What are the different types of employee terminations?

Separating an employee from your workforce is never an easy task. Managing terminations legally — and effectively — is imperative to protect your business, as well as protect the rights of your staff. While there are many ways an employment relationship can be severed, managing terminations begins with understanding the lingo.

What is voluntary termination?

Voluntary termination occurs when the employee severs the working relationship. It can be formal, with a letter of resignation and the employee providing 2 weeks’ notice before their departure. Employees can quit their job verbally, with or without notice as well. For some workers, they quit by “ghosting” their employer. They simply stop showing up for work – ignoring phone calls and messages.

FYI: Employees who voluntarily terminate their employment are typically ineligible to collect unemployment insurance benefits. Since the ability to continue working was in their control, they waive their rights to collect unemployment compensation.

What is involuntary termination? 

Involuntary termination means the business has decided to sever the employment relationship. There are 2 types of involuntary terminations

• With cause
• Without cause

Without cause

Involuntary termination without cause includes layoffs and downsizing — these employees were removed from the payroll through no fault of their own. Either market conditions or business imperatives required their employment be discontinued.

FYI: These staff members are generally eligible for unemployment compensation. 

With cause

Involuntary termination with cause includes firing a staff member for a specific reason. They may have violated a company policy, fail to perform their duties, show up to work late, or be disruptive in the workplace. Termination with cause is typically the final step in progressive discipline. The employee should have been warned their behavior will result in their dismissal if they continue. Immediate termination is necessary if the policy violation was so severe (for example, if an employee threatened coworkers).

FYI: These staff members are typically not eligible for unemployment compensation. 

What’s an at-will employee?

In most states, employment is at-will. This means the employee and the business are free to terminate employment at any time, without reason or warning. The term at-will means there is no verbal or implied contract between the worker and the organization — you can’t force employees to stay on the payroll, nor can you be forced to continue paying them. For business, this means employees may be fired with no reason or warning. For employees, they may quit without reason or notice to the employer. Employment is at the “will” of the business and the worker. Workers under a written contractual agreement are not at-will employees. The contract outlines the employment agreement and any provision(s) for severing the relationship. Note: Some states have exceptions to the at-will agreement. Montana, for example, only allows the at-will doctrine to a probationary period (up to 6 months). After that time, employees may only be terminated for cause. Check with your local Department of Labor for more information. 

FYI: These staff members are generally eligible for unemployment compensation. 

What’s termination for cause?

Termination for cause means you have separated the employee from your business for a specific reason. It could be a policy violation, lack of performance, excessive tardiness, or any host of infractions. Letting a staff member go when with cause should be the final step in progressive disciplinary action — the employee should have had ample opportunity to correct the behavior. In the event of a severe policy or rule infraction, termination for cause can be made without warning. For example, an employee who arrives at work with a weapon can be terminated immediately for cause.

FYI: These staff members are typically not eligible for unemployment compensation. 

What is constructive discharge?

Constructive discharge is a legal term generally used by attorneys and unemployment compensation professionals. Constructive discharge means an employer has made working conditions so difficult for the staff member they had no alternative but to resign their position. For lawyers and unemployment authorities, constructive discharge is equivalent to terminating an employee without cause. Examples of constructive discharge:

Changing an employee’s work shift to hours the business knows the staff member cannot work

• Bullying
• Discriminating or harassing the worker (either by the business or colleagues
• Cutting wages, hours, or benefits

Employers would be wise to avoid creating a situation where staff members have no option but resignation if they want to avoid legal claims and unemployment insurance responsibility.

FYI: These staff members may be eligible for unemployment compensation as well as legal remedies. 

What is mutual termination?

Mutual termination is a scenario where both the worker and the business agree employment should end. It may include the end of a contract or retirement. In some situations, mutual termination includes a type of forced resignation. The employee agrees to quit their job in exchange for some consideration – typically monetary. They can receive a severance package, for example, if they resign, that would not be offered if they were fired. Other considerations may be to allow the employee to go off payroll, but keep their business contact information (phone and email addresses) to provide the appearance they are still employed as they look for another job.

FYI: These staff members are generally not eligible for unemployment compensation.

When it’s necessary to sever ties with an employee, understanding termination terminology is key to assuring their rights, and yours, are protected.

This communication is for informational purposes only; it is not legal, tax or accounting advice; and is not an offer to sell, buy or procure insurance.

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