant, there may be no need to terminate the employee. The employee may have just needed additional assistance, new methods, or a reminder to help them form better habits.

Document the Process and Follow Up

Create a summary of events from the initial intervention through the employee’s performance measurement. If the employee held up their end of the deal, let them know. If they didn’t, you’ll have thorough documentation of why and how you decided to terminate the employee.

What About Terminating an Employee When You Have an Existing Employment Contract?

If you have an existing employment contract with an employee, their termination process should be handled exactly as specified in their employment contract. You’re responsible for meeting your termination responsibilities in a timely manner. The terminated employee must be awarded final wages or severance without the period of time previously agreed upon within the employment contract.

Some employment contracts are indefinite, while others specify an employment period, usually one to five years. If the employment contract is approaching the end of its validity period, you may not have to fire the employee. You can simply decline to extend their employment through another contract.

If you terminate them in conflict with their employment contract, you may be subject to consequences like a larger severance package paid to an employee. Terminated employees may also have the right to sue you for breaching their employment contract if you don’t handle the termination process exactly as it was outlined in the contract.

What Should You Know About Terminating an At-Will Employee?

Every state in the United States, with the exception of Montana, utilizes at-will employment. At-will employment means an employer has the right to terminate an employee at any time for any reason as long as that reason isn’t discriminatory or retaliatory.

Things like downsizing, right-sizing, poor performance, elimination of a position, policy violation, and conduct issues are acceptable reasons for at-will termination. You’re able to terminate at-will employees for valid reasons at any time. You only need to comply with your state’s final paycheck and termination laws.

Complying With Your State’s Employee Termination Policy Laws

Every state does things a little differently. When you make the decision to terminate an employee, you need to be sure you’re following your state’s laws for termination protocol. If you don’t comply or if you utilize a murky termination process, you could be opening yourself up to fines or even legal action on the part of an employee.

Mosey’s compliance automation tools are designed to help you keep track of your state’s business compliance protocols, including what to do when you terminate an employee. Let us help you streamline your termination process. Schedule a demo with Mosey to learn how we can assist you with compliance.

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