Cause for termination: What every small business owner needs to know

Firing someone is one of the hardest decisions you'll make as a business owner. Even when the decision is clear, the process rarely feels clean — there's paperwork, emotion, and a nagging worry that you might be doing something wrong.

That's why understanding cause for termination matters. Whether you're dealing with serious misconduct or a long-running performance problem, knowing the difference between firing someone for cause and letting them go for other reasons affects everything from unemployment claims to severance obligations to your legal exposure.

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TL;DR: What is cause for termination?

Cause for termination — also called termination for cause or fired for cause — means ending someone's employment because of a specific, serious, documented reason tied to their conduct or performance.

It's not a layoff, a budget cut, or a restructure. It's a decision made because an employee's behavior or sustained failure to do their job has made continued employment untenable.

There are two main categories:

• Misconduct — Things like theft, harassment, or safety violations
• Performance failure — Repeated inability to meet job expectations, even after documented support

Either way, the reason needs to be:

• Legitimate
• Provable
• Documented before you ever sit down for that conversation

One important note: the exact definition of "just cause" varies by state, and situations involving union contracts or formal employment agreements often come with additional requirements. When in doubt, talk to an employment attorney before moving forward.

What does "terminated for cause" mean?

When someone is terminated for cause, it means the employment ended because of something the employee did — or repeatedly failed to do.

"Terminated" is simply a formal way of saying fired, but in business and legal contexts, "terminated for cause" signals that the decision was deliberate and based on documented reasons, not circumstance.

This distinction matters. Being fired for cause is treated differently than being laid off when it comes to unemployment eligibility, severance, and any future legal disputes. It means the employer had a specific, defensible reason — and the burden falls on them to back it up with documentation if it's ever challenged.

Termination with cause vs. termination without cause

The difference between these two isn't just a legal technicality — it has real financial and operational consequences for your business.

What termination with cause means for your business

Termination with cause happens when an employee is fired because of their own conduct or performance. Common examples include:

• Theft or harassment
• Serious policy violations
• Repeated failure to meet expectations after documented warnings

In most cases, this means:

• The employee isn't entitled to severance pay (unless your policy or their contract says otherwise)
• Their unemployment claim may be denied if the state determines the termination was justified

What termination without cause means for your business

Termination without cause happens when the reason has nothing to do with the employee's behavior. Common examples include:

• Layoffs
• A position being eliminated
• Business restructuring

In these cases:

• Severance is more likely, either as a goodwill gesture or because it's required by contract
• The employee is generally eligible for unemployment benefits

What at-will employment means for both

In every U.S. state except Montana, employment is at-will — meaning you can end employment at any time, for any reason that isn't illegal. But at-will doesn't mean "without consequence." You're still exposed if a termination looks:

• Retaliatory
• Discriminatory
• Inconsistent with how you've treated other employees

For employees with formal contracts, the rules are more specific — the contract itself will often define what qualifies as cause and what notice or process is required.

Valid reasons for termination of employment

Not every personnel problem rises to the level of termination, but some behaviors absolutely do. Here are the most common valid reasons for termination of employment recognized across most states:

1. Theft or fraud — Misappropriating company funds, stealing from colleagues, or falsifying financial records
2. Workplace violence — Physical aggression, credible threats, or behavior that creates a safety risk for others
3. Harassment or discrimination — Conduct that violates your workplace policies or federal and state anti-discrimination laws
4. Serious safety violations — Deliberately ignoring safety protocols in a way that endangers others
5. Repeated attendance issues — Chronic no-shows or tardiness that disrupts operations, especially after documented warnings
6. Insubordination — Refusing to follow reasonable workplace directives or openly undermining management
7. Breach of company policy — Violating your code of conduct, confidentiality agreements, or other established guidelines
8. Gross negligence — Careless or reckless behavior that causes significant harm to the business or others
9. Falsifying records — Doctoring timesheets, expense reports, or other company documentation
10. Performance failure — Sustained inability to meet job expectations after documented warnings, coaching, and a reasonable opportunity to improve

This isn't an exhaustive list, and what qualifies varies by state, industry, and employment contract. When in doubt, document everything and talk to an employment attorney before making the call.

