What is wrongful termination?

Wrongful termination occurs when an employee is fired for illegal reasons or in violation of their employment contract. This could include termination based on discrimination, retaliation for protected activities, refusal to engage in illegal acts or breach of an employment agreement.

As an employer, understanding wrongful termination is crucial for maintaining compliance with labor laws and avoiding costly legal repercussions.

What defines wrongful termination?

A host of factors can lead to a claim of wrongful termination. Common examples include:

• Discrimination: Terminating an employee based on race, gender, religion, age, or other protected categories—for instance, the Age Discrimination in Employment Act (ADEA) protects workers over the age of 40 from age-based discrimination
• Retaliation: Firing an employee in retaliation for filing a complaint, reporting harassment, whistleblowing, or participating in an investigation into illegal activities
• Breach of contract: If the termination violates the terms outlined in a written or implied employment contract
• Refusal to commit an illegal act: If an employee is dismissed for refusing to engage in illegal activities at the request of their employer

Employers must ensure terminations are managed lawfully to avoid these pitfalls.

It is worth noting, however, that just because a wrongful termination case is brought against an employer, it does not imply that it has merit. In 2023, the US Equal Employment Opportunity Commission (EEOC) received 81,055 wrongful termination charges and filed 143 lawsuits. Nevertheless, such lawsuits, as well as the administration and bad press associated with them, can be costly for a business, and it is best to do everything you can to avoid them.

What is the difference between wrongful termination vs constructive dismissal?

While wrongful termination refers to illegal firing, constructive dismissal occurs when an employee resigns due to intolerable working conditions, which effectively forces them to quit.

For instance, if an employee were not provided with the correct safety wear in a potentially dangerous environment, and decided to leave for that reason, this could be construed as constructive dismissal.

Intolerable working conditions could include working hours or a psychologically damaging culture of harassment or bullying. The definition can be wide-ranging.

In cases of both wrongful termination and constructive dismissal, the employer could be held liable if their actions violate employment laws.

What protections do whistleblowers have against wrongful terminations?

In the US, Whistleblowers who report illegal activities or unethical practices within a company are protected from retaliation under both federal and state laws. For example, the 1989 Whistleblower Protection Act safeguards employees from retaliatory terminations. According to federal law: “An employer cannot retaliate against you for exercising your rights under the Department of Labor’s whistleblower protection laws. Retaliation includes such actions as firing or laying off, demoting, denying overtime or promotion, or reducing pay or hours.”

The issues pertaining to legitimate whistleblowing are wide-ranging, including wage concerns, fraud, health and safety concerns, discrimination, unfair practices around leave, and even the use of lie detectors as an employee pre-screening technique.

The safest strategy is to ensure your company is not engaging in any practice that might reasonably cause an employee to resort to whistleblowing.

Can a wrongful termination claim be made against any employer?

Yes, wrongful termination claims can be filed against businesses of any size worldwide, but the specific legal protections and liabilities differ based on national and regional laws. For example, in:

1. United States: Federal laws such as Title VII of the Civil Rights Actt, the Age Discrimination in Employment Act (ADEA), and the Americans with Disabilities Act (ADA) apply to both large and small employers, protecting employees from discriminatory or retaliatory terminations. Even smaller businesses must comply with essential laws, though some federal laws may apply only to employers with a minimum number of employees
2. United Kingdom: Claims for unfair dismissal can be made to employment tribunals, even against small employers, after a qualifying period of employment
3. Australia: The Fair Work Act of 2009 provides protections against unfair dismissal for most employees, including those in small businesses. Employees can file claims with the Fair Work Commission if they believe their termination was unjust, harsh, or unreasonable
4. Brazil: Wrongful termination claims can be filed against employers of all sizes under the Consolidação das Leis do Trabalho (CLT). The law requires just cause for termination or compensation if terminated without a valid reason, which applies to businesses regardless of their size. Protections include mandatory severance payments and notice periods, and employees can challenge dismissals they believe violate their rights in labor courts. Terminations based on discrimination, retaliation, or failure to follow legal procedures are grounds for wrongful dismissal claims

As a global business, it’s essential to understand and comply with local employment regulations in every country where you operate. Non-compliance can lead to severe legal penalties and tarnish your reputation in international markets.

Complementary guide: Learn more about managing a global workforce with this guide on scaling global HR.

