Firing employees can be one of the most stressful tasks of a business owner, but even more stressful is the task of defending yourself in a wrongful termination suit.

The majority of American workers are at-will employees, and as such, these employees require minimal (if any) reasons for termination. Other classes have more restrictions on when and how to terminate, but every employer must adhere to certain federal and state regulations when firing any type of employee.

Read on to find out what constitutes wrongful termination and how to avoid the costly lawsuits that may follow.

Breach of Contract

A breach of a written contract is clearly grounds for wrongful termination. However, the firing of an employee under an implied contract is likewise illegal.

Implied contracts are implicit agreements made between an employer and an employee. Whether made orally, through written company communications or official documents (such as a handbook), employees under implied or explicit contracts are not considered at-will employees. As such, their employers must have valid reasons for termination.

To avoid a breach of an implied contract, make sure company policies are clearly and carefully laid out in your employee handbook. It should also be clear that written communications and company publications are not contractually binding.

And although it’s natural to want to assure a candidate or associate of their security or opportunities, avoid unconditional commitments (e.g. “You’ll always have a job here”).


The Civil Rights Act of 1964 prevents the firing of employees based on race, religion, sex and nationality; some states also have similar restrictions on the firing of “protected classes” not included in federal law, such as firing because of sexual orientation or political affiliations.

Similar federal statutes preventing the firing of employees based solely on certain personal characteristics include:

  • Americans with Disabilities Act (ADA): Prohibits employers from discriminating against employees with disabilities, employees formerly with disabilities or even those perceived to have disabilities
  • Immigration Reform and Control Act of 1986 (IRCA): If the employee is legally eligible to work in the United States, it is illegal for an employer to fire him/her based on their alien status, citizenship or national origin

Most of the federal employer regulations apply only to certain-sized businesses in specific industries. However, many states have laws in place to supplement the holes contained in federal statutes.

Keep in mind that discrimination does not have to be intentional. Unintentional employer patterns or unclear reasons for discipline can be construed as discrimination in some cases. To prevent discrimination claims when firing, keep thorough and detailed accounts on warnings and discipline for all employees; be especially weary when conducting layoffs, as unnoticed patterns may emerge when letting employees go.


Employer retaliation is any adverse action taken against an employee for complaining about harassment or discrimination occurring in the workplace. This similarly applies to employees who testify on behalf of others employees’ complaints. And just like harassment, retaliation claims can be made against unintentional actions.

Similar forms of actions that can lead to retaliation include:

  • Whistle Blowing: Whistle blowers are those that report activities made by a company that are unlawful or that are harmful to public interests
  • Refusal to Take Lie Detector Test: The Employee Polygraph Protection Act of 1988 (EPPA) prohibits employers from requiring employees to take polygraph tests; it similarly prohibits employers from firing employees who refuse to take the tests
  • OSHA Complaints: The Occupational Safety and Health Act established OSHA, the government agency that regulates safety and health conditions for workplaces; it also prohibits retaliation against employees who file OSHA complaints

Always be extremely weary when dealing with employee complaints. Sometimes the best intentions can lead to retaliation claims. For example, moving an employee who complained about a supervisor to a new department with a new supervisor may be construed as retaliation even if your intentions were to ease the employee’s issue.

Document issues thoroughly and resolve problems head-on. Don’t attempt to hedge the issue; commit to resolving the complaint to avoid repercussions in the long run.

Violation of Public Policy

If an employer fires an employee for immoral or unethical reasons, that employer is violating public policy. Since ethics and mores are subjective, public-policy regulation differs from state to state, but there are general violations that the majority of states police.

These violations include but are not limited to:

  • Firing for disclosing illegal company practices
  • Firing because of jury-duty service
  • Firing because of military commitments
  • Firing for refusal to commit illegal acts

Avoiding violations of public policy should be pretty straightforward. Committing illegal acts or pressuring employees to engage in illegal acts should not be part of any company procedure.

Beyond that, be aware of any civil or military commitments of your employee and attempt to alleviate any conflicts between an employee’s work and outside engagements. And like the rest of the topics in this article, document everything thoroughly to provide proof of work-related issues rather than what may seem like personal ones.

Breach of Good Faith and Fair Dealing

In a small number of states, there is an “implied covenant of good faith and fair dealing” between contract workers and their employers. This covenant is to ensure that both parties will engage with each other honestly, fairly and in good faith to execute the terms and receive the benefits of the contract.

Among others, violations of good faith and fair dealing include:

  • Firing to prevent payment of commissions or bonuses
  • Firing before retirement to prevent disbursement of benefits
  • Firing based on fabrication of evidence of poor performance

To avoid breaches of good faith and fair dealing, note where the employee stands in regard to earnings, tenure and retirement.

Also, be sure to research your state’s laws regarding good faith and fair dealing. For example, Montana’s Wrongful Discharge from Employment Act of 1987 prohibits the termination of all employees (including at-will workers) without “good cause.” The statute requires employers to give a probationary period before firing, allowing the employee the right to challenge their termination.


Defamation of a former employee’s character can occur well beyond the date of termination. But if a former employee can prove that an employer made false and malicious statements that prevented him/her from finding a new job, that employer can be subject to a defamation suit.

To avoid defamation claims, be diligent of correspondence regarding former employees. If asked for a review or reference, just remember that, if untrue, what you say can lead to a defamation suit; declining to perform the review instead of exaggerating grievances can help prevent costly lawsuits.


A reliable (but not infallible) way to avoid a wrongful termination suit is to have fired employees sign a Termination and Release Agreement. It should be made clear within the agreement that, upon signing, the former employee agrees to release the company against all potential claims.

In addition to this agreement, a Severance Agreement may be offered to higher-level employees to appease any feelings of wrongdoing.

Beyond that, fostering a rewarding, open and sympathetic work environment can go a long way toward keeping workers happy and preventing claims of wrongful termination.