Termination without cause: A guide for US businesses

If you wrongfully terminate an employee, the negative legal and financial impact on your business can be potentially seismic. 

As a result, it’s important to know and understand the laws around termination with cause. In this article, we cover what it means to terminate an employee without cause, why you might do this, and how you can do it compliantly and compassionately.

What does it mean to terminate an employee without cause?

In the US, "cause" is a legally justifiable reason to fire an employee. It usually means that the employee has been severely underperforming in their role, or that they have been found guilty of gross misconduct (e.g., they have been caught stealing, or working while under the influence).

However, termination without cause is generally more vague, as it may not necessarily be a direct reflection of the employee’s performance or behavior. 

For instance, you might fire an employee without cause because they don’t align well with your company’s culture, or because you decide to go in a different direction with a particular role.

How does cause apply to US employees?

All US states — except Montana — allow employers and employees to end the latter’s contract at any time, and for any reason that is not discriminatory or retaliatory. This is called “at-will employment.” In this case, neither party is required to give notice beforehand (although it is considered courteous).

When terminating without cause, you must also ensure that you are not exposing yourself to a potential wrongful termination lawsuit. We discuss this in more detail below, but it’s important to note that wrongful termination can occur with or without cause.

Is it legal to terminate an employee without cause?

In the US, at-will employment means that you can fire an employee for almost any reason, but the termination must still be legal.

Collective bargaining agreements (CBAs) — which are typically used by unions — often contain this type of clause. If an employee under a CBA is fired without cause, it could count as wrongful termination.

Your employee may also believe that they have been wrongfully terminated for a number of reasons, including discrimination, and may seek recompense through the courts.

What about Montana?

In Montana — which is not an at-will state — employers need valid cause if they fire an employee after their six-month probation period (unless otherwise stated at the time of employment).

If you have employees in multiple US states, it’s highly advisable to work with an all-in-one HR partner, like Remote. We help ensure that all terminations are legal and fully compliant, wherever your people are based, and can provide expert guidance and support throughout the process.

What are the most common reasons for terminating an employee without cause?

There are a number of reasons why a company might terminate an employee without cause, such as any of the following:

• Budget cuts. Budget cuts are a major reason for layoffs. Your company may need to slash your budgets due to poor performance, lack of funding, or economic shifts.

• Organizational restructuring. Organizational restructuring can be a result of multiple factors. Perhaps a certain department is overstaffed, and some employees are no longer needed. Or maybe a certain team is no longer required as your company’s needs change.

• Mergers and acquisitions. When two companies merge or one is acquired, the new organization may let some employees go. A certain department may now be overstaffed, and it may be too costly to keep everyone.

• Technological advancements. If your company acquires a new technology that can perform the role of an existing employee, that employee may no longer be needed. In this case, you may be able to terminate them without cause.

• Outsourcing. It may be more efficient and/or cost-effective to outsource certain business needs. In such cases, your existing team may be terminated without cause.

Best practices for terminating an employee without cause 

Termination without cause can be a stressful process for both you and your employee. To ensure that it is conducted professionally, compliantly, and compassionately, here are some important steps to follow:

1. Know the exceptions to at-will employment

If your employee is located in a US state that allows at-will employment, it’s important to know when this doesn’t apply. 

Exceptions can include employees whose contracts state the need for cause.

2. Know the labor laws in the employee’s location

Know the specific laws in your employee’s location. For example, the US implied covenant of good faith — which requires employers to act in good faith surrounding termination — is applicable in certain states, such as Nebraska and Alabama. Firing an employee right before they’re due to get a bonus may count as bad faith.

3. Ensure your reason for termination is legal

You may not have to disclose the reason you’re firing someone without cause in an at-will state but, as mentioned, it still needs to be legal. 

Before proceeding with a termination, make sure your reason isn’t illegal. Again, Remote can help you determine whether or not your reason for termination complies with your employees’ local labor laws.    

4. Document the reason for termination

Always document any supporting evidence when terminating someone without cause. This can prove invaluable if your employee believes they were wrongfully dismissed and later files a wrongful termination claim or discrimination charge.

For example, keep performance reviews and record any communications relating to the reasons for the termination, such as emails, call transcripts, and private messages.

5. Follow company policies and contract terms

Even if you’re firing without cause, you must still follow your company’s internal termination policies, as outlined in your employee handbook. If you breach the terms of these policies, you may leave yourself exposed to a wrongful termination lawsuit.

6. Follow the termination process in your employee’s location

As well as ensuring that the termination is legal, you need to follow the offboarding regulations in that employee’s location. 

For instance, some locations dictate that you pay up any accrued but unused vacation time upon termination, whereas some don’t. In some countries, you must pay severance, whereas in others, it is not required by law. To learn more about the requirements in each state, check out our US State Explorer tool.

Remote can help you manage the offboarding process in full compliance with the relevant laws and regulations in your employees’ locations.

What happens if an employee is wrongfully terminated?

If your employee believes they have been wrongfully terminated, they may take their complaint to the relevant labor commission or court in their state. If their complaint is upheld, you may face fines and penalties, as well as provide compensation.

In some cases, the employee in question may opt to file a lawsuit against your organization. While the success rate of such lawsuits varies widely, this process can be costly, time-consuming, and cause significant reputational damage.

This is why it’s so important to clarify the legality of the termination before carrying it out.

How Remote can help

Firing without cause can seem confusing, especially as the laws around it vary by location. Although nearly all US states allow at-will employment, this isn’t always the case.

As a result, it’s highly advisable to work with an experienced HR partner that can advise on the legality of a termination, and guide you through the offboarding process. At Remote, we have our own local, in-house experts who can keep you on the right track, saving you time, money, and countless potential legal headaches.

To learn more about how we can help — at every stage of the employment cycle — speak to one of our friendly experts today.

Read Remote's expert guide to hiring in the US

Use our expert hiring guide for information on local benefits, taxation, and compliance requirements to help you employ in the US with ease.

Read now