Key Issues Every California Employer Must Get Right When Terminating an Employee
At our recent masterclass, “Exiting with Confidence: Best Practices for Lawful Terminations and Litigation Prevention,” Anne McWilliams, Caylee Scott, and I went back to basics on one of the highest-risk moments in the employment relationship: the termination. We debated whether a back-to-basics topic would draw interest, but preparing for it reminded me why it is worth revisiting — the forms, the severance rules, and the practical landscape around terminations keep changing, and a process that was compliant a few years ago may not be today.
Two themes ran through the entire presentation. First, the obligations are immediate: the moment you end the relationship, the clock starts running on final pay and required notices. Second, treat the employee with respect. An employee will rarely like the decision in the moment, but an employee who is treated with dignity, paid everything owed on time, and handed a clean set of paperwork is far less likely to spend the drive home calling a plaintiff’s lawyer. Here are five key issues from the masterclass that every California employer should have dialed in:
1. Document the true reason for the termination — and do not sugarcoat it.
It sounds simple, but it is remarkable how often litigation arrives and there is no documentation of the reason for the termination. If the termination is for cause — performance, behavior, a policy violation — say so and document it that way. Do not take the easy route and call it a “layoff” to soften the conversation. That is the employee who sues, and now the company’s real defense is not documented anywhere, the paperwork says something different, and the shifting explanation becomes a credibility problem that a plaintiff’s lawyer will use to argue pretext.
Be concrete. “Bad attitude” in a file means nothing. Three documented instances where the employee talked back to a supervisor during coaching, called a coworker a name, or made an inappropriate comment in a meeting tells a story a jury can follow. If a written policy was violated, identify the specific policy, the key dates, and the prior coaching or discipline. And your handbook should be reviewed annually so the conduct you are terminating for is actually addressed in your policies — though keep in mind you do not need a written policy for every conceivable infraction to terminate for misconduct.
Before the termination is final, run a red-flag audit of the entire personnel file. Has the employee recently complained about wage and hour issues? Recently returned from a protected leave? This matters more than ever: California law now creates a rebuttable presumption of retaliation when an employer takes an adverse action within 90 days of an employee engaging in certain protected activity. The presumption can be rebutted — but what rebuts it is the contemporaneous documentation in your file. If the timing looks bad, that is exactly when to get advice of counsel before pulling the trigger. Also document who made the termination decision: if the same person who hired the employee is the one terminating them, the “same actor” inference can be a helpful defense.
2. Have the end-of-employment packet ready — four documents are critical.
Just as employers use a new-hire packet, we recommend building a standing end-of-employment packet, because California requires certain documents to be provided at termination.
First, the Notice to Employee as to Change in Relationship, required under the Unemployment Insurance Code. It applies to terminations, layoffs, and leaves of absence (not voluntary quits or promotions), and it must be given at the time of the termination. Critically, the reason listed on this form must match what you tell the employee and what is in the file — an inconsistency here creates a presumption against you in litigation.
Second, the EDD’s “For Your Benefit” pamphlet explaining California’s unemployment insurance programs. It runs over twenty pages, and you are permitted to email it to the employee rather than printing it every time — just think through your distribution method in advance.
Third, the applicable health coverage continuation notice — a federal COBRA notice for employers with 20 or more employees, or a Cal-COBRA notice for employers with 2 to 19 employees. Your health insurance carrier typically prepares these; you do not need to reinvent the wheel, but you do need to confirm they actually go out.
Fourth, the HIPP notice issued by the California Department of Health Care Services regarding the Health Insurance Premium Payment program — a state form, not to be confused with federal HIPAA. This is the one employers forget most often, so build it into the packet.
Beyond these documents, employers should consider other optional documents, such as: a termination letter clearly stating the reason for the separation, and a final-pay acknowledgment form itemizing everything included in the final check, which the employee signs to confirm timely payment. If the employee refuses to sign, do not force the issue — give them the documents and the final pay anyway, and note on your copy that it was presented and the employee declined to sign.
3. Final pay is due immediately — and “final wages” means more than you think.
The timing rules are simple, but they are the most common compliance failure we see. For a termination or layoff, all final wages are due immediately, at the time and place of termination. For an employee who quits with at least 72 hours’ notice, final pay is due on the last day; with less notice, within 72 hours of the notice of quitting.
Final wages include everything owed and calculable at separation: earned regular and overtime wages, all accrued but unused vacation and vested PTO (which California treats as earned wages), commissions and bonuses to the extent they can be calculated, and unreimbursed business expenses. Accrued paid sick leave is not paid out at separation — but remember it must be reinstated if the employee is rehired within a year. If a commission or bonus has not yet vested and cannot be calculated, advise the employee in writing that it will be paid when calculable.
