Terminating Employees in the U.S.: At-Will, Severance and Risk

At-will employment and its exceptions

In every U.S. state except Montana, the default is at-will employment: either party can end the relationship at any time, with or without notice or reason, as long as the reason is not unlawful. There is no statutory notice period (no preavviso), no mandatory severance (no TFR) and no general duty to state a reason. But the default is riddled with exceptions, and almost all U.S. termination litigation is about whether one applies.

The main exceptions

• Public policy. Most states bar firing someone for refusing to break the law, serving on a jury, filing a workers' compensation claim or reporting violations. California, New Jersey and Illinois apply this broadly; New York relies mainly on statutes such as Labor Law 740 (whistleblowers).
• Implied contract. Handbooks, offer letters or managers' statements can create an implied promise of termination only for cause. The standard defense is a signed at-will disclaimer in the offer letter and handbook; avoid promising "permanent" employment or progressive discipline you will not follow.
• Implied covenant of good faith and fair dealing. A minority of states (for example, Massachusetts, Alaska and, in limited form, California) bar firing someone in bad faith to avoid paying earned compensation, such as a commission about to vest.
• Montana's Wrongful Discharge from Employment Act. Montana is the only state where, after a probationary period (12 months by default unless the employer sets a different one), a discharge requires good cause. Remedies can include up to four years of lost wages and benefits, reduced by interim earnings, plus punitive damages in cases of fraud or malice.
• Union contracts. Collective bargaining agreements almost always require just cause plus grievance and arbitration; unionized employees also have "Weingarten" rights to a representative at investigatory interviews.
• Contracts and statutes. Executive agreements defining "cause" override at-will; anti-discrimination, retaliation, leave and whistleblower laws (below) are the largest source of liability.

Documentation, PIPs, and layoffs versus performance terminations

The employee's case usually depends on showing that your stated reason is a pretext, so your best protection is a contemporaneous, consistent paper trail. Glowing reviews followed by a sudden "performance" firing right after a complaint or leave request is the classic losing fact pattern.

What good documentation looks like

• Honest annual and mid-year reviews that name specific gaps. Inflated ratings are the most common self-inflicted wound.
• Written follow-up after verbal coaching ("As discussed today, the Q3 forecast was delivered 10 days late...").
• Consistency: comparable misconduct by others must have been handled the same way. Plaintiffs look for "comparators" outside their protected group who were treated better.
• A decision record: who decided, when (especially if before a complaint or leave request) and on what facts.

Performance improvement plans (PIPs)

A PIP is not legally required but is strong evidence of fair treatment. A good one runs 30 to 90 days with three to five measurable objectives, the support offered and the consequence of failure. Never design an impossible PIP, and consult counsel before starting one right after a complaint, since the timing alone suggests retaliation. If you would not keep the employee even if they succeed, a negotiated exit beats a sham PIP.

Layoffs (reductions in force) versus performance terminations

Discrimination, retaliation and leave-related protections

Federal law prohibits terminations motivated by race, color, religion, sex (including pregnancy, sexual orientation and gender identity), national origin, age (40 and over), disability and genetic information. Title VII and the ADA apply at 15 employees and the ADEA at 20. State laws go further: New York and New Jersey cover employers of any size, California's FEHA applies at 5 employees, and states add categories such as marital status, lawful off-duty conduct, cannabis use and reproductive health decisions. The EEOC charge deadline is 180 days, or 300 days in most states where Italian companies operate.

Retaliation: the most common claim

Retaliation has for years been the most frequently alleged basis in EEOC charges. It is easier to prove than discrimination: protected activity (a harassment or wage complaint, an accommodation request, participation in an investigation), an adverse action and a causal link, often inferred from timing alone. Employees can lose the discrimination claim and still win on retaliation.

Leave: FMLA and state equivalents

• FMLA applies to employers with 50+ employees within 75 miles; eligible employees (12 months of service, 1,250 hours) get up to 12 weeks of job-protected leave. It prohibits both interference (denying or discouraging leave) and retaliation. The limitation period is two years, or three if the violation is willful.
• State laws apply at lower thresholds: California CFRA (5+ employees), New York Paid Family Leave (virtually all private employers), New Jersey Family Leave Act (15+ since July 17, 2026), plus paid sick leave laws in NY, NJ, CA, IL, MA, WA, CO and others that protect against retaliation for using sick time.
• ADA and state disability laws require an interactive process before firing someone for absences or performance linked to a medical condition.

Final pay, PTO payout and state separation notices (2026)

The FLSA does not require immediate final pay; state law of the place where the employee works controls. Deadlines often differ for terminations and resignations, and some states treat accrued vacation as wages owed in the final check.

