How To Avoid Legal Liability For Wrongful Terminations

Bonisiwe Shabane

-Oct 30, 2025, 1:13 AM

how to avoid legal liability for wrongful terminations

Unlawful terminations are a prevalent reality in many industries. It happens when you fire an employee for an illegal cause or when the dismissal doesn’t adhere to termination policies. Other than Montana, all states in the US follow an at-will employment system. It’s the default employment arrangement where employees can leave their jobs anytime, and you can terminate them for any reason and at any point. Unless the employment contract specifies the termination causes, both parties can end it for any or no reason without incurring legal liability. But not all terminations in at-will employment arrangements are legal.

In certain situations, terminating an employee could violate a state or federal law. Lawsuits involving wrongful terminations can be costly, regardless of whether or not you win the case. Alistair Vigier of Clearway says that “Terminating an employee is hard enough without the additional stress of dealing with wrongful termination lawsuits. Too often, many employers expose themselves to unnecessary liability. This article highlights some tips to help you avoid legal liability for wrongful terminations.” Accusations of wrongful termination can be a significant liability for the company, exposing it to potential reputational and financial damage.

For this reason, taking proactive steps to prevent it is essential. In a perfect world, employees perform optimally, enjoy high job satisfaction, and stay with one company until retirement. This type of perfection rarely exists. According to the U.S. Bureau of Labor Statistics, the median employee tenure with a single company is 3.9 years. While some staff members resign voluntarily, others are involuntarily terminated.

Improper or illegal terminations expose companies to consequential legal issues and financial risk. Employers must attempt to close all possible doors to post-termination litigation to avoid lengthy and expensive legal battles, adverse publicity, and any detrimental impact on employee morale. Make sure your employees understand their job responsibilities, the company’s policies and code of conduct, any performance issues, and ways to improve their performance. That said, the most important way to avoid litigation is by adhering to all applicable federal, state, and local laws concerning employment. Never fire an employee for an improper or illegal reason. Doing so leads to accusations of discrimination, retaliation, or breach of contract.

Emotions run high following an involuntary discharge and some ex-employees are just looking for a fight. While nothing can totally bar former workers from pursuing legal action, employers can take steps to take the wind out of these individuals’ litigious sails. Get a free trial of Practical Law, the how-to resource with termination best practices, protocols and practical tips for employers on legal risks. The best way to escape a lawsuit it to avoid its inception. Implementing and following proper termination practices minimizes the risk of encountering a wrongful termination claim. Before initiating a dismissal process, employers must understand all applicable federal and state employee termination laws and policy requirements.

To protect confidentiality, only include critical individuals in discussions. Two words that no employee wants to hear and, frankly, no employer wants to say, especially after spending time and investing resources into the recruitment, onboarding, and training process. But the fact of the matter remains that, in the world of employment, termination is not avoidable. Here at Combined, our HR experts have helped countless employers, just like you, develop a compliant approach to termination. We can help you put the proper procedures in place so that you are protected from disputes and damages following employee dismissal. In this article, we will discuss the proper process for parting ways with an employee.

By reading it, you will learn 6 strategies to reduce your risk of wrongful termination claims. In the United States, though limitations apply, all 50 states recognize at-will employment. Wrongful termination claims can be costly, time-consuming, and damaging to a business’s reputation. Employers must take proactive steps to protect themselves from lawsuits while ensuring compliance with state and federal labor laws. Understanding what constitutes wrongful termination, implementing best practices, and preparing for potential claims can help businesses avoid legal risks and maintain a fair workplace environment. Wrongful termination occurs when an employee is fired in violation of federal, state, or contractual employment laws.

While most states, including Michigan, follow the at-will employment doctrine—allowing employers to terminate employees for any legal reason—there are several exceptions that protect employees from unfair dismissals. A well-drafted employee handbook outlining company policies, code of conduct, and disciplinary procedures can serve as a legal safeguard. The handbook should clearly state that employment is at-will, except where contractual agreements state otherwise. One of the most effective ways to defend against a wrongful termination claim is to maintain thorough records. Employers should: Many wrongful termination claims stem from improper actions taken by supervisors.

Employers should: In today’s workplace environment, avoiding wrongful termination lawsuits is crucial for both employees and employers. Employers should prioritize clear documentation of performance-related issues and maintain open lines of communication with employees. This proactive approach not only safeguards against legal disputes but also fosters a positive workplace culture. Understanding the legal landscape surrounding termination is essential. Employers must be aware of local labor laws and ensure that their practices align with these regulations to minimize the risk of litigation.

By implementing fair and consistent policies, they can better protect their organizations from potential claims. Training managers and HR personnel on best practices can further reduce risks. Equipping them with the tools to handle employee grievances effectively can prevent misunderstandings that may lead to costly lawsuits. Taking these steps is vital for maintaining a healthy work environment and ensuring legal compliance. Wrongful termination covers various illegal employment practices. It can happen when an employee is let go for discriminatory reasons or in violation of established laws or regulations.

Recognizing what constitutes wrongful termination is crucial for both employees and employers. Wrongful termination occurs when an employee is fired in violation of federal or state laws, contractual agreements, or public policy. Examples include dismissals based on discrimination due to race, gender, age, or religion. Additionally, it can apply when an employee is terminated for exercising legal rights, such as reporting illegal activities or filing for workers’ compensation. On Behalf of Cameron & Mittleman, LLP | Oct 19, 2021 | Business And Commercial Law, Commercial Litigation | Employers have the right to make their own personnel decisions.

However, it seems that every business will have to deal with former employees who claim that they were wrongfully terminated. Even in “at-will” states, employers are prohibited from terminating an employee for legally impermissible reasons. Wrongful termination lawsuits can come as a big surprise to a business, or it may be clear from an employee’s exit that there could be trouble. Regardless of how the employee left and the reasons for the employee’s termination, employers can take several steps to protect the company against such claims. Businesses can generally terminate an employee for any reason, or no reason at all, unless it violates their employment agreement or the civil laws that protect individuals here in the United States. Examples of wrongful terminations include:

Here are five actionable items that businesses can use to protect themselves: Federal and state agencies have laws about how and when employees can be fired. Follow these policies and your company guidelines to avoid wrongful termination claims. All states, except Montana, allow "at-will" employment. This means that an employer or employee can end the employment at any time, for any reason. However, the reason for termination cannot be illegal.

This includes: At-will employment may not apply to everyone. It does not include employees who work: These government resources can help you make sure you are following termination rules: Ask a real person any government-related question for free. They will get you the answer or let you know where to find it.

How To Avoid Legal Liability For Wrongful Terminations

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