Termination of Employment Compliance

When an employee is unable to fulfill their job duties, it can become necessary for restaurant operators to part ways with the employee. In the US, most employment relationships are “at-will,” meaning that a termination of employment can happen at any time, for any reason, or for no reason. Likewise, employees are free to leave a job at any time for any reason, with no legal consequences. However, employees with an employment contract are not considered “at-will” and may stipulate requirements in order for the termination to take effect.

Regardless whether the employee is under a contract, employers need to take care not to terminate an employee with a discriminatory intent or as retaliation for lawful activities. Upon termination of employment, whether voluntary or involuntary, a series of employee rights come into play, including unemployment eligibility, the final payment of wages, and health care continuation obligations.

To avoid violating any employee rights or regulations, let’s review the need-to-know information around termination of employment.

Termination of Employment Compliance

Final Pay

Final Pay requirements are governed by the states and cities that have enacted these rules and may depend on whether the termination was voluntary or involuntary. There are no federal requirements other than the employee must be paid all the wages they have earned no later than the date of the next regular payroll.

For locations that require immediate payment or a quick turn-around, they need to have a method in place to get funds for employees on very short notice. Oftentimes, employers use paycards as a quick method to issue term pay.

Examples of some state requirements include:

California

• Voluntary: Payment must be received within 72 hours of the employee’s separation or immediately for employees who give 72 hours’ notice of separation. An employee who quits must be paid at the office or agency of the employer in the county where the employee has been performing work.
• Involuntary: Payment must be made immediately upon the employee’s separation or layoff at the place of discharge.

Minnesota

• Voluntary: Payment must be made by the next payday or by the second payday if the first payday is fewer than five calendar days after the employee’s last day of work. The employee must be paid in full within 20 days after the employee’s separation.
• Involuntary: Payment must be made within 24 hours of the separating employee’s demand.

Pennsylvania

• Voluntary: Payment must be made by the next regular payday.
• Involuntary: Payment must be made by the next regular payday.

Severance Pay

Most private employers in the U.S. are not obliged to pay out any severance pay upon termination. Employment contracts, company policy, or union contracts may require payment. In addition, some employers may choose to pay severance in select situations.

Payout of Sick, Vacation, Paid-Time-Off (PTO)

Again, there is no federal requirement to pay out any accrued sick pay, vacation pay, or PTO. Most states have some language in their statutes about the payout of accrued leave, often saying that employers must follow company policy. Some examples include:

California:

• Paid Vacation Time: An employer that provides paid vacations must pay the value of accrued vacation time to a separated employee.
• Paid Sick Leave: An employer is not required to pay employees for accrued unused paid sick leave on termination of employment. However, an employee who is rehired within one year from the date of separation must have all previously accrued and unused paid sick days reinstated. This is unless the employer chose to pay out the time upon separation from employment. The employee is entitled to use the previously accrued, unused paid sick days and to accrue additional paid sick days upon rehiring, subject to the law’s use and accrual limits.

Maryland

The value of accrued vacation time is not payable to a separated employee if the following criteria are met:

• The employer has a written policy limiting accrued leave to current employees.
• The employee was notified of the policy when hired.
• The employee is not entitled to payment under the terms of the policy.
• Under the Maryland Healthy Working Families Act, if an employer allows an employee to use sick and safe leave before it has accrued, the employer may deduct the amount paid for the leave from the employee’s final wages, if both:
  • The employer and employee mutually consented to the deduction in a document signed by the employee.
  • The employee terminates before accruing the amount of sick and safe leave used.

Michigan

The value of accrued vacation time must be paid to a separated employee if a written employment contract or policy requires payment. An employer that is subject to the state paid sick leave law is not required to pay out unused, accrued paid medical leave upon an employee’s separation from employment.

Cancellation of Employee Benefits and COBRA Continuation

COBRA

• The federal Consolidated Omnibus Budget Reconciliation Act (COBRA) requires group health plans sponsored by covered employers to offer continuation coverage to employees and certain family members upon a qualifying event, such as the loss of a job, so long as it was not for gross misconduct. COBRA contains strict rules for:
  • How and when continuation coverage must be offered and provided to a departing employee.
  • How employees and their families may elect continuation coverage.
  • How long coverage lasts.
  • The circumstances that justify terminating continuation coverage.
• While COBRA establishes the minimum requirements for continued health coverage, an employer may provide longer periods of coverage and states may impose additional requirements for the continuation of coverage.
  • The typical length for COBRA coverage is 18 months but may be longer in cases of disability or Medicare eligibility.
  • The employer is obliged to keep the employee on the company plan, but the former employee must pay 100% of the premiums to remain enrolled. Employers may also charge an administrative fee.

Other Employer Sponsored Plans

• Retirement Plans: Employers must provide employees with information regarding how to maintain or transfer vested retirement plans to personal accounts.
• Most non-medical benefits (gym memberships, employee discounts, transportation reimbursements, etc.) will be terminated.

Unemployment Compensation

All employers must display a poster at the worksite explaining the Unemployment Benefits available to employees. Upon termination, employees have the right to contact their state unemployment office and apply for benefits. Each state sets their own requirements for application and determination of benefits. Once an employer is notified of an employee’s application, they have a right to appeal the application and the findings of the state.

Compliance Violation Story: $11,706 in Back Wages Seized

Compliance with employee benefits and termination regulations are not optional, and restaurants who violate these rules will face penalties. In a 2024 story, Mi Casita Mexican Restaurant, a nine-location chain based in Arkansas, was forced to pay back wages after they failed to reinstate an employee to the same or equivalent position following family and medical leave. The employee was assigned to a different store in another town miles away and terminated when they refused to work at the new location.

The U.S. Department of Labor’s Wage and Hour Division determined that the employer owed the employee over five months of back wages for lost hourly wages and tips. This amounted to $11,706 in addition to civil monetary penalties.

Download the “Definitive Guide to Restaurant Compliance”

Though termination of employment is the end of a business relationship, there are many more regulations and compliance obligations to understand throughout the employee lifecycle. Whether hiring, payroll, or employee benefits, there is a lot to know.

Download our essential ebook, “The Definitive Guide to Compliance for Restaurants”, to gain insight into relevant labor laws and avoid violations.