Other states that treat accrued vacation as wages include Louisiana, Nebraska, North Dakota and Montana. Always confirm with your payroll provider or PEO, because penalties add up quickly (see Payroll and State guide).

Separation and unemployment notices

• New York: the Record of Employment (Form IA 12.3), mandatory in its official form since the November 2023 amendment, also required for partial unemployment; plus written notice within 5 working days of the exact termination date and the date benefits end (Labor Law 195(6)).
• New Jersey: Form BC-10, "Instructions for Claiming Unemployment Benefits," at separation.
• California: written notice of the change in employment status, the EDD "For Your Benefit" pamphlet (DE 2320), and the Cal-COBRA/HIPP notices, no later than the separation date.
• Illinois: the IDES pamphlet "What Every Worker Should Know About Unemployment Insurance."
• Massachusetts (the brochure "How to File a Claim for Unemployment Insurance Benefits"), Pennsylvania (UC-1609), Georgia (DOL-800, immediately upon separation) and Colorado also require notices. Texas, Florida, North Carolina, Ohio and Washington have no general separation-form mandate.

Separation agreements and severance

Severance is not required by law (except under New Jersey's mini-WARN or a contract), so U.S. employers offer it as consideration for a general release of claims. It must be something the employee was not already entitled to; final wages and mandatory vacation payout do not count.

OWBPA requirements for employees aged 40 and over

To release age claims under the ADEA, the Older Workers Benefit Protection Act requires the agreement to:

1. Be written in plain language and refer specifically to rights under the ADEA.
2. Not release claims arising after signature.
3. Provide consideration beyond existing entitlements.
4. Advise the employee in writing to consult an attorney.
5. Give 21 days to consider (individual exit) or 45 days (exit incentive or group termination program).
6. Allow 7 days to revoke after signature; the agreement becomes effective only after that period.
7. For group programs, disclose the decisional unit, eligibility factors, time limits, and the job titles and ages of everyone selected and not selected in that unit.

What cannot be waived

• The right to file a charge with, or participate in an investigation by, the EEOC, NLRB, SEC, OSHA or state agencies (the employee can waive recovery of money, but not the right to file).
• FLSA minimum wage and overtime claims, unless supervised by the DOL or approved by a court; many states treat state wage claims the same way.
• Unemployment benefits and, in most states, workers' compensation benefits (except through an agency-approved settlement).
• Vested ERISA benefits (401(k), pension) and future claims.
• SEC whistleblower awards: Rule 21F-17 bars clauses that impede reporting to the SEC.

Confidentiality and non-disparagement: where things stand

• NLRB (McLaren Macomb, 2023): the Board held that simply offering a severance agreement with broad confidentiality or non-disparagement clauses to non-supervisory employees violates the NLRA. In February 2025, GC Memo 25-05 rescinded the prior General Counsel's guidance, but that did not change Board law. In April 2026, Board members signaled openness to reconsidering the decision, and on August 26, 2026, General Counsel Crystal Carey (GC 26-04) announced she was asking the Board to overrule it in a pending case. As of September 2026, McLaren Macomb remains binding precedent and ALJs continue to apply it. It does not protect supervisors and managers.
• California SB 331 (Silenced No More Act): separation agreements cannot prevent disclosure of information about unlawful acts in the workplace. They must include the statutory carve-out language, advise the employee of the right to consult an attorney, and give at least 5 business days to consider.
• Federal Speak Out Act (2022): pre-dispute nondisclosure and non-disparagement clauses cannot be enforced against sexual assault or sexual harassment claims. New York, New Jersey, Illinois and Washington have their own restrictions on NDAs relating to discrimination or harassment.
• DTSA notice: agreements with confidentiality clauses should include the whistleblower immunity notice from 18 U.S.C. 1833(b); without it, you lose exemplary damages and attorneys' fees in a later trade-secret suit.

Severance norms in the U.S.

There is no statutory standard. Individual contributors commonly get 1 to 2 weeks per year of service (minimum 2 to 4 weeks), directors and VPs 3 to 6 months, and C-suite executives 6 to 12 months or more under contract. Challenger, Gray & Christmas reported an average of about 19 weeks in 2025, with hybrid formulas (e.g., 8 weeks plus 1 week per year) spreading. Packages often add COBRA subsidies, outplacement and a prorated bonus. Severance is taxable wages.

