When starting a business, termination lawsuits are not the first thing on a business owner’s mind. Termination of employment does not seem like such a big deal and nobody has the intention of doing it illegally. However, a suit is ultimately determined not by a company’s intentions but by a company’s actions. And those actions can be broadly interpreted in the courtroom. 

 Terminations, if handled poorly, can create a serious risk of liability for a company. In addition, being involved in legal proceedings, such as wrongful termination suits, poses a costly problem. It can destroy a company’s reputation and affect trust and collaboration inside the company. Business owners cannot stop an outgoing employee from filing a lawsuit, but they can take certain steps to prevent former staff members from having a cause of action against them in a wrongful termination lawsuit and even prevent filing such a lawsuit.

What is Wrongful Termination?

A wrongful termination claim is filed by an employee who feels that they have been terminated for inappropriate or illegal reasons with the violation of a specific law, public policy, or the terms of an employment contract.

What is considered to be wrongful termination is regulated mainly by state laws and may vary from state to state, with some states not recognizing a separate legal claim for wrongful termination at all.

How to Avoid Wrongful Termination Suits? 

Each state’s department of labor maintains a website of state-specific resources to ensure compliance with complex federal and state labor laws and regulations. You can also take a look at an online Employment Law Guide that describes major federal laws on the U.S. Department of Labor website.

Wrongful termination claims can arise on the basis of:

Violation of federal and state anti-discrimination laws

Federal law prohibits employers from terminating an employee for discriminatory reasons that are unrelated to the worker’s job performance, such as on the basis of race, gender, color, sex, age, religion, national origin, disability, pregnancy, or other legally protected categories.

Most states have their own enforcement mechanisms for discrimination cases and are therefore not brought as wrongful termination cases.  Before the employee can sue in court for discrimination, they have to file a complaint of discrimination with a state or a federal agency.

Violation of a written or oral employment agreement 

A termination may be wrongful if it violates an employment contract. Employment contracts can lock the business into a fixed relationship with an employee and can be difficult to resolve. A contract may be written or oral, and express or implied. Such contracts constitute a basis for employees to sue for a breach.

Although your business may not have employment contracts, some information put in writing may qualify as a contract. A written contract or promise of job security may be considered legally binding. A written contract with the terms outlining the methods of termination can also be enforceable. If the company makes its employees sign off on an employee handbook or any similar document, HR has to make sure that the document states that the document offers guidelines, not a contract.

Businesses should be careful to not imply in any way – in writing or verbally- that the employment is permanent, protected, or guaranteed. Even though verbal promises or gestures made by an employer are hard to prove, courts have inferred implied contracts where employers promised permanent employment, or where employers set forth specific forms of progressive discipline in an employee manual.

However, avoiding contracts with employees will not protect a business from a potential wrongful termination suit, as most employment in the private sector is at-will. That means that either businesses or employees can end the employment at any time for any reason and without the need for prior notice. Wrongful termination is a very limited exception to at-will employment.



Violation of labor laws

Wrongful termination claims can arise on the basis of non -payment of a minimum wage, overtime, or business expenses, as well as failure to provide rest periods or itemized wage statements. Any major violation of labor laws can make a wrongful termination suit all that scarier. 

Violation of the public policy 

Firing an employee for reasons recognized by society as illegitimate grounds for termination, like firing for taking time off work to vote or serve on a jury, serving in the military or National Guard, or even whistleblowing is considered a violation of public policy.

Some states add protection for employees from being fired for services such as an election officer or volunteer firefighter. Case law also points out that you cannot fire an employee for taking advantage of a legal remedy or exercising a legal right such as filing a worker’s compensation claim.

Firing in retaliation to an employee’s complaint or claim against their employer 

Employers are forbidden from retaliating against employees who engage in legally protected activities, such as filing a complaint with the Equal Employment Opportunity Commission or formally complaining within the company about harassment or discrimination. Retaliation includes firing, denying a promotion, reprimanding, or even giving a negative performance review that was unwarranted.

Some states permit unfairly terminated employees with employment contracts to bring a claim for a breach of the duty of “good faith and fair dealing” that is implied in all contracts. These acts include firing/transferring employees to prevent them from collecting sale commissions or coercing employees to quit without collecting severance pay or other benefits.

Have a legitimate reason for termination

Companies may terminate an employee for various reasons without breaking the law:

  • Attendance issues, frequent absences, or chronic tardiness
  • Incompetence, including lack of productivity or poor quality of work
  • Consistently missing work or shifts without adequate notice
  • Disregarding your company’s confidentiality policy
  • Insubordination, dishonesty, breaking company rules
  • Violating workplace safety rules
  • Misrepresenting qualifications or experience
  • Stealing, destroying, or purposely misusing company resources, such as product, intellectual property, trade secrets, supplies, or cash
  • Physical violence or threats against other employees or acting in a way that causes physical harm to others
  • Participating in sexual harassment, discriminatory behavior, creating a hostile work environment

Develop employee handbook

A company’s termination policy should be established in writing before hiring any employee. Every company needs to have some ground rules laid out for employees, promoting a safe and healthy work environment. The handbook should also describe procedures which the company will follow before terminating an employee and list situations that constitute causes for immediate dismissals, such as threatening behavior.

Whenever the section in the employee handbook that communicates a company’s policies and expectations about job performance and workplace behavior is reviewed and updated, HR should make sure that everyone signs an acknowledgment form ensuring that they understand the changes. A copy should be provided to the employees and the original signed forms kept for personnel files. 

Companies should remember to be very vigilant in adhering to the right termination protocols in order to avoid costly and often lengthy lawsuits.

