Termination Compliance 101: Avoiding Risk in U.S., Canada Workforces

Employee terminations are one of the most complex and sensitive parts of managing a workforce. With vastly different legal frameworks, what’s standard practice in one country could lead to significant liability in the other. From the U.S. concept of “at-will” employment to Canada’s stricter requirements around “just cause,” understanding how and when to end employment relationships is critical. This guide breaks down key differences, common misconceptions, legal obligations, and how AllWork helps ensure compliance every step of the way.

Ending the employee relationship in the U.S.

Whether due to performance issues, layoffs, or voluntary resignations, handling terminations correctly is critical for legal compliance, employee morale, and the company’s reputation. Let’s explore key considerations in U.S. terminations, including misconceptions around at-will employment, the importance of documentation and final pay requirements. 

Misconceptions around at-will employment

Most employment in the U.S. is “at-will,” which means an employer can terminate an employee at any time, for any reason—or no reason at all—as long as it’s not illegal. This works both ways, and the employee can also end the employment relationship at any time. But this concept is often misunderstood. 

• “At-will means I can fire someone with no consequences.”
  
  Not quite! Terminations still must not violate anti-discrimination laws, public policy, or contractual obligations. For example, firing someone because of their age or race, for whistleblowing, or in the midst of a workers’ compensation claim is illegal.

 

• “I don’t need to give warnings or reasons.”
  
  While not legally required, it is a best practice to document and communicate performance or conduct issues that led to the termination. Without this, the termination may appear arbitrary or retaliatory, especially if the employee is part of a protected class.

 

• “Once someone signs an at-will agreement, they can’t sue me.”
  
  Definitely false. An at-will disclaimer does not shield employers from claims of discrimination, retaliation, or breach of implied contract during the course of or after the employment relationship has ended. An arbitration agreement can help provide protection to both the employee and employer. This is an agreement between an employer and an employee (or between any two parties) where both sides agree to resolve disputes outside of court through arbitration, rather than litigation.

The power of documentation

One of the most overlooked elements in termination decisions is proper documentation—and it is also one of the most important protections a company has against wrongful termination claims. 

Why it matters: 

• Legal protection: In a lawsuit or unemployment claim, well-documented records can demonstrate the legitimate, non-discriminatory reasons for termination.

• Clarity for the employee: Documentation helps ensure employees understand what is expected and where they may have fallen short.

• Protection for the manager: Proper documentation during termination protects a manager by providing clear evidence of performance issues and fair process, and it helps defend against legal claims by showing consistent, objective, and compliant decision-making.

• Consistency: It reinforces consistent application of policies, reducing the risk of perceived favoritism or discrimination.

 

How and what to document

Employee documentation matters during termination because it provides a clear, factual record of performance or behavior issues; helps protect the company from legal claims; ensures the decision is fair, consistent, well-supported, and legally sound. Documentation can include signed formal policies, acknowledgements, or performance reviews, and it can also include a written recap of performance conversations, or data to demonstrate missed goals. 

Documentation examples include:

• Regular performance reviews

• Performance improvement plans

• Emails, text, chat communications

• Substantiated customer or peer complaints

• Written warnings based on a gap in expected performance or misconduct or policy breach

• Attendance records

• Employee acknowledgments of company handbook

 

Always be sure documentation is dated and includes specific, data-based examples. 

Tell me more about final pay

One of the most immediate obligations during a termination is providing “final pay,” which refers to all outstanding wages, expenses, commission, bonuses, or other forms of compensation the employee is owned at the end of their employment relationship.

Final pay must also include unused vacation or paid time off (PTO) if those are treated as earned wages under company policy or state law. While federal law, the Fair Labor Standards Act, does not dictate when final pay must be issued, most states have their own regulations that supersede federal law—often depending on whether the termination was voluntary or involuntary and can be sector-specific.

Highlighting a few state-specific requirements:

• Alaska: Within three working days after employee separation or layoff.

• California: Requires final wages to be paid on the same day as an involuntary termination and within 72 hours for voluntary resignations (immediately if the employee gave at least 72 hours’ notice).

• Connecticut: By the next business day for involuntary separation and by the next regularly scheduled payday for employees who are laid off or suspended due to a labor dispute.

• New York: Requires final wages to be paid by the next scheduled payday.

• New Mexico: All employees (except certain commissioned, task and piecework employees and those suspended due to a labor dispute) or within five days after the employee’s separation if wages due are a fixed and definite amount.

• South Carolina: Within 48 hours after the employee’s separation or by the next regular payday, but not more than 30 days after separation.

• Texas: Requires final pay within six days of involuntary termination and by the next payday for resignations.

 

Best practices for U.S. terminations

To handle terminations lawfully and respectfully, you should always: 

• Review state-specific final pay laws before terminating

• Have a termination checklist that includes IT access removal, COBRA notices, final paycheck, and return of company property

• Train managers on how to document performance issues

• Avoid terminations that could be perceived as discriminatory or retaliatory

 

Employee terminations carry legal and emotional weight, and mishandling them can be costly. Understanding final pay obligations, maintaining thorough documentation, and respecting the limits of at-will employment are crucial for protecting both your company and your employees. Thoughtful preparation and legal awareness go a long way toward a smoother offboarding experience. 

How AllWork supports terminations in the U.S.

