When employers give employees the “choice” between resigning or being terminated, it might seem like a diplomatic way to soften the blow. However, this practice raises critical legal and ethical questions, especially when the goal is to avoid paying unemployment benefits. Let’s break down what this means and the potential pitfalls for employers who offer this “choice.”
Is It Coercion?
Giving an employee the choice to resign instead of being terminated can indeed blur the lines of coercion. On the surface, it may seem like a more favorable option for the employee, allowing them to avoid the stigma of termination on their record. However, if the choice is framed in a way that pressures the employee—such as suggesting dire consequences for not resigning—it can be perceived as coercive.
For example, an employer saying, “If you don’t resign, we’ll fire you, and it will be on your record forever,” might be crossing the line into undue pressure. This can lead to potential claims of wrongful termination or even constructive dismissal, where the resignation is seen as forced due to intolerable conditions.
Unemployment Benefits: Resignation Isn’t Always the End of the Story
Many employers assume that having an employee resign disqualifies them from collecting unemployment benefits. However, this is not always the case. If the employee can demonstrate that the resignation was not entirely voluntary—such as being coerced into it or resigning under threat of termination—they may still be eligible for unemployment compensation.
For example, an employee given the choice to resign or face termination might argue to their state unemployment office, “I didn’t voluntarily quit; I had no real choice.” States often evaluate the context and may still grant unemployment benefits if the resignation was not freely given.
Why Employers Might Regret This ‘Choice’
From a legal standpoint, offering the resign-or-be-fired option can backfire. Employees who feel forced to resign might pursue wrongful termination claims, arguing that their “choice” was no choice at all. Additionally, if unemployment benefits are ultimately awarded despite the resignation, the employer’s effort to avoid those costs becomes moot.
For example, a company that frequently uses this tactic may face reputational damage or increased legal scrutiny. Courts and unemployment offices often see through these strategies, especially if they appear to be aimed at avoiding financial obligations like severance or unemployment.
What Should Employers Do Instead?
If termination is unavoidable, transparency and fairness are better long-term strategies. Employers should:
- Clearly document performance issues or misconduct leading to termination.
- Avoid framing resignation as a “requirement” to avoid harsher consequences.
- Offer severance or support, such as career transition services, to help employees move forward while preserving goodwill.
For instance, an employer might say, “Based on these documented issues, we have made the decision to terminate your employment. However, we are willing to discuss how you would like this reflected for future employers.” This approach is honest and respectful without creating legal risks.
When discussing termination with an employee, providing respectful, honest options can help preserve their dignity and minimize legal risks. Here are some examples of things employers can discuss beyond resignation versus termination, ensuring fairness and compliance while maintaining goodwill:
1. Offering a Neutral or Positive Reference
Employers can provide assurance about how the termination will be communicated to potential future employers. Example: “We understand the importance of moving forward in your career. We are willing to agree on a neutral reference, confirming only your dates of employment and position held. If you’d prefer, we can also highlight some of your accomplishments during your time here.”
2. Structuring the Separation Timeline
Discussing a timeline for the termination can give the employee time to transition smoothly. Example: “We’re prepared to offer a separation date two weeks from now to allow you time to complete any ongoing projects or transition your responsibilities. If you’d prefer, we can also make the separation effective immediately.”
3. Offering a Severance Package
If applicable, offering severance can help the employee feel supported while reducing the likelihood of disputes. Example: “As part of your separation, we’re offering a severance package that includes two months’ pay to assist you during your transition.”
4. Transition Assistance or Career Coaching
Employers can provide access to outplacement services or resources to help the employee secure their next role. Example: “We’d like to support your career transition by offering access to a career coach or resume-building workshop at no cost to you.”
5. Retaining Access to Benefits for a Limited Time
Allowing the employee to maintain health benefits or other perks for a set period can ease the impact of termination. Example: “Your health insurance coverage will remain active through the end of next month, giving you time to explore your options without an immediate lapse in coverage.”
Examples of Legal Risks
Consider this: An employer pressures an employee to resign to avoid paying unemployment benefits, but the employee files for benefits anyway. During the unemployment hearing, the employee presents an email showing they were threatened with termination if they didn’t resign. The unemployment office sides with the employee, awarding benefits and citing the coercive nature of the resignation.
Now imagine another scenario where the employee sues for constructive dismissal, claiming that their resignation was forced. The court finds that the employer’s actions constituted coercion, leading to an expensive settlement. These are not hypothetical situations—similar cases happen regularly, costing employers far more than they hoped to save.
These examples highlight the costly repercussions of mishandling resignations. Employers must tread carefully, ensuring that any discussions about resignation versus termination are respectful, non-coercive, and legally sound. A short-term attempt to avoid unemployment claims or simplify a termination process can backfire, leading to significant financial and reputational damage. By fostering transparent communication, adhering to fair practices, and prioritizing professionalism, employers can mitigate risks and maintain trust within their workforce. After all, how you handle exits speaks volumes about your organization’s values and culture.
Elga Lejarza
Founder/CEO
Lejarza HR Consulting