Keep records of all employee performance evaluations

HR teams in every company should open a file for all staff members where they keep a detailed record of each employee’s performance and disciplinary actions, including incompetency and behavior problems. Performance reviews help in keeping the files current and the employee informed about their situation in the company. HR teams should have employees sign their reviews and acknowledge that they read the information. This practice can also deter employees from filing an action if they know that the company keeps records of them being at fault.

Employees should be evaluated regularly. It is a beneficial practice for both employers and employees of many complex organizations. Not only does it keep the staff in check, but it also motivates employees and gives them a structured roadmap of how to succeed within a company and for the company’s benefit. Even though the evaluation is a routine follow-up on an employee’s progress, measures should be taken to preserve records that may need to be presented in court in case of an employee’s retaliation for his/her termination.  

At the time of evaluation:

  • Communicate the company’s expectations and the employee’s goals at the beginning of every appraisal period, identifying areas that need improvement. Familiarize the employee with company policies about reprimands and disciplinary actions. Do not forget to recognize when an employee’s performance is up to or even exceeds the business’ standards.
  • Create written records of warnings given to the employee, including verbal ones and those in writing. If possible, obtain the employee’s signature on every warning record and communication of consequences of continued low-performance patterns or behavioral issues. If the employee refuses to sign such documentation, make a note of it.
  • Discuss each write-up with the employee privately, giving them the opportunity to provide written or oral explanations or comments for the issues resulting in the poor evaluation. Specify clearly what the next step will be if the issue is not corrected. Include notes of their reaction and any materials they present on their behalf.

Design a performance improvement plan 

Termination should not be the first answer whenever an employee does not meet the company’s expectations. Give the worker ample time, resources, and training to get him or her up to speed and document every action. Helping the employee fix the issue is more beneficial to both the employee and the business.

Employee Training

A team should be trained periodically, ensuring that the company’s supervisors and managers employ appropriate employment practices and workplace policies. HR should make sure that all employees know the responsibility of being an employer or a manager and use effective and efficient communication without discrimination or harassment. If the company’s associates are trained and understand what their responsibilities are, they will be happier in their job functions.

However, repeated complaints against one of the company’s associates in charge may reveal the root cause of a wrongful termination claim against the company and might be fixed through supervisory guidance or coaching. Appropriate leadership reviews should be introduced to determine whether someone on the leadership team isn’t supporting the company’s philosophy or properly enforcing policies, including the company’s process for handling terminations.

How to Make a Termination Decision?

Termination of an employee should be handled with careful consideration and a dismissal proceeded with if it is the only remaining option after exhausting all measures to get the staff member on track. HR should remember to mitigate the company’s risk of liability for wrongful termination at every step.


Documentation needs to show enough justification for the termination and cannot be contradictory. The HR team has to make sure that everyone in the company is being held to the same standards whenever the reason for termination is an employee’s performance. Different treatment of employees may give the appearance of discriminatory employment actions.

Paperwork and Explanation

When being terminated, an employee should be provided with copies of paperwork and given an explanation of the reason for termination, pointing to the steps which were taken by the company to fix the situation. HR should not be vague in its explanation.

Showing the employee that the decision has been thought through, that their wrongdoing and reasons for termination have been thoroughly documented, and that the employer will be able to prove it in court will most likely discourage the employee from suing. 


The dismissal meeting should be conducted with at least one witness present. This way any misunderstandings and any accusations by the employee that they were mistreated or misrepresented during the termination process can be avoided.

Terminate with Compassion

The meeting with the employee being terminated should occur in private, never in front of coworkers. Also, it always should be done in person, not by text, e-mail, or voicemail which could leave the company open to a lawsuit. 

When executing a termination, tone and attitude make a difference. Remember that it is a tough time for a terminated employee, and they should be treated with respect and sensitivity. Also, do not embarrass or shame the person. Further upsetting the employee may fuel a retaliation.

The HR team should be trained to demonstrate professional courtesy during the termination meeting. The representative should try to be helpful and supportive, and they should advise the employee of final matters, such as when he can expect his final paycheck, how to continue health coverage on their own, and who to talk to about their tax savings accounts. Extending a handshake and well wishes in future endeavors will not hurt the company and can calm a terminated employee down and perhaps stop them from suing.


Termination of an employee should not come at a time that might look suspicious and hint at retaliation on the company’s part. For instance, right after an employee files a discrimination or other complaint with HR. Companies need to be above the board while terminating employees. 

Give Time

If possible, provide a couple weeks of notice of the termination. This will let the employee get used to this possibly life-changing event and even secure a new position somewhere else.

Terminate Firmly

Not all people take the termination of employment the same way. It is common for an employee to argue during termination, but it is better to avoid debating the employee’s qualifications, performance, or the reason for termination. The person executing the termination should not apologize for the decision nor confuse the reason for termination by talking about the employee’s good qualities.

Wrongful Termination 3

Waiver of Right to Sue for Wrongful Termination

A company can have the employee waive their right to sue for wrongful termination. This option is usually exercised in exchange for a severance package or similar benefit. By signing such a waiver, the employee loses any legal claim against the company and cannot recover in court. However, in some situations, terminated employees may try to invalidate the release by claiming that they did not sign it voluntarily or were not aware of what they were signing.

Liability Insurance and Settlements for Wrongful Termination

Defending a wrongful termination accusation is always an expensive effort for the employer. Businesses may consider applying for liability insurance which would cover the costs of lawsuits. When selecting insurance, make sure that the insurance company must get your consent before agreeing to a settlement.

In cases when the suit cannot be avoided, it may make sense to consider negotiating a settlement versus going to court. If a company fails to follow any steps presented above and lacks convincing evidence to defend itself in a possible lawsuit, a settlement may be a better option.

Companies tend to choose settlement options to save their reputation on the market.