The Ins and Outs of Arizona Termination Rules: A Full Guide

Arizona Termination Overview

The employment relationship is generally considered to be terminable at the will of either party. This basic rule has been recognized in Arizona for many years. It simply means that an employer may terminate its employees without cause and without prior notice, and the employee may quit without any reason or warning. However, a very limited number of exceptions to the basic at-will rule have been carved out so that at-will employment is not absolute.
An employer’s ability to terminate an employee who has employment in a unionized "bargaining unit" is governed by federal law, which is discussed elsewhere in this guide.
An employer’s ability to discharge an employee on the basis of his or her race, sex, age, national origin, religion or physical disability is limited by federal laws such as Title VII of the Civil Rights Act of 1964 and the Age Discrimination in Employment Act, as well as by state statutes like the Arizona Civil Rights Act. Suits for violation of these laws are generally brought in federal court , but Arizona courts have jurisdiction under the Civil Rights Act and hear cases brought under that law as well.
Another major exception to the at-will employment doctrine in Arizona is if the termination violates an express contract, especially when a contract sets down conditions for termination that have not been met. For example, if a company specifies that an employee may be discharged only for cause, and the employee is terminated without cause, that may constitute a breach of the employment agreement.
A third exception to at-will employment applies when an employer violates public policy, such as when an employer wrongfully discharges an employee who complains about discrimination or who refuses to commit an illegal act at the behest of an employer. Such "retaliation" cases are common.
It is a violation of the Arizona Civil Rights Act, for example, for an employer to discharge an employee who in good faith makes a complaint or testifies in an employment discrimination administrative proceeding, or to retaliate against an employee who refuses to be the perpetrator of any unlawful discriminatory practice.

Arizona Grounds for Termination

In Arizona, employers must have legal grounds for terminating employment. Otherwise, the employee could pursue litigation for wrongful termination. Examples of lawful grounds for termination include:
Good Cause- If there is a legitimate reason for the termination, the action is justifiable. For instance, if the employer has solid evidence proving that an employee committed theft violations, the employer has a good cause to terminate the employee. Additionally, if the employee breached a company confidentiality agreement, this would constitute grounds for termination.
Performance Issues – If an employee is failing at their job duties and expectations, there is a reasonable cause for termination. As long as the employee has received performance evaluations outlining the issues, the employer’s basis for termination should be valid in an At-Will Employment State that recognizes the Termination for Cause.
Business Needs or Layoffs – If an employer has to downsize their workforce or restrain hiring, they can legally terminate employees for business needs.
Illegal Reasons – A valid ground for termination is never based on discrimination. Employers cannot dismiss an employee because of their race, religion, color, national origin, sex or disability. Terminating an employee for filing a complaint against the company for unfair labor practices or for being involved in union activities is also an illegal ground for termination.

When to Provide Notice to an Employee Before Termination

Arizona is among a small handful of states with no specific statutory or regulatory notice requirements for an employee upon termination. Thus, employers should look to federal law and their own policies and procedures to determine the proper procedure in a particular situation.
Federal law requires all employers with more than 20 employees to provide a minimum of sixty (60) days’ notice of plant closings or mass layoffs. This requirement applies to any termination of 50 or more employees at a single site of employment during a thirty (30) day period. See the Worker Adjustment and Retraining Notification Act for more information.
As a best practice, employers should also review applicable Employee Handbooks to see whether an advance notice is required. This is an opportunity to update the handbook to explicitly include the "at will" employment language.

