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Terminating employees is an unfortunate but often unavoidable part of the founder journey. As you scale a company and build a strong team, early hires must align with the culture you are trying to create. A cohesive, meritocratic team with genuine entrepreneurial spirit is critical to building a lasting venture.
However, when things don’t work out and certain hires must be let go, founders should understand how to protect the company’s interests. This article outlines key considerations for terminating employees while minimizing legal and operational risk.
Initial Assessment
Before proceeding with a termination, it is important to conduct a thoughtful review of the employee’s situation, including:
- Where the employee is in their equity vesting schedule and how much equity they will hold at termination
- Whether the employee raised any formal complaints during their employment
- Any contractual commitments governing post-termination treatment, such as compensation, severance, or restrictive covenants
- The employee’s immigration status, if applicable
Understanding these factors will help you prepare for what follows the termination and anticipate any serious implications for the employee, particularly where immigration or equity rights are involved.
Notice
The first step in any termination is providing notice. Employment agreements may specify a required notice period. Where they do not, employers are generally expected to provide “reasonable” notice. While there is no fixed formula, founders should review notice provisions for comparable employees and consider industry norms for similar roles.
In some cases, applicable law may mandate a minimum notice period. Regardless of length, notice of termination must be clear and unequivocal, ensuring both parties understand that employment will end on a specific date. During the notice period, the existing employment agreement typically remains in effect.
Severance
In the United States, severance pay is generally not required under federal or state law and is instead offered at the employer’s discretion. When determining whether to offer severance, companies often consider the employee’s tenure, seniority, and internal company practices.
If the company wishes to obtain a release of claims from the departing employee, it must provide “fresh consideration”—meaning something of value beyond what the employee is already entitled to receive.
Wrongful Dismissal
Wrongful dismissal claims are typically grounded in the employment contract. If an employee believes their contractual rights were violated during termination, they may pursue claims through the courts or employment tribunals. To reduce this risk, founders should document performance issues and decision-making, maintain clear and consistently applied policies, provide appropriate notice, and avoid unilateral changes to employment terms. Terminations for cause should always be reviewed with legal counsel beforehand.
By approaching terminations thoughtfully and consulting experienced advisors, founders can significantly reduce the risk of disputes or legal proceedings. At Apex Law, we regularly advise founders and growing companies on employee terminations while helping minimize the associated risks.
