Terminating an employee is one of the hardest things a business does, and it is almost certainly the most legally scrutinized decision you will make in the workplace. It is also one of the few decisions that triggers immediate legal obligations — the clock starts running the moment you end the relationship. Yet how to actually conduct a termination is not taught in any management class.
The good news is that a termination handled the right way is not just a risk to survive — it is an opportunity to reduce your liability. The same disgruntled employee who walks out feeling blindsided and shorted is the one who calls a plaintiff’s firm on the drive home. The employee who is treated with respect, paid everything owed on the spot, and given a clean process to point back to is a much harder case for that firm to build. Here are five things to get right.
1. Document the true reason for the termination — and do not sugarcoat it
If the termination is for cause, say so and document it as for cause. Do not take the easy route and tell the employee they were “laid off” or that it was a “reorganization” when the real reason was poor performance, theft, or a policy violation. It feels kinder in the moment, and it avoids an awkward conversation, but it sets a trap for the company.
Here is why. If that employee later sues — for discrimination, retaliation, or wrongful termination — and the company has to explain in litigation that the real reason was performance, you have handed the plaintiff a credibility problem. The story changed. A shifting explanation for a termination is exactly the kind of evidence a plaintiff’s lawyer uses to argue the stated reason was pretext for an unlawful one. Juries notice when the reason on the separation paperwork does not match the reason the company gives under oath.
Document performance as you actually see it, contemporaneously, and make sure the reason you give the employee, the reason in the file, and the reason you would give a jury are all the same reason. Consistency is your friend here.
2. Have the final paycheck — and everything else owed — ready before the meeting
This is the issue that did not get enough attention a few years ago and now drives a meaningful share of termination claims. Under Labor Code section 201, when you terminate or lay off an employee, all final wages are due immediately, at the time of discharge — not on the next payday, not at the end of the week, not “once payroll runs.” (If an employee quits without notice, you have 72 hours; with at least 72 hours’ notice, it is due on the last day.)
“Final wages” is broader than people assume. It includes regular and overtime wages, and all accrued, unused vacation or PTO, which California treats as earned wages that cannot be forfeited. It also includes earned commissions and non-discretionary bonuses to the extent they can be calculated.
Miss the deadline and you are exposed to waiting time penalties under Labor Code section 203: the employee’s full daily wage rate for every day the final pay is late, up to 30 days. For a single mid-level employee that can run into thousands of dollars on its own — and these penalties are a favorite add-on claim because they are easy to prove and separate from the underlying wages. The one escape valve is a genuine good-faith dispute about whether the wages were actually owed; a payroll-processing delay or “we needed a few more days” is not a defense.
A practical, easily missed trap that ties into scheduling: if you bring an employee in for a scheduled shift and then terminate them early in that shift, you may owe reporting time pay on top of everything else — generally half the scheduled shift (no less than two and no more than four hours) at the regular rate. If you are going to terminate someone who is scheduled to work, either handle it before the shift or let them work at least half of it. Better yet, build the final-pay calculation before the employee ever walks into the room. Planned terminations should never produce a late or short final check.
3. Conduct the termination meeting with respect
There is nothing scientific about this one, but after years of defending these cases I am a firm believer in good bedside manner. Most employees will not enjoy being terminated, but they will usually understand the decision if they were given honest performance feedback along the way and were treated like an adult during the meeting itself.
The employees who sue are very often not the ones with the strongest legal claim — they are the ones who felt humiliated, ambushed, or disrespected on the way out. Keep the meeting brief, factual, and private. Have a second management witness present. Do not argue, debate, or pile on; the decision is made, and the meeting is to deliver it, not to relitigate it. Tell them what comes next — final pay, benefits continuation, return of property — so they leave with information rather than a grievance.
Dignity is cheap, and it is one of the most cost-effective forms of litigation prevention available to an employer.
4. If you offer severance, get the release right under current California law
Paying severance can cost money in the short term, but in exchange for that payment you should obtain a release of claims — and a properly drafted release can save enormous time and money down the road. The catch is that the rules for what a California severance agreement can and cannot say have changed significantly, and an agreement built off an old template may be unenforceable or expose you to new claims.
