Question: I run a small business and am considering terminating an employee. What are the main things I should consider, and what is the overall process for terminating an employee?
Answer: In California, employment is presumed to be “at-will.” This means that, unless an employer agrees to terminate the employee only for good cause, an employer may terminate an employee for any reason at any time. The significant caveat is that the reason cannot be an illegal reason (e.g. discrimination or retaliation). Often, the practical consideration is to minimize the risk that an employee later claims that the termination was for an unlawful reason.
Before finalizing the termination decision, employers should pause and review the circumstances surrounding the termination. Has the employee recently complained about wages, harassment, discrimination, unsafe working conditions, or other workplace issues? Has the employee recently requested or taken protected leave? Has the employee filed an administrative complaint or threatened legal action? Is the employee in a protected category, pregnant, disabled, or requesting an accommodation? These issues do not prevent termination, but they can increase the risk that the employee will claim the stated reason was a pretext for retaliation or discrimination. Documentation of legitimate, lawful reasons for discharge help minimize this risk.
Employers should also review whether the termination is consistent with company policy and past practice. If other employees engaged in similar conduct but were not terminated, the employer should be prepared to explain the difference. If the company has a progressive discipline policy, the employer should confirm whether the required steps were followed or whether immediate termination is justified by the severity of the conduct. The employer should also review the personnel file to make sure the documented performance or conduct issues support the decision.
If an employer determines to proceed with a termination, the reason given to the employee should be truthful, accurate, and carefully stated. A reason that later proves false can substantially undermine the employer’s defense in litigation. For example, stating that an employee made accounting errors on the July 2024, August 2025, and January 2026 billing reports could create an issue if the employee later proves that they did not actually make errors on these specific reports. An employer may want to instead state that the employee made several errors on billing reports over the past two years. A well-drafted explanation of the termination should be clear enough to provide notice, but broad enough to minimize the risk that it is later proved incorrect.
Timing is also important. When an employer discharges an employee, all earned and unpaid wages, including accrued and unused vacation hours, are generally due on the last day of employment. Failure to timely pay final wages can result in waiting time penalties of up to 30 days. Employers should be prepared to provide the final paycheck on the last day of employment.
At the time of termination, the employer should provide the employee with the California Employment Development Department (“EDD”) pamphlet (DE 2320), and a Notice of Change in Relationship form. Sample documents for these forms are available on the EDD’s website. Additionally, businesses with 20 or more employees must give qualifying terminating staff a notice (DHCS 9601) regarding California’s Health Insurance Premium Payment (“HIPP”) program for Medi-Cal benefits.
In higher-risk situations, employers should consider consulting employment counsel before termination. Sometimes, although not legally required, a delaying termination to improve documentation can help minimize risk. Employers may also consider offering severance in exchange for a release of claims. Employers with questions about terminating an employee should consult their employment counsel.