Termination and Layoffs: Doing It Right
For-cause vs. performance vs. layoff, the termination conversation itself, final paycheck rules by state, WARN Act obligations, severance, and how to support the team that remains.
Why How You Handle This Matters So Much
Ending someone's employment is one of the highest-stakes moments a founder faces — it carries real legal risk if handled carelessly, real reputational risk (word travels, especially in smaller professional communities), and a real effect on the team that remains, who are watching closely to judge whether they work somewhere that treats people fairly even in a hard moment. Getting this right is both an ethical obligation and a practical one.
Individual Termination: For Cause vs. Performance vs. Layoff
| What triggers it | Key consideration | |
|---|---|---|
| Termination for cause | Serious misconduct — theft, harassment, safety violation, clear policy breach | Document the specific incident clearly; this is the category most likely to be immediate, without a prior improvement plan |
| Performance termination | Sustained underperformance despite feedback | Should generally follow a documented history — see Performance Management for the improvement-plan process that should precede this |
| Layoff | A business decision (cost-cutting, restructuring, role elimination) — not about the individual's performance | Should be framed and documented as a business decision, distinct from a performance issue, both for clarity and because it's treated differently under some laws (see the WARN Act below) |
The Termination Conversation
How to actually handle the conversation itself
0/5Final Paycheck Rules: Framework + What Varies
When the final paycheck is legally due
Federal law (the FLSA) requires a final paycheck by the next regular payday at minimum. A significant number of states go further and require faster payment specifically for involuntary terminations — some requiring payment immediately or within 24 hours. States generally impose faster deadlines for involuntary terminations (layoffs and firings) than for voluntary resignations, on the logic that an employer initiating the termination had the ability to prepare the final paycheck in advance.
What varies by state
- ›Whether immediate/same-day payment is required for involuntary termination, versus payment by the next regular payday
- ›Whether the rules differ for a firing versus a layoff versus a resignation
- ›Whether accrued, unused PTO must be paid out at termination
- ›Penalties for late final payment — some states impose meaningful automatic penalties (for example, doubling the wages owed) for missing the deadline
Check your state department of labor's specific final paycheck rules before finalizing termination logistics — this is an area with real, enforced deadlines, not just guidance.
Layoffs: When Multiple People Are Let Go at Once
A layoff differs from an individual termination in both framing and, at scale, legal obligation. Layoffs are business decisions — driven by cost-cutting, restructuring, or the elimination of a role or function — and should be communicated as such clearly, since conflating a layoff with a performance issue is both unfair to the people affected and can create legal risk if it looks like performance is being used as a pretext for something else (like discrimination).
The WARN Act
A federal notice requirement that catches growing companies off guard
The federal Worker Adjustment and Retraining Notification (WARN) Act requires employers with 100 or more employees to give 60 calendar days' advance written notice before a plant closing or a mass layoff affecting 50 or more employees at a single site. Most small businesses are well under this threshold — but a fast-growing company can cross 100 employees sooner than founders expect, and several states have their own "mini-WARN" laws with lower thresholds and additional requirements (California's, for example, has been recently expanded to require details about worker support services). If you're approaching this scale and considering a significant layoff, confirm your specific obligations before acting — the penalties for a WARN Act violation can include back pay and benefits for the full notice period.
Severance: Do You Need to Offer It?
In most cases, severance pay is not legally required unless you've promised it in an employment contract, offer letter, or written company policy. That said, offering severance — even a modest amount — is common practice for reasons beyond legal obligation: it softens the transition for someone whose livelihood you're affecting, it reflects well on how the company treats people, and it's frequently paired with a release of claims, where the departing employee agrees not to sue in exchange for the severance payment, giving the company real practical value in exchange for the cost.
Supporting the Team That Remains
After any termination or layoff, the people who remain are watching closely — how this was handled shapes their trust in leadership as much as it shapes the departing employee's experience. Communicate clearly and honestly with the remaining team (within appropriate limits of privacy for the individual who left), address the obvious anxiety a layoff creates about job security, and avoid letting the situation fester in rumor and speculation. A team that trusts leadership handled a hard moment fairly stays more engaged than one left to fill in the gaps with worst-case assumptions.
Check Your Understanding
Quick Check
Why is it important to frame a layoff clearly as a business decision, distinct from a performance issue?
A company with 40 employees plans to lay off 15 people at once. Does the federal WARN Act's 60-day notice requirement apply?
Key Terms
Key Terms
- Termination for cause
- Ending employment due to specific serious misconduct, distinct from a performance-based or business-driven termination.
- WARN Act
- A federal law requiring 60 days' advance notice for mass layoffs at companies with 100+ employees, affecting 50+ employees at a single site.
- Severance
- Payment offered to a departing employee, generally not legally required unless previously promised, often paired with a release of claims.
- Release of claims
- An agreement in which a departing employee agrees not to sue the company, typically in exchange for severance pay.
Discussion & questions
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