• We have standardized processes to request the termination of an employee. It is always reviewed by a member of our team to ensure compliance.

• Managers and customers have direct access to a team of HR expertise to navigate the nuances of individual circumstances, including state-specific requirements.

• We can react quickly to coordinate off-cycle pay to meet final pay requirements and determine if sick time accruals or other elements of compensation packages are required to be paid out.

• We provide ongoing compliance oversight to ensure practices keep up with changing legislation.

• Customers always remain in control and have the flexibility to determine the best path forward given their individual risk tolerance.
• Our HR team takes the lead on handling post-termination requirements, including initiating COBRA if required and handling employee concerns.

 

Understanding termination in Canada (and key differences from the U.S.)

While the importance of documentation applies to both countries when it comes to termination, there is perhaps no greater difference between employment legislation in Canada and the U.S. than in the way terminations are handled.

In Canada, the vast majority of employment terminations are legally considered “without cause,” which is notably different from the approach in the U.S., which follows an “at-will” approach. In Canada, most businesses fall under provincial regulations for employment legislation, and while there are nuances across all provinces, there is a lot more consistency in employment legislation across Canada as compared to the vast differences across the states in the U.S.

Termination types in Canada

In Canada, an employee can be terminated either “with cause” or “without cause.”

In a without cause termination, an employer can end an employee’s job for almost any reason, as long as it is not discriminatory or retaliatory. However, when this happens, the employer is legally required to provide reasonable notice or compensation in lieu of notice. In a with cause termination, an employer is ending the employment relationship due to serious misconduct by the employee. In these cases, the employer is not required to provide notice, severance, or pay in lieu of notice. 

How this looks in practice

In practice, while two termination types exist in Canada, most employees are terminated without cause—even in the case where the manager may feel they have a justified reason in ending the employment relationship (such as in the case of attendance issues, theft, or performance gaps). This is because the Employment Standards Act (ESA) is designed to protect employees because of the natural power balance that exists between the employer and the employee.

Because a with cause termination means a loss of entitlements to the employee, Canadian courts take that consequence very seriously, and an employer must demonstrate the termination was justified due to the severity of the incident, was a proportionate response after progressive discipline was used, and was not used as a way to avoid legal obligations. If a court finds the employer did not meet this high threshold, the dismissal is reclassified as “without cause,” and the employer owes compensation. 

Therefore, due to the high threshold to meet to demonstrate a “with cause” termination, most employment relationships are ended “without cause,” and the employee must receive reasonable notice or compensation in lieu of notice. The specifics of the working notice period or compensation in lieu of notice are determined based whether there is an enforceable employee agreement that holds the company to ESA standards or whether the details are dictated by common law notice periods. 

The specific requirements for notice or compensation are dictated by individual circumstance but are strongly influenced by tenure and province but can also include age, position/level, and availability of similar employment opportunities.   

Limiting your risk

It is important to note that ESA standards are significantly lower compared to common law entitlements. For example, while ESA standards may dictate an employee with two years’ of service must receive minimum compensation of two weeks’ pay, the common law entitlement could be determined to be two months’ pay.  

The only way to avoid common law notice is if an enforceable employment agreement clearly limits entitlements to the statutory minimums. This agreement must be signed by the employee and should be updated on a regular basis to reflect changing legislation. 

How this differs from the U.S.

In contrast, the U.S. follows the doctrine of “at-will employment.” This means that, in most states, an employer can terminate an employee at any time, for any reason (or no reason at all), with no notice or severance, as long as it’s not illegal (e.g., discriminatory or retaliatory). There is no equivalent to Canada’s common law reasonable notice system. Severance is only required in limited situations (such as under the WARN Act for mass layoffs), and contracts that limit termination rights are far less common. 

Key takeaways: 

• Most Canadian terminations are “without cause” due to the high legal bar for proving “just cause” and the significant financial risk if that bar isn’t met.

• Employees in Canada are typically entitled to notice or compensation, and without an employment agreement, this can often go far beyond minimum statutory requirements.

• U.S. employers can terminate employment more freely, while Canadian employers must follow stricter legal processes to avoid liability.

 

How AllWork supports terminations in Canada

When you are an AllWork customer, you receive HR support through the entire employee lifecycle—pre-boarding, onboarding, leading, termination, and even re-hiring. When it comes to terminations, here are a few ways we help streamline the process to reduce compliance risk: 

• We have standardized processes to request the termination of an employee. It is always reviewed by a member of our team to ensure compliance.

• Employees receive province-specific termination letters built by a team of Canadian-based lawyers to meet the legal requirements to reduce the risk of common law entitlements.

• Managers and customers have direct access to a team of HR expertise to navigate the nuances of individual circumstances as appropriate.

• We provide ongoing compliance oversight to ensure practices keep up with changing legislation.

• Customers always remain in control and have the flexibility to determine the best path forward given their individual risk tolerance.

• Our HR team takes the lead on handling post-termination employee concerns.

 

Understanding these differences is essential for companies operating in both countries or expanding internationally. 

With AllWork, you have one centralized, secure system of record where you can easily track your spend, manage the work being done, and ensure that you are fully compliant with any U.S. or Canadian laws.

Want to learn more? Schedule a demo of the AllWork platform.

Disclaimer: This article is intended for informational purposes only and does not constitute legal advice. Businesses should consult legal counsel for specific questions based on your circumstances and applicable laws.