A few of the current requirements and limits to keep in mind:
- SB 331 (the “Silenced No More Act”). For agreements signed on or after January 1, 2022, you must give the employee at least five business days to consider the severance agreement (they may sign sooner if they choose), and you must advise them in writing of their right to consult an attorney. The agreement cannot prevent the employee from disclosing factual information about unlawful acts in the workplace such as harassment, discrimination, or retaliation, and any non-disparagement provision tied to a FEHA release must include specific carve-out language preserving the employee’s right to discuss unlawful conduct. You can still keep the severance amount confidential and protect genuine trade secrets.
- No “no-rehire” clauses. Under AB 749, settlement and severance agreements may not contain provisions barring the employee from future employment with the company or its affiliates.
- Non-competes are void — and you may owe notice. California’s prohibition on non-competes was strengthened by SB 699 and AB 1076 (effective January 1, 2024), which also created a private right of action and required employers to send individualized written notice to current and certain former employees that any non-compete provisions are void. Do not paper a severance agreement with restrictive covenants that California will not enforce; doing so can itself be treated as unfair competition.
- Older workers (age 40+). If you want a valid release of age claims under the federal ADEA/OWBPA, you still need the separate consideration period (generally 21 days, or 45 days in a group layoff) and a 7-day revocation window. These run alongside, not instead of, the SB 331 timeline.
The takeaway: a release is still one of the best tools you have, but only if it is current. Have counsel review your template — not every few years, but on the cadence California’s legislature actually moves, which is essentially every year.
5. Keep the right records — and work from a checklist
Most of what protects you in litigation is built before the lawsuit ever arrives, in the form of records you can actually put your hands on. Retention guidelines worth following:
- Payroll and time records: keep at least four years on a rolling basis. The Labor Code requires shorter periods, but wage claims (including unfair competition claims under the UCL) can reach back four years, so four years is the practical floor.
- Personnel files: at least three years after termination, and longer is advisable given the longer statutes of limitations on many employment claims.
- Paid sick leave records: at least the statutory period, and keep in mind accrued, unused sick time may need to be reinstated if you rehire within a year.
- If litigation is anticipated: preserve everything and suspend routine destruction until the matter resolves.
Then build a checklist and use it every single time. Termination is exactly the kind of high-pressure, emotionally charged event where it is easy to forget a step, and a checklist forces you to think the process through when there is no pressure — final pay calculated, accrued vacation included, benefits/COBRA information ready, property return arranged, access and credentials disabled, separation documents prepared and compliant, and the reason documented consistently. A checklist also lets you confirm your managers are following both the legal requirements and your own internal process.
One additional 2026 note if you are doing anything larger than a one-off termination: the California WARN Act now requires expanded content in mass-layoff, relocation, and termination notices issued on or after January 1, 2026 (SB 617) — including information about workforce development board coordination and the CalFresh food assistance program. If you are contemplating a reduction in force, loop in counsel early; the 60-day notice obligation and the new notice content are easy to get wrong and costly when you do.
A termination will never be pleasant. But the difference between a termination that becomes a six-figure problem and one that quietly closes the file usually comes down to the things in this list: an honest, consistent reason; a final check that is correct and on time; a respectful conversation; a release that complies with current law; and records you can actually find. Do those five things and you have turned one of your riskiest decisions into one of your better-defended ones.
Join Our Upcoming Masterclass
Terminating California Employees — Exiting with Confidence: Best Practices for Lawful Terminations and Litigation Prevention
Tuesday, June 17, 2026, 10:00 AM PT
A termination is one of the highest-risk decisions a California employer makes — and often the first thing a plaintiff’s attorney scrutinizes when a claim comes in. Performance issues, misconduct, protected leave, final pay deadlines, and severance terms all have to be weighed before the decision is final, and a misstep on any one of them can turn a routine separation into a wrongful termination, discrimination, or retaliation claim.
Join Anthony Zaller and Anne McWilliams for a practical Masterclass designed to help California employers make sound, defensible termination decisions while minimizing litigation exposure. Attendees will leave with actionable guidance on documentation, pre-termination risk assessments, separation and final pay requirements, and severance and release agreements.
In this session, you will learn how to:
- Identify the legal risks that should be assessed before a termination decision is final
- Build documentation that supports and defends the decision
- Conduct a termination meeting that reduces conflict and exposure
- Use severance and release agreements effectively
- Meet California’s final pay and separation requirements
- Reduce the risk of wrongful termination, discrimination, and retaliation claims