How to Terminate an Employee Correctly: A Founder's Step-by-Step Guide
The way you handle a termination determines whether it stays a personnel decision or becomes a lawsuit. Here is the process to follow.
Terminations are the highest-risk people decisions a founder makes. A well-handled termination takes 20 minutes and leaves a paper trail that protects your company. A poorly handled one can cost tens of thousands of dollars to defend even when you were completely in the right.
Before you schedule the meeting
The work of a defensible termination happens before the conversation, not during it. If you are terminating for performance, you should have documentation: written feedback, a performance improvement plan (PIP) or written warnings, and manager notes from conversations about the issues. If that documentation does not exist, terminating abruptly creates a discrimination risk even when the performance problems are genuine.
Confirm the employee's final pay obligations for your state. Most states require that final pay be provided on the last day of employment for involuntary terminations, though some allow the next regular payday. Never withhold final pay, even if the employee owes the company money or has not returned equipment. Withholding final pay violates the Fair Labor Standards Act and most state wage laws.
Prepare the logistics before the meeting: revoke system access (scheduled to take effect as the conversation ends), collect any company equipment, prepare the separation paperwork, and confirm COBRA continuation notice obligations. If the employee has company benefits, you are required by federal law to provide a COBRA election notice within 44 days of coverage loss.
The termination meeting
Keep it brief. The termination conversation should last no more than 10 to 15 minutes. The decision has already been made; this is not a negotiation or a performance review. Get to the point quickly, using clear language.
Have a witness present, typically another manager or HR professional. This protects both parties and ensures there is no dispute later about what was said. Take brief notes immediately after the meeting.
Deliver the message directly but with respect. State that their employment is ending, the effective date, and the practical next steps. Do not over-explain, apologize excessively, or get into a debate about the merits. You can acknowledge that this is difficult without undermining the decision.
What to say: 'We have made the decision to end your employment, effective today. This decision is final. I want to walk you through what happens next.' What not to say: anything that implies the decision might be reconsidered, any statement that could be interpreted as a reason that touches on a protected characteristic, or any promise about what you will or will not say in a reference.
Severance: when it makes sense and what it requires
Severance is not legally required in most cases under federal law, though some states have specific requirements. When companies offer severance voluntarily, they typically do so in exchange for a signed release of claims, which limits the risk of a subsequent lawsuit.
If the employee is 40 or older, the release must comply with the Older Workers Benefit Protection Act (OWBPA). This requires that the release specifically reference ADEA claims, that the employee be given 21 days to review the agreement, and that there be a 7-day revocation period after signing. A release that does not meet these requirements is not enforceable as to age discrimination claims.
Have severance agreements drafted or reviewed by employment counsel, not pulled from a template. An unenforceable release provides no protection.
The offboarding process
After the meeting, complete the following steps: collect all company property (laptop, phone, badges, credit cards), confirm system access has been revoked, process the final paycheck per state requirements, provide required notices (COBRA, state unemployment insurance information), and update internal systems.
Establish a communication plan for the team. You do not need to explain the details of why someone left, but acknowledging the departure and explaining the transition plan prevents speculation and maintains team stability. Keep the communication factual and forward-looking.
Document everything. Note what was said in the termination meeting, what was collected, what access was revoked, and when final pay was issued. This documentation is your protection if a claim is filed months later.