Wrongful Termination: When Is It Illegal To Fire an Employee?

Wrongful termination laws apply to all employees, regardless of the business size. Firing employees for improper reasons violates state and federal laws and may lead to penalties or wrongful termination lawsuits.

In this article, we’ll explain when firing someone shifts from a permissible business decision to a potential lawsuit. If you run a business and have concerns about a specific employee or your overall termination policy, having an employment law attorney on your side reduces the risk of wrongful termination claims.

Exceptions to At-Will Employment

Most workers in the U.S. are at-will employees. In at-will employment, either the employer or the employee can end the working relationship without cause for any legal reason.

While at-will employment provides flexibility, it doesn’t give employers a free pass to fire employees whenever they wish. Federal and state laws create protected classes and protect certain employee actions. Firing an employee on these grounds when it involves any of the following:

Discrimination

Federal law prohibits employers from making employment decisions, including termination, based on an employee’s protected characteristics. Federal anti-discrimination laws like Title VII of the Civil Rights Act, the Americans with Disabilities Act (ADA), and the Age Discrimination in Employment Act (ADEA) make it illegal to fire an employee based on their:

• Race or color
• Religion
• National origin
• Sex (including gender, gender identity, sexual orientation, and pregnancy)
• Disability (if the employee can perform the job’s essential functions with reasonable accommodation)
• Age (if the employee is 40 or older)

State and local laws may offer even broader protections. Terminating an employee because they are pregnant or need to take medical leave under the Family and Medical Leave Act (FMLA) can be considered both pregnancy discrimination and a violation of FMLA rights.

Retaliation

Retaliation occurs when an employer punishes an employee for engaging in a legally protected activity. This is one of the most common types of wrongful termination claims. An employer cannot fire an employee for:

• Filing a complaint about discrimination or harassment: Employees have a right to file a claim with the Equal Employment Opportunity Commission (EEOC) or a state agency
• Reporting safety violations: The Occupational Safety and Health Act (OSHA) protects employees from retaliation for reporting unsafe working conditions
• Whistleblowing: Federal and state Whistleblower Protection Acts shield employees who report their employer for violating laws or regulations, such as fraud
• Participating in an investigation: Assisting in an official investigation against the company is a protected activity

Even if the underlying complaint is not ultimately proven, firing an employee for making a good-faith complaint can still be illegal retaliation.

Violation of Public Policy or Contract

Beyond discrimination and retaliation, other actions can lead to a wrongful termination claim. Some of the most common are:

• Breach of contract: If an employment contract (written or implied) or collective bargaining agreement promises job security or outlines specific termination procedures, firing an employee in violation of that contract can be grounds for a lawsuit
• Refusing to perform an illegal act: An employer cannot fire an employee for refusing to break the law at the employer’s request
• Refusing a lie detector test: The federal Employee Polygraph Protection Act (EPPA) generally prohibits employers from requiring an employee to take a lie detector test or firing them for refusing

This is not an exhaustive list.

Examples of Legal vs. Wrongful Termination

Understanding what constitutes wrongful termination can help you avoid legal pitfalls when it’s time ot fire someone. These scenarios help illustrate the difference between a lawful termination under the at-will doctrine and an unlawful one.

Scenario 1: Performance

• Legal Termination: An employee consistently fails to meet documented sales quotas over six months. They receive a verbal warning, a written warning, and are placed on a performance improvement plan (PIP). After failing to meet the PIP goals, the company terminates them. Since the decision is based on documented poor performance, it’s defensible.
• Wrongful Termination: A 58-year-old employee has a long history of positive performance reviews. A new, younger manager is hired and begins commenting on the employee’s “lack of energy.” The employee is eventually terminated for “not being a cultural fit,” while their younger coworkers with similar performance are retained. If the employee files an employment discrimination claim, they could point to this discrepancy as a pretext for age discrimination.

Scenario 2: Conduct

• Legal Termination: Following multiple complaints, a formal investigation determines that an employee violated the company’s sexual harassment policy. The termination is consistent with the company’s disciplinary procedures for such violations.
• Wrongful Termination: An employee files a formal complaint with HR about sexual harassment by their supervisor. Two weeks later, the supervisor fires the employee for being five minutes late to a meeting, a minor infraction for which no other employee has ever been disciplined. The timing and disproportionate punishment strongly suggest illegal retaliation.

How To Avoid Wrongful Termination Lawsuits

The best defense is a proactive offense. To minimize risk, small business owners should:

• Create clear policies: Even if you don’t have a dedicated human resources department, you should still maintain a detailed employee handbook. It should outline company policies, performance expectations, and disciplinary procedures.
• Document everything: Keep meticulous records of employee performance, including regular reviews, warnings, and reasons for termination. Keep this documentation objective and based on job performance.
• Be consistent: Avoid playing favorites. Apply all rules, disciplinary actions, and termination policies fairly and consistently across all employees.
• Train managers: Your managers carry a modicum of power over other employees. Ensure anyone with hiring and firing authority understands the basics of employment law and what constitutes illegal discrimination and retaliation.

Prevention is much better than dealing with issues later.

Get Legal Help With Wrongful Termination Cases

Defending against a wrongful termination lawsuit drains your time and resources. If a former employee files a claim against your business, you must act quickly. Contact an experienced employment attorney who can review your case and help you navigate the legal process.