10 Myths About Employee Terminations … Busted

The end of the employer-employee relationship is an inevitable part of running a business and requires special care. To help you manage your next employee separation, we address some common misconceptions about the termination process below.

Myth #1: At-will employment means you can fire an employee for any reason.

Fact: The reason must be a lawful one. For example, various federal, state and local laws prohibit employers from retaliating against individuals for exercising their rights under the law, such as the right to job-protected leave. Employees are also protected from discrimination based on protected characteristics, such as age, race, religion, disability, gender, national origin and military status. 

If you terminate an employee for engaging in protected activity or because of a protected characteristic, you may be subject to a claim or lawsuit, regardless of the employee's at-will status. There are also other exceptions to at-will employment created by contract, statute, the courts or public policy.

Myth #2: At-will employment is recognized in every state.

Fact: At-will employment isn’t recognized in Montana. In Montana, employers must have "good cause" to discharge an employee after the employee completes an initial probationary period. If an employer doesn't establish a specific probationary period or provides that there is no probationary period prior to or at the time of hire, the probationary period is assumed to be 12 months from the date of hire, which can be extended to up to an additional six months by the employer. The law also has rules for notifying a discharged employee of any written internal procedures under which an employee may file an appeal with the employer about a discharge.

The state defines good cause as reasonable job-related grounds for an employee's dismissal based on:

•  The employee's failure to satisfactorily perform job duties;
•  The employee's disruption of the employer's operation;
• The employee's material or repeated violation of an express provision of the employer's written policies; or
• Other legitimate business reasons determined by the employer while exercising the employer's reasonable business judgment.

Myth #3: Regardless of the state, a departing employee’s final pay is due the next regular payday.

Fact: Under federal law, final pay is generally due by the next regular payday, but many states require final pay sooner. In some cases, this time frame differs depending on whether the employee initiates separation (voluntary termination) or the employer initiates separation (involuntary termination). Here is an example:

Myth #4: A departing employee’s final pay should always be mailed to them.

Fact: Many states have rules about the location and method for final pay. Check your state law for details.

For example, in California, the employee must receive their final pay at the place of discharge in the case of an involuntary termination. When an employee resigns or retires, California requires that employees receive their final pay at the office of the employer in the county they had been performing labor. Employees who quit or retire without providing a 72–hour notice are entitled to receive payment by mail if they request and designate a mailing address. The date of the mailing constitutes the date of payment for purposes of the requirement to provide payment within 72 hours of the notice of resignation/retiring. 

In California, for both voluntary and involuntary terminations, an employee who has authorized final pay by direct deposit may receive final wages in this manner provided the other final pay requirements are met. 

Myth #5: When an employee fails to return company equipment, you can withhold their final pay.

Fact: Regardless of whether the employee has failed to return company property, you must meet federal and state final pay deadlines. 

Deductions: While withholding an employee's final paycheck is not allowed, there are some cases in which deductions may be permitted under federal law. For nonexempt employees (employees who are entitled to minimum wage and overtime), the Fair Labor Standards Act (FLSA) permits deductions for unreturned equipment as long as it does not reduce the employee's pay below the minimum wage and does not cut into any overtime pay. Some states prohibit this practice or have additional requirements, so check your state law before making a deduction. Deductions for unreturned equipment are never permitted for employees classified as exempt from overtime.

Myth #6: Employees aren't entitled to pay for unused vacation when they leave the company.

Fact: Whether the employee’s final paycheck must include pay for earned but unused vacation time depends on the state and company policy. States generally handle unused vacation and paid time off in one of three ways:

• Employers must pay employees for unused vacation time at the time of separation;
• Employers can exclude unused vacation time from final pay if they have a written policy that explicitly states employees will not be paid for any accrued, unused time upon separation; or
• Employers can exclude unused vacation from final pay, unless they have a policy that says otherwise.

Check your state law to determine which one applies to you.

Myth #7: If an employee tells you they quit, there is no reason to get their written resignation.

Fact: It is a best practice to obtain the employee's resignation in writing (in a hard copy or electronic format), even if they already notified you verbally of their resignation. You may need this documentation if the employee ever challenges the reason for their departure (for example, if the employee subsequently seeks unemployment benefits or files a complaint).

If an employee informs you that they are resigning:

• Ask them to provide a signed resignation letter with an effective date to document that they are leaving voluntarily.
• Send a written response to the employee, accepting their resignation, confirming their last day, addressing final pay, and thanking them for their service to your organization. Make sure you sign and date it.
• Keep the resignation letter and a copy of the resignation confirmation letter in the employee's personnel file.

If you can't obtain a resignation letter, document the date and the reasons for the separation and keep that record in the employee's personnel file.

Myth #8: Employees who quit are never entitled to unemployment benefits.

Fact: While most employees who quit aren't eligible for unemployment benefits, the fact that an employee quits doesn't always disqualify them. To receive benefits, employees who resign must generally show that they quit for "good cause" (typically attributable to the employer). While "good cause" varies by state, employees who quit as a result of retaliation, to care for a sick family member, or a significant reduction in hours/pay may be eligible for unemployment benefits. Eligibility rules vary greatly, so check your state law for details.

Myth #9: Once an employee leaves, the company no longer needs to keep their records.

Fact: Federal, state and local recordkeeping rules require employers to keep certain records for a set duration. Rules vary by jurisdiction and some require employers to retain certain records well beyond the employee's length of employment.

For example, employers must keep I-9 forms for at least three years from the employee's date of hire or for one year following termination, whichever is later. Additionally, under certain federal nondiscrimination laws, employers must keep personnel records for at least one year from the date of an involuntary termination. If an employee files a discrimination claim, employers must keep these records until the claim is resolved. Check federal, state and local laws for more information on your specific recordkeeping requirements.

Myth #10: Exit interviews are a waste of time.

Fact: Turnover can be costly, and exit interviews are one way to find out why employees are leaving so you can, if possible, make changes to help prevent other employees from departing for the same reasons. Conducting exit interviews also creates an opportunity to transfer knowledge and experience from the departing employee to a successor or replacement.

Try to conduct exit interviews with each employee who leaves the company voluntarily (those who resign or retire). Use the same core set of questions, so you can identify trends and develop plans for improvement.

Conclusion

Treat employee terminations carefully, follow a consistent process, seek counsel where necessary, and develop policies, procedures and training to ensure compliance with all applicable requirements.