What is the impact of wrongful termination on a business?

Wrongful termination claims can have significant consequences for a business, including:

• Work environment: Unlawful terminations can disrupt team cohesion and create distrust among employees
• Morale and productivity: The remaining team may feel insecure, leading to lower engagement and productivity
• Workforce churn: Other employees may quit in solidarity with an unfairly dismissed colleague
• Reputation: A publicized lawsuit could damage your company’s brand and deter top talent
• Financial health: Legal fees, settlements, and potential penalties could have long-term financial repercussions

In summary, the minimal costs of responsibly managing any termination are significantly lower than the potential repercussions of doing it badly.

What are potential legal or compliance issues related to wrongful termination?

Failing to comply with employment laws can expose your business to lawsuits, fines, and significant damages. Employees who believe they were wrongfully terminated may sue for:

• Lost wages
• Emotional distress–this can lead to additional financial compensation
• Punitive damages (in cases of egregious employer misconduct)

Federal, state, and local employment laws vary, so it’s vital to stay compliant at every level of regulation. Consulting with an employment attorney before making termination decisions can help prevent costly mistakes.

The employee has the burden of proof in any wrongful dismissal case. They must show that their employer acted illegally and that their stated reason for termination was incorrect. They must further show a causal connection between the illegal act and their dismissal.

Proof can include witness statements, employment records, text messages or emails, or a pattern of employment practice that clearly implies a causal connection.

Therefore, it is sensible for HR departments to maintain appropriate employment records, contracts, and evidence of any communication with employees regarding their employment. These could be subpoenaed by a court as evidence.

What are the remedies for wrongful termination?

In a wrongful termination lawsuit, courts may award the following remedies to employees:

• Reinstatement: The employee is returned to their former position
• Back pay: Reimbursement of wages lost during the period of unemployment
• Front pay: Compensation for future lost earnings if reinstatement is not feasible
• Compensatory damages: For emotional distress and related impacts
• Punitive damages: Employers may face punitive damages if misconduct is proven

Note: When punitive damages are included in a settlement, the financial liability can mount significantly.

For example, in a landmark whistleblowing case in San Francisco, a sales representative was awarded $20 million when terminated following reporting her employer’s fraudulent business practices. This payout included $12.8 million in punitive damages.

How can businesses avoid wrongful termination?

To avoid wrongful termination claims, businesses should implement proactive measures, including:

1. Clear employment policies: Ensure policies on discrimination, harassment, and termination are documented and communicated
2. Training: Provide regular training on employment law, anti-discrimination practices, and ethical behavior
3. Open communication: Maintain open lines of communication with employees and address issues before they escalate
4. Offboarding: Where possible, offer an offboarding meeting to ensure an employee leaving feels they have been treated fairly
5. Document everything: Keep detailed records of performance issues and reasons for dismissal, including copies of termination letters
6. Legal consultations: Seek legal advice before making termination decisions, particularly in complex cases
7. Employment contracts: Use contracts that clearly outline terms of employment, including termination clauses

A global HR solution like Deel HR can also help ensure compliance with local and international employment laws. Deel’s platform simplifies the management of contracts, payroll, and employee documentation, reducing the risk of wrongful termination claims.

Case study: Cake’s compliance success with Deel

Cake, a global company offering employee equity plans, leveraged Deel’s platform to streamline their hiring and HR processes. Expanding into a global brand, Cake wanted to ensure its global talent offerings were competitive and in line with international labor regulations.

Deel helped the company ensure cost-effective global hiring while providing confidence in compliance, particularly in the complex landscape of US employment laws.

“Deel ensures cost-effective global hiring, providing confidence in compliance, especially in the complex landscape of US employment laws.” Charlie Ross, Chief Operating Officer, Cake

Read the full case study.

Ensure fair and legal terminations worldwide with Deel

To avoid the risks of wrongful termination, you need a reliable global HR system that provides solutions to the complexities of international hiring and firing.

Deel HR helps businesses manage terminations legally and fairly in 150 countries (and growing). From compliance to contract management, Deel ensures your business stays on the right side of the law.

Additionally, with Deel Engage’s LMS, you can train your HR and leadership team to keep up with changing labor laws worldwide and ensure they have the knowledge and skillsets to manage all kinds of worker situations compliantly.

Request a demo today to learn how Deel can support your business’s HR and compliance needs.