Arizona Termination Process and Procedure

When a termination occurs, an employee may request a statement of the reasons for a dismissal. Similarly, the agency administering the unemployment compensation law may question the reasonableness of the termination. For these reasons, employers are well-advised to follow an orderly process and be guided by policy and past practices.
As mentioned above, employers should clearly define in their employment handbooks a policy for conduct, attendance, and progressive discipline. All employees should receive copies of the policies and agree to be bound by them. If your policy calls progressive discipline, you must comply with its terms to be consistent and avoid claims of discrimination that could result in liability or damages.
Adherence to a progressive discipline policy also advises the employee that further violations of policy will lead to termination. Because such termination may not be considered misconduct under the unemployment compensation laws, the employer should have the documentation and evidence to support the employee’s failure to comply with the policy. Again, as with other employee expectations, these policies should be in writing and signed by the employee.
To best manage the process and avoid claims of unwarranted discrimination, an employer should ensure the decision to terminate employment is made after consultation with Human Resources and Legal. This will help to ensure the decision to terminate is both consistent with the company’s policies and legal rights.
Employers should also define clearly what termination entails. For example, in some situations, a company may notify an employee that his/her employment has been terminated but then allow the employee to remain on the premises in a different capacity. While in some circumstances this scenario may be beneficial and desired by the employer, in most situations allowing the employee access to the worksite will diminish the effectiveness of the termination and potentially increase the risk of physical harm to employees and loss of company property. Alternatively, if such a decision is justified, it is preferable to place the employee on paid leave during the transition and provide the employee with written guidance on expectations for the remainder of his/her employment with the company, including a review and acknowledgement by the employee of the privacy and proprietary information he/she has access to under law.
An employer must be mindful that at-will employees may not be deprived of any earned bonuses or commissions. Thus, if an employer has a policy that paid commissions or bonuses at the end of a period, for example on a quarterly basis, the employer cannot withhold such payments merely because the employee was separated from employment before the payment was made.

Arizona Final Paycheck and Severance Pay Requirements

Arizona does not require employers to provide severance pay upon termination of employment. Many employers offer severance packages, often contingent on the employee signing a clean release in exchange, but this is purely a matter of company policy.
However, while severance pay is not required, Arizona employers are required to timely pay final wages upon termination of employment. If the employee is terminated by the employer, the employer must pay the employee within seven working days after the termination of employment. If the employee quits or resigns , the employer must pay the employee within three working days after the employee quits unless the employee gives more than three days notice of the resignation. If the employee gives more than three days notice, the employer must pay the employee at the time of quitting or resigning. (Note: Even if the employee gives two days notice, it is advisable to pay within 3 days due to the potential risk of class action litigation. Unfortunately, there is no guidance as to when the clock starts for the 3 day time period). Payment of wages must be in the form of check made payable to the employee or in cash at the employee’s request.

Employee Rights and Benefits after Termination

After a termination, an employee has certain rights related to his or her eligibility for continuing health coverage through COBRA and for unemployment compensation. COBRA requires most employers to continue to provide group health coverage to employees and their eligible family members after a qualifying event, such as a termination, at the employee’s or family’s expense (at the full premium plus a small administration fee). The rules relating to COBRA require that, generally-speaking, the employer must provide a notice of the rights to continuing coverage offered under COBRA to eligible individuals within a specific time period after a qualifying event occurs, unless the employer is eliminated as a result of the qualifying event. For example, if an employee became covered under a new employer’s benefits plan, the terminated employee would be entitled to a COBRA notice concerning his or her rights to continue group health coverage under the new employer’s plan. If there was no new employer’s plan in place, the former employee would be entitled to continue to participate in his or her last employer’s group health plan for a period of 18 months maximum. Most employers outsource the administration of their COBRA obligations to a third party plan administrator that specializes in this area. The third party plan administrator is responsible for the administration of the COBRA notices and tracking COBRA elections and premium payments.
While it is the employee’s responsibility to file an application for unemployment insurance benefits promptly after termination and if necessary by telephone or in person within the permissible time limits, Arizona’s Employment Administration is generally issued payment cards by U.S. Bank Corp., rather than in the form of physical checks.

Common Mistakes and Legal Traps

Employers can easily fall into many traps during the termination process that can lead to a wrongful termination lawsuit. For example, employers often mistakenly believe that an employee employment that is "at-will" means that an employee can be fired any time for any reason. This is not accurate and a termination must comply with Arizona statutory law and/or federal law in order to avoid a claim for wrongful termination.
An employer can quickly sabotage a legitimate termination by making comments to an employee at the time of termination which could be construed as pretext for unlawful discrimination . Employers should be very careful what they say to an employee during the process. Also, if the employee is being terminated for a specific offense, there should be documentation to show that the practice has been applied consistently to other employees as well and other canceled warnings have had similar consequences. One mistake employers make is terminating an employee who is pregnant or has just had a baby. Employers should also inspect how the termination will be carried out.