Not sure if your policies cover the right grounds? Homebase HR & compliance can help you build a solid foundation before you ever need it.

Termination for misconduct and gross misconduct

Not all misconduct is created equal. The severity of the behavior determines whether you can terminate immediately or whether you need to work through a progressive discipline process first — and getting that distinction wrong can expose your business to a wrongful termination claim.

Misconduct generally refers to behavior that violates workplace policies or expectations but may not warrant immediate termination on its own — a pattern of tardiness, minor insubordination, a first-time policy violation. These situations usually call for progressive discipline (verbal warning, written warning, final warning) before termination.

Gross misconduct is different. It's behavior so serious that it fundamentally breaks the employment relationship — and in many cases justifies immediate termination without going through the progressive discipline process first. Common examples include:

• Physical violence or credible threats against colleagues or customers
• Theft or deliberate fraud
• Serious safety violations that put others at risk

Gross misconduct is generally understood as an intentional or controllable act that shows deliberate disregard for the employer's interests. Definitions vary by state, so check what your state specifically recognizes before making a termination decision on those grounds.

When can an employer terminate immediately without notice?

In most at-will employment states, you're not legally required to give notice before terminating an employee. But immediate termination — firing someone on the spot without a warning or transition period — is generally reserved for situations where keeping the employee on poses a serious risk.

Situations that typically justify immediate termination include:

• Violence or credible threats — Any behavior that puts the physical safety of your team or customers at risk
• Theft or fraud — Especially when caught in the act or backed by clear evidence
• Serious safety violations — Deliberate actions that create immediate danger
• Egregious misconduct — Behavior so severe that continued employment through a notice period isn't reasonable

If your employees are covered by a union contract or formal employment agreement, the rules change. Those agreements often require specific notice periods, documentation, or a formal hearing process even in serious misconduct situations — review the contract before acting.

Is poor performance cause for termination?

It can be — but it requires more groundwork than misconduct-based termination, and the documentation bar is higher.

Poor performance becomes legitimate cause for termination when it's sustained, when the employee has been clearly informed of the expectations they're not meeting, and when they've been given a documented opportunity to improve.

Firing someone for poor performance without that paper trail is where businesses get into trouble — in an unemployment hearing or a wrongful termination claim.

When poor performance qualifies as cause:

• The employee was given clear, written performance expectations
• Documented feedback was provided — specific incidents, not just general impressions
• A performance improvement plan (PIP) was put in place with measurable goals and a defined timeline
• The employee failed to meet the PIP requirements after a reasonable period

A documented pattern of verbal warning → written warning → PIP → termination gives you a defensible record and shows that termination was a last resort, not a first reaction.

How termination for cause affects severance and unemployment

When a termination is well-documented, it generally works in your favor — on both fronts.

Severance

There's no federal law requiring employers to pay severance. What you owe depends on:

• Your own internal policies
• The employee's contract
• Any severance agreement in place

If you terminate someone for cause, severance is generally not required — but if your employee handbook promises it regardless of termination reason, you may still be on the hook. Review your own documentation before assuming you're in the clear.

Unemployment

Employees fired for misconduct are often denied unemployment benefits — but it's not automatic. Here's how it works:

• The employee files a claim
• The state notifies you and asks for supporting information
• You provide documentation backing your decision

Strong documentation gives you a strong case. Thin documentation? The state may side with the employee — and your unemployment insurance rate could go up.

Performance-based terminations are trickier. Some states treat sustained poor performance differently from willful misconduct, and the employee may still be eligible for benefits even if you had valid grounds. State laws vary, so verify with your state's unemployment office if you're unsure.

Need help understanding your obligations before a termination? Homebase connects you with certified HR experts who can walk you through your specific situation.

Termination for cause in employment contracts

When an employee has a formal employment contract, cause for termination becomes a legal question as much as a management one — and the contract usually defines the rules.

