# What Does Termination of Employment Mean?

![Termination of Employment: The end of an employee's contract with a company.](https://www.investopedia.com/thmb/Nhj-DBhTLrroxuG5j8PeQ3m8660=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Termination-employment_final-4aad1375426e43c29891f6e7782bd296.png)

*— Investopedia / Michela Buttignol*

## What Is Termination of Employment?

Termination of employment is the end of an employee’s work with a company. An employee may be terminated from a job of their own free will or following a decision made by the employer. Employers who execute a termination of employment may do so for many reasons, including downsizing, poor job performance, or redundancies.

An employee who is not actively working because of an illness, leave of absence, or [furlough](https://www.investopedia.com/terms/f/furlough.asp) is still considered employed if the relationship with the employer has not been terminated formally with a [notice of termination](https://www.investopedia.com/terms/n/notice-of-termination.asp).

### Key Takeaways

*   Termination of employment refers to the end of an employee’s work with a company.
*   Termination may be voluntary, such as when workers leave of their own accord.
*   Involuntary termination occurs when a company downsizes, makes layoffs, or fires an employee.
*   Severance packages are discretionary, which means a company does not need to offer them to employees when their employment is terminated.
*   A worker who is unemployed through no fault of their own may be eligible to receive unemployment benefits.

## Voluntary Termination

An employee may voluntarily terminate their employment with a company at any time. An individual usually does so when they find a better job with another company, retire from the labor force, resign to start their own business, or when they want to take a break from working.

[Voluntary termination](https://www.investopedia.com/terms/v/voluntary-termination.asp) may also be a result of constructive dismissal, which is also called [constructive discharge](https://www.investopedia.com/terms/c/constructive-discharge-claim.asp) or constructive dismissal. This means the employee leaves the company because they have no choice. They could have been working under significant duress and difficult working conditions, which could include:

*   A new work location that is farther than the employee can reasonably commute
*   Increased work hours, among other reasons
*   A low salary
*   Harassment

The forced discharge of an employee, whereby they are given an ultimatum to [quit or be fired](https://www.investopedia.com/financial-edge/1112/things-you-didnt-know-could-get-you-fired.aspx), also falls under constructive dismissal. If the employee can prove that the employer's actions were unlawful during their tenure, they may be entitled to some form of compensation or benefits.

An employee who voluntarily leaves an employer may be required to hand in their resignation, which is an advanced notice, either verbally or in writing. Most managers prefer receiving a notice at least two weeks in advance of an employee's resignation. This allows the employee to finish important tasks and gives the employer a chance to arrange for a permanent or temporary replacement.

> **Important**
>
> If your employment changes due to a change in hours, layoff, or termination, you may qualify for COBRA health insurance coverage under your existing group health plan for 18 months. If you choose to continue under the same plan, you are responsible for the entire premium each month.

## Involuntary Termination

Involuntary termination of employment occurs when an employer lays off, dismisses, or fires an employee.

### Layoffs and Downsizing

In a [layoff](https://www.investopedia.com/laid-off-what-to-do-first-8725392), employees are usually let go through no fault of their own, unlike workers who are fired. Companies often decide to lay off workers or [downsize](https://www.investopedia.com/terms/d/downsize.asp) their organizations to lower their operating costs, [restructure](https://www.investopedia.com/terms/r/restructuring.asp) their organizations, or because they no longer need an employee’s skill set. Employers may [suspend certain roles temporarily](https://www.investopedia.com/terms/b/break-in-service.asp) in layoffs, as was the case during the COVID-19 pandemic, or they may be permanent as a result of restructuring decisions.

### Dismissed (Fired)

An employee is usually dismissed from a job as a result of unsatisfactory work performance, bad behavior, or a poor attitude that does not fit with the corporation's culture. They may also be let go because of [unethical conduct](https://www.investopedia.com/terms/b/business-ethics.asp) that violates the company's policies.

According to [at-will employment](https://www.investopedia.com/terms/t/terms-of-employment.asp) laws recognized in some states, a company may dismiss without warning any employee performing poorly or violating some form of the company's rules. In fact, the company does not need to give a reason for the employee's termination.

### Illegal Dismissals

Although employment-at-will contracts do not require an employer to warn or give a reason for a dismissal, an employer cannot fire a worker for certain reasons, including:

*   Refusing to work in unsafe conditions or environment
*   Taking a leave of absence
*   Reporting an incident or a person to the Human Resources (HR) department
*   [Whistleblows](https://www.investopedia.com/terms/w/whistleblower.asp) to industry regulators

Individuals cannot be fired for these reasons. An employer who discharges an employee for exercising their legal rights does so unlawfully and may be liable for [wrongful termination](https://www.investopedia.com/terms/w/wrongful-termination-claims.asp) in the courts.