COBRA, state mini-COBRA and benefits at exit

U.S. health insurance is largely employer-sponsored, so termination ends coverage, often at month-end. COBRA (20+ employees) lets the employee and family continue the group plan at their own expense, at up to 102% of the premium.

• Employer notifies the plan administrator within 30 days of the qualifying event (termination or reduction in hours).
• Administrator sends the election notice within 14 days (44 days in total if the employer is the administrator).
• The employee has 60 days to elect coverage and 45 days after election to pay the first premium; coverage is retroactive.
• Duration: 18 months for termination (29 with disability; up to 36 for some dependent events).
• Penalties for missing notices can reach $110 per day per participant under ERISA, plus IRS excise taxes.

State mini-COBRA laws cover smaller employers or extend duration for insured plans, for example California's Cal-COBRA (2 to 19 employees, and extension up to 36 months total), New York (continuation up to 36 months for insured plans), New Jersey, Illinois, Massachusetts and Texas. Confirm with your broker. Also handle 401(k) vesting, life insurance conversion, FSA run-out and equity (options commonly expire 90 days after separation). See Benefits.

WARN and state mini-WARN laws

The federal Worker Adjustment and Retraining Notification (WARN) Act requires 60 days' written notice of a plant closing or mass layoff to affected employees (or their union), the state dislocated-worker unit and the local government. The penalty for failure is back pay and benefits for each day of missing notice (up to 60 days) plus a civil penalty of up to $500 per day. Several states have stricter laws, and the triggers are counted differently (statewide instead of per site, including part-time workers, and with different look-back windows).

Other states with their own rules include Hawaii, Iowa, Maine, New Hampshire, Tennessee, Vermont and Wisconsin. New Jersey is the outlier: its severance is owed by statute on top of the notice obligation, and any attempt to have employees release NJ WARN rights should be reviewed carefully by counsel.

Terminating visa holders (H-1B, L-1, E-2)

Terminating a foreign employee triggers obligations for the employer and a countdown for the employee. Cygic does not provide immigration advice; coordinate every step with your immigration attorney (see Immigration).

• H-1B: the employer must offer to pay the reasonable cost of return transportation to the employee's last country of residence (the employee may decline), notify USCIS to withdraw the petition, and withdraw the Labor Condition Application with the DOL. Without a "bona fide termination" (notice to USCIS plus the offer of return transportation), the DOL may treat the employer as still owing the required wage.
• L-1: no regulatory return-transportation duty, but counsel typically notifies USCIS that the employment has ended. Often the practical solution is repatriation to the Italian parent company.
• E-2: status is tied to the treaty enterprise. An E-2 employee who is terminated loses the basis for status; a change to another E-2 company requires a new application.
• 60-day grace period: under current rules (8 CFR 214.1(l)(2)), E-1, E-2, E-3, H-1B, H-1B1, L-1, O-1 and TN workers may remain for up to 60 days, or until their I-94 expires if sooner, to find a new sponsor, change status or leave. In flux: on September 11, 2026, DHS published a proposed rule to eliminate this discretionary grace period, with comments due by November 10, 2026. It is not yet in effect.

Resignations, restrictive covenants, trade secrets and references

Resignations and notice

No U.S. law requires notice; "two weeks' notice" is a courtesy norm. You may accept a resignation effective immediately, though paying out the notice period avoids disputes. Accept resignations in writing and never pressure: a forced resignation can be a constructive discharge. HR, not the manager, should run exit interviews, and any complaint raised must be investigated.

Restrictive covenants

The FTC's 2024 nationwide non-compete ban was set aside in court, and in September 2025 the FTC dropped its appeals, so state law governs. California, Minnesota, North Dakota and Oklahoma essentially ban non-competes; many states impose salary thresholds for 2026, for example Washington $126,858.83, Colorado $130,014, Oregon $119,541, Illinois $75,000 and Washington D.C. $162,164. Florida (CHOICE Act, 2025) moved the other way and made long non-competes easier to enforce for high earners. At exit, give the employee a copy of any covenant, remind them in writing of confidentiality obligations, and do not threaten to enforce a covenant that is void in their state (California penalizes this). California also bans "stay-or-pay" training repayment clauses from 2026 (AB 692).

Trade secrets (DTSA)

The Defend Trade Secrets Act gives a federal claim. Your exit process is your evidence: disable access at notice, collect devices, image key employees' laptops, review recent downloads to personal storage, and obtain a signed certification of return of information.

References

Most employers adopt a neutral-reference policy: confirm only dates and job title. Many states protect good-faith references, but a negative reference about someone who complained can be retaliation, and a glowing one about someone fired for violence can create negligent-referral liability. Route all requests to HR.

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