Most termination for cause clauses will specify:

• What constitutes cause — The contract may define specific behaviors or reference your company's code of conduct
• Written notice requirements — Many contracts require written notice of the issue before termination can proceed
• A cure period — Some contracts give the employee a window (often 30 days) to correct the problem before termination takes effect
• Breach definitions — What actions by either party constitute a material breach of the agreement

Collective bargaining agreements (CBAs) — the contracts that govern unionized employees — typically have the most stringent requirements. Firing a union employee for cause usually requires documented evidence, a formal process, and sometimes a hearing. Skipping any step can expose you to a grievance or arbitration.

If your business is growing and you're starting to use formal employment contracts, have an employment attorney review your termination for cause clause before you ever need to use it.

How to document cause for termination properly

Documentation is what separates a defensible termination from a costly one.

Step-by-step documentation process:

1. Record incidents as they occur — Don't rely on memory. Write down what happened, when, who was involved, and what was said or done. Date everything.
2. Issue written warnings with employee acknowledgment — Verbal conversations matter, but written warnings with a signature (or documented refusal to sign) create an objective record.
3. Apply discipline consistently — If you've let similar behavior slide with other employees, that inconsistency can be used against you. Hold the same standard across your team.
4. Prepare a termination summary before the meeting — Before you sit down, have a written summary of the reason for termination, the documented history, and the logistics (final pay, return of equipment, offboarding steps).

What to include in a termination letter:

A termination letter doesn't need to be long, but it should cover:

• Employee name, role, and official last day of employment
• The specific reason(s) for termination, with references to documented incidents or policy violations
• A brief summary of prior warnings or disciplinary steps taken
• Final pay details and instructions for returning company property
• Next steps for benefits, references, and offboarding

Termination letter requirements vary by state. Have an employment attorney review your process to make sure you're covered.

How to conduct a termination meeting professionally

This isn't a negotiation or a performance review — it's a notification. Keep it short, private, and factual:

• State the decision clearly — give the documented reason and don't over-explain. Long justifications invite debate.
• Stick to your documentation — don't introduce new reasons that weren't part of your documented process
• Have a witness present — a second manager or HR representative protects both sides
• Clarify final pay — know your state's requirements. Many states require same-day or next-day payment for involuntary terminations. Check the DOL's last paycheck guidance for details.
• Document immediately after — write down what was said and how the employee responded before you do anything else

Make tough termination decisions with confidence

The hardest part of a termination usually isn't the decision itself — it's the doubt that comes with it. Did I document enough? Am I exposed? Did I follow the right process?

When you have the right tools and support in place, that doubt gets a lot quieter. Homebase helps small business owners:

• Track employee performance and store records in one place
• Access certified HR experts who can review your policies
• Walk through specific situations before they become bigger problems
• Build the documentation habits that protect your business before you ever need them

Try Homebase for free today.

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Frequently asked questions about termination for cause

What does it mean to be fired with cause? 

Being fired with cause means your employment was ended for a specific, documented reason tied to your conduct or performance — not a layoff or restructuring. It can affect your eligibility for unemployment benefits depending on your state's definition of misconduct.

Can you get unemployment if you are fired for cause? 

Whether you can get unemployment after being fired for cause depends on the reason. Employees fired for willful misconduct are often denied benefits, but the determination is made by the state — not the employer. 

You'll be asked to provide documentation when an employee files a claim. Performance-based terminations may be treated differently, and some states are more generous than others. Check with your state's unemployment office for specifics.

What are common reasons employees get fired? 

The most common reasons employees get fired include theft or fraud, repeated attendance issues, insubordination, harassment, serious policy violations, and sustained poor performance. 

In all of these cases, the termination is most defensible when the issues were documented over time and the employee had a real chance to correct the behavior before the final decision was made.

Can you fire someone for no reason? 

In at-will employment states — every U.S. state except Montana — you can fire someone without giving a reason. But you can't fire someone for an illegal reason, including their race, religion, sex, age, disability, or in retaliation for exercising a legal right. 

Even in at-will states, having a documented reason is almost always in your best interest.

Remember: This is not legal advice. If you have questions about your particular situation, please consult a lawyer, CPA, or other appropriate professional advisor or agency.