Creating an Employee Termination Policy

These procedures can provide structure during a stressful situation.

Written by Jeff Rumage
Creating an Employee Termination Policy
Image: Shutterstock / Built In
Matthew Urwin | Apr 26, 2024

An employee termination is a difficult situation for everyone involved. To make it a little easier — and to ensure all requirements are met — companies should have a termination policy that outlines every step of the process.

What Is a Termination Policy?

A termination policy is an internal document that covers a company’s procedures and protocols for terminating an employee, including the reasons for termination, steps taken to address issues prior to termination and an outline of the offboarding process.

What Is a Termination Policy?

A termination policy is an internal document that outlines the process for terminating an employee, including guidelines to address performance issues or problematic behavior, identify reasonable causes for termination and ensure a smooth separation between the employer and employee. Human resources professionals can turn to this blueprint to help them make sure employees are treated fairly during the termination process.

Having a termination policy in place “establishes a clear internal guideline for the process of letting people go, ensuring consistency across the company,” said Allyns Melendez, founder and CEO of HR Transformed. It can also help delegate responsibilities when coordinating among various departments, such as finance and IT.

In recent years, HR professionals have tried to be more intentional about this process through offboarding, which recognizes that the way you let your employees go can be just as important as the way you onboard new hires. That said, every employee termination comes with its own set of unique circumstances.


Why Is a Termination Policy Important?

Terminations can be complex and challenging for HR professionals, according to Rick Hammell, founder of human experience management platform Atlas. That’s why “having a well-crafted termination policy in place is essential to ensure a smooth and legally compliant process,” he said.

1. Complies With Employment Laws

Companies that don’t have a termination policy in place could risk violating employment laws, opening them up to a wrongful termination lawsuit. A manager is rarely able to fire an employee on the spot, for example. With a termination policy in place, managers will know they have to document the incident, talk with the HR and legal teams and coordinate a response.

2. Ensures Fairness

By consistently following protocol, organizations can feel confident that they are treating employees equally and fairly. When an employee feels like they’ve been treated fairly, they are less likely to sue the company for wrongful termination or tarnish the company’s reputation on social media.

3. Protects a Company’s Reputation

Ask any employer who has gone viral for a botched or inconsiderate layoff process, and they will tell you that a spurned employee can hurt your employer brand. If a company intentionally designs a clear and empathetic offboarding experience, however, the employee may apply for a future role or recommend the company to other colleagues in their profession.


Types of Employee Termination

Most workers in the U.S. are employed at will, which means an employer can terminate an employee at any time without a reason. That said, companies cannot fire an employee for reasons that are discriminatory, retaliatory or in violation of a labor law. Below are a few types of employee termination that fall within these legal boundaries.

1. Involuntary Termination

Employees can be involuntarily terminated for a variety of reasons, such as:

2. Voluntary Termination

A voluntary termination is when an employee leaves the company of their own accord — whether it’s for a new job, retirement or another personal reason. If HR professionals or company leaders notice that many employees are voluntarily leaving the organization, they should consider whether there are larger issues at play, like a toxic work environment, a lack of flexibility or inadequate opportunities for growth.

3. Mutual Termination

Sometimes, when an employment relationship is not working out, an employee and the company agree to a mutual termination. This option is sometimes afforded to high-level executives, who are often asked to resign instead of being fired.


What to Include in a Termination Policy

A comprehensive termination policy can be the difference between a more seamless transition and a messy breakup. Here are a few elements to include in your termination policy to make sure employees are treated fairly and avoid unnecessary conflicts.

1. Explanation of Different Reasons for Termination

The policy should first of all define the types of employee termination, specifically the differences between voluntary and involuntary termination. Guidelines can further elaborate on acceptable reasons for involuntary termination like poor performance, disruptive behavior and organizational restructuring. The policy should also outline the procedures that should be followed for each type of termination.

2. Guidance for Addressing Issues Prior to Termination

Termination policies should outline the process of how to warn employees of performance issues or policy violations prior to termination. This may look like a verbal warning on the first offense and a written warning after that. Policies should provide guidance on how to formally document these issues, as well as how final termination decisions will be made.

3. Steps for Notifying the Employee

Some termination policies spell out the series of events that unfold when an employee is notified of their termination. The employee’s manager should have a plan for how the employee’s current projects will be handled and how the news will be communicated to the team.

Companies should swiftly remove access to software systems that have confidential company data and information that could be deleted, altered or publicized by a disgruntled employee who is terminated, said Allison Mairena, vice president of people at NewGlobe. Depending on the circumstances, an employee who is voluntarily resigning might not be trusted on company software, as they could be poaching clients for a competing company.

The employee should also receive a written recap of what was discussed, along with contact information or websites to any resources that were referenced.

It’s always smart to bring in an employment lawyer to oversee layoffs. If a company with more than 100 employees is planning to lay off 50 workers, they are required to provide 60 days’ notice under the Worker Adjustment and Retraining Notification (WARN) Act.

4. Details on Last Day of Pay and Benefits

The policy should clarify that the employee will be paid through their last day of work and provide a date for their final paycheck. Some states require companies to pay employees their final paycheck on their last day of work. The termination policy should also outline when a terminated employee’s health insurance benefits expire and how they can sign up for COBRA.

5. Information on Severance and Other Assistance

The termination policy should advise whether severance pay is discretionary or mandatory for employees who have been involuntarily terminated. The severance pay should be specified in the policy along with any severance eligibility requirements, like agreeing to work until a specified date or signing a non-disclosure agreement. Some companies also offer additional support for an employee’s job search, like a career counselor or online career resources.

6. Process for Returning Company Property

During the termination meeting, the employee is typically asked to return company property, such as laptops, keyboards or other accessories they may have at their desk or at home. It should be made clear to the employee what company equipment they are expected to return and who they should coordinate with to arrange an equipment drop-off.

7. Exit Interview

On an employee’s last week or day, an HR professional should hold an exit interview with the employee to ask them why they are leaving, what they liked about the company and where the company could improve. An exit interview gives HR professionals a chance to uncover issues that may be affecting existing employees. If multiple employees have cited issues with a particular manager, HR could talk to that manager and see if additional training is needed. If employees are regularly leaving for more money, the HR team might want to undertake a compensation benchmarking analysis.

“Don’t do [an exit interview] just to collect data and analyze it,” Mairena said. “Use it as a means to improve.”

8. Offboarding Checklist

The final section of a termination policy should describe the offboarding process, including reallocating a terminated employee’s responsibilities and tasks as needed. This section can also explain what an employee’s last day will look like, from guidelines for clearing their desk to saying goodbye to teammates.

Frequently Asked Questions

A termination policy should outline what procedures to take in the event of a voluntary termination or involuntary termination. It should also offer logistical information, like the date of the employee’s last paycheck, when their benefits expire, how much severance pay they will receive and how they can return their company laptop and other equipment.

A typical termination clause will describe the process that should be followed when an employee leaves the company. A typical clause will address the last date of pay and benefits coverage, along with any severance pay offered by the company.

All states except Montana permit employment at will, which allows both the employee and their employer to end their relationship at any time, for any reason — as long as that reason is legal.