The penalty for getting the timing wrong is severe: waiting time penalties of one full day’s wages for each day the final check is late, up to 30 days. For an employee earning $200 per day, a check that is 20 days late generates a $4,000 penalty — and untimely final pay is a favorite add-on claim in class and PAGA actions precisely because it is so easy to prove. A few practical traps from the masterclass: a direct deposit authorization signed at hire is not valid for the final check — you need a fresh written authorization to direct deposit final wages. If the employee asks you to mail the check, get that authorization in writing with the address; the check is then deemed paid on the date of mailing. And do not forget the reporting time pay trap — if you bring an employee in for a scheduled shift and terminate them at the start of it, you owe reporting time pay (generally half the scheduled shift, no less than two and no more than four hours). The cleanest approach for an hourly employee: prepare the final check the day before and simply pay for the full final day, rather than trying to predict exactly when the meeting will end.
4. Conduct the meeting the “Moneyball” way — and assume you are being recorded.
We opened the masterclass with the viral video of an employee who, knowing her termination was coming, recorded the meeting and posted it online — what I have been calling “TikTok terminations.” California is a two-party consent state, so recording a confidential conversation without everyone’s consent is unlawful and likely inadmissible — but that will not keep the clip off the internet. The practical rule: conduct every termination meeting, especially remote ones, as though it will be played back later. Be professional, be consistent, and never say anything you would not want a jury or the internet to hear. (And a note on a question we get more and more: should the employer record the meeting itself, with everyone’s consent? My thinking has shifted — much like police body cameras, your own accurate recording can protect you if your process is done right.)
The most damaging moment in that video was the answer to “why am I being let go?” The company representatives did not have the reason ready and offered to circle back later with data. Do not let that happen. Have the reason locked down before the meeting, state it, and stick to it. This is where the Moneyball approach comes in: in the movie, Billy Beane teaches his young assistant how to cut players — keep it direct, deliver the decision, avoid over-explaining and over-apologizing, and do not get drawn into a debate. The decision has been made; the meeting is to deliver it, not to relitigate it. That said, do not swing to the other extreme and be robotic about it — this is a hard, human moment, and handling it with dignity is one of the most cost-effective forms of litigation prevention there is. Have a second management witness present who takes notes, so the person delivering the news can stay engaged with the employee. And train for it: role-play these meetings with your managers before they ever have to conduct one, using videos like the one we reviewed as training material. How would your manager answer “why am I being let go?” Find out in a practice session, not in a recorded meeting.
5. Get the severance agreement right, keep the right records, and work from a checklist.
Severance is not required under California law, but when you pay an employee anything beyond what is owed in final wages — whether to mitigate risk on a difficult termination or to recognize a long-term employee in a layoff — get a release of claims in exchange. A properly drafted release covers all claims, known and unknown, through the date of signing, and it is worth obtaining even for a modest payment. There is no set formula for the amount; one to two weeks of pay is common for hourly employees, but it varies with tenure and risk.
The drafting rules keep changing, which is why your template needs regular updating. For employees 40 and older, releasing a federal age claim requires giving the employee 21 days to consider the agreement and 7 days after signing to revoke — which means do not pay the severance until the revocation period expires, and explain that timing to the employee up front. Separately, California now requires giving employees at least five business days to consider a severance agreement and written notice of their right to consult an attorney. An old template can leave you having paid the money without a valid release.
Finally, records and process. Keep payroll records for at least four years — the Labor Code requires less, but wage claims can reach back four years, and never rely solely on a payroll vendor to store them; download and maintain your own copies, because switching vendors can mean losing access precisely when a lawsuit needs them. Personnel files should likewise now be kept for at least four years after separation. Establish a strict reference protocol — verify dates of employment and job title, nothing more, through one designated person — to avoid defamation and privacy claims. And put all of it on a written termination checklist: reason documented, red-flag audit done, final pay calculated (including vacation, commissions, and any reporting time pay), required notices assembled, property return and system access handled. A termination is an emotional, high-pressure event for everyone in the room, including the manager conducting it. A checklist built in advance is what keeps a hard conversation from becoming an expensive one.
Terminations will never be easy, but they can be clean. Document the honest reason, hand over the required paperwork, pay everything owed on time, deliver the decision directly and with dignity, and paper the exit properly. Do those five things consistently and you have turned one of the riskiest events in the workplace into one of your best-defended ones.
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