Other illegal dismissals occur when an employer lets an employee go for discriminatory reasons such as their religion, race, age, gender, disability, sexual preference, or nationality. An employer who is found guilty of wrongful termination may be required to compensate the wronged employee and/or reinstate them into the company.

### Termination for Cause

Other than at-will conditions of employment, an employer may fire an employee for a specific cause. A termination-for-cause clause requires the employer to put the employee on an improvement schedule of 60 or 90 days, during which the employee is expected to improve their work ethic. If the employee does not improve by the end of the probationary period, they could be terminated for cause and dismissed with prejudice, which means no possibility of reemployment at another time.

In some cases, an employer may dismiss an employee without prejudice. This indicates that the employee was let go for reasons other than incompetence, insubordination, or misconduct in the workplace. In such situations, the employee may be rehired for a similar job in the future.

## Mutual Termination

Mutual termination occurs when both employer and employee agree to end a working relationship. This method is preferable to involuntary termination and can benefit both parties because it can reduce the emotional toll on the ex-employee and the manager conducting the termination.

A mutual termination might be forced retirement, forced resignation, or the end of a contract without a renewal.

## Termination Compensation

Some employers may provide employees with a [notice of termination and pay](https://www.investopedia.com/terms/g/gardening-leave.asp), which is often called severance pay. This is common for employees who have worked with a company for more than three months and are involuntarily terminated. A company that [offers severance](https://www.investopedia.com/terms/s/severancepay.asp) does so following an agreement made privately with the employee or because severance is specified in its employee handbook. Keep in mind, though, that severance packages aren't a requirement under the [Fair Labor Standards Act (FLSA)](https://www.investopedia.com/terms/f/fair-labor-standards-act-flsa.asp).

> **Fast Fact**
>
> The last day with your employer is commonly referred to as your end, separation, or termination date.

Employers are not required by federal law to give the terminated employee a final paycheck immediately. However, state laws differ and may mandate that the employer must not only immediately provide the affected employee with a final paycheck but also include accrued and unused [vacation](https://www.investopedia.com/financial-edge/0112/the-best-times-to-take-a-vacation.aspx) days.

Anyone who is unemployed through no fault of their own may be eligible to receive unemployment benefits. Each state administers an [unemployment insurance (UI)](https://www.investopedia.com/terms/u/unemployment-insurance.asp) program to offer temporary financial assistance to people who are unemployed and looking for a job. The U.S. Department of Labor (DOL) provides detailed information about unemployment insurance benefits.

## Is Termination of Employment the Same as Getting Fired?

Yes. Termination of employment is the same thing as getting fired.

## What Are the 3 Types of Termination of Employment?

The three types of termination are involuntary, voluntary, and mutual termination.

## How to Handle Employment Termination?

When terminating an employee, the employer should have documented past issues that led to the termination. During the termination session, get to the point, be compassionate, and be quick about removing the ex-employee from the premises.

## The Bottom Line

There are many reasons why employees and employers end their relationship. Some employees may decide to leave their jobs voluntarily while others may be let go because of misconduct, poor performance, or other reasons.

You have certain rights if you were terminated. For instance, you have the right to rescind your resignation if you choose to leave voluntarily and the right to file an unemployment insurance claim if you lost your job through no fault of your own. You may have legal recourse if you believe that your employer retaliated against you and let you go illegally, whether that's because you took a leave of absence or because they discriminated against you. Be sure to consult an employment lawyer if any of these apply.  

> **Article Sources**
>
> 1.  National Conference of State Legislatures. "[At-Will Employment - Overview](https://www.ncsl.org/labor-and-employment/at-will-employment-overview)."
>     
> 2.  U.S. Department of Labor. "[Termination](https://www.dol.gov/general/topic/termination)."
>     
> 3.  U.S Department of Labor. "[FAQs on COBRA Continuation Health Coverage for Workers](https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/cobra-continuation-health-coverage-consumer.pdf)." Pages 5-6.
>     
> 4.  Occupational Safety and Health Administration. "[Workers' Right to Refuse Dangerous Work](https://www.osha.gov/workers/right-to-refuse)."
>     
> 5.  U.S. Department of Labor. "[Family and Medical Leave (FMLA)](https://www.dol.gov/general/topic/benefits-leave/fmla)."
>     
> 6.  Occupational Safety and Health Administration, Whistleblower Protection Program. "[Whistleblower Protection](https://www.whistleblowers.gov/about-us)."
>     
> 7.  U.S. Department of Labor. "[Severance Pay](https://www.dol.gov/general/topic/wages/severancepay)."
>     
> 8.  OnPay. "[2024 State-by-State Final Paycheck Laws and What to Know About Severance Pay](https://onpay.com/hr/basics/state-final-paycheck-laws-severance-guide/)."
>     
> 9.  U.S. Department of Labor. "[Last Paycheck](https://www.dol.gov/general/topic/wages/lastpaycheck)."