Termination of Employment in North Carolina
Employment termination in North Carolina is governed by two general legal frameworks. First, there is a presumptive statutory at-will employment relationship between employers and employees. At-will employment means that employees are presumed to be employed indefinitely, but either employers or employees can terminate the relationship at any time, for any or no reason at all.
Second, there is a common law doctrine of wrongful termination. Wrongful termination establishes exceptions to the at-will employment doctrine when an employer terminates an employee in violation of a statute, breach of an implied contract of employment, or in violation of public policy.
In North Carolina, since employment is presumed to be at-will, it is the employee’s burden to prove their employment falls within one of the three exceptions to the at-will employment doctrine. The three exceptions to the at-will employment doctrine are detailed below.
Statutory Exception. When the termination violates a statute that is intended to protect a specific class of persons. Examples of such statutes include:
- Retaliatory Discharge. An employee cannot be terminated because he or she engaged in an "activity protected by public policy , " such as:
- Civil Rights Violations. An employee cannot be terminated based on race, color, religion, national origin, or sex.
- Wages & Hours. Employees are protected under federal and state minimum wage and maximum hours statutes and cannot be terminated to avoid paying wages.
Breach of Implied Contract Exception. If an employer’s conduct during an employee’s employment creates an implied employment contract, and the employer then terminates the employee in violation of the implied contract, the employee may have a claim for wrongful termination. Courts have found that the following conduct may give rise to an implied contract:
Public Policy Exception. An employer cannot terminate a public employee if the termination is contrary to a North Carolina public policy. The North Carolina Supreme Court has found that the following is a well-defined and clearly mandated public policy that is contained in statutes:
Most employment contracts are expressly created and documented in writing. However, where employment is not expressly documented, the above exceptions to the at-will employment rule may apply.
Permissible Termination Reasons
When it comes to employment law, regardless whether you are an employee or employer, knowledge is power. This is particularly true if you are the subject of a termination in North Carolina. The reason for your termination is incredibly important, because while North Carolina is an employment at will state, that only means that you can be fired for any reason or for no reason at all. However, North Carolina, like many other states, has carved out exceptions to the employment at will doctrine to protect both employees and employers. Generally speaking with regard to the analysis of whether a termination is lawful, we focus on three possible reasons for termination of an employee: So what are lawful reasons to terminate an employee in North Carolina? Let’s take a look at the issues. Performance issues – this is obvious right? Yes, it is obvious that if an employee is not performing his or her job in a reasonable and satisfactory manner, then he or she may be terminated by the employer. Although performance issues sounds obvious, it can be much more complicated than that. For example, is the employee being held to unreasonable metrics? Is there a problem between other employees and a particular employee which is affecting the performance metrics? Those are things to consider. Misconduct – misconduct is again a very obvious reason for termination. When employees engage in misconduct, whether it is either workplace violence or some type of harassment, that is an obvious reason for termination. Sexual harassment, regardless if it’s same sex or traditional sexual harassment, are also obvious reasons for termination. Finally, use of an illegal substance, whether it’s marijuana or other illegal substances, can also be a very obvious reason for termination. Alcohol can still be considered an illegal substance if an employer has a policy related to substance abuse that prohibits alcohol. However, if an employer does not have a policy as to alcohol, then an employee who is under the influence of alcohol on the job may not be grounds for termination depending on the language of the employment policy. Economic reasons – layoffs for economic reasons can always be a reason for termination. Obviously if a termination is for a legitimate business reason, there should not be any issue with that termination as long as it’s not tied to an illegal reason. Those are the obvious types of terminations, and they occur quite a bit.
Prohibited Termination Reasons
Under North Carolina law – just like in many other states – an employer has the right to terminate an at-will employee for any reason or no reason at all, provided that the reason for termination is not otherwise "protected" under federal or state law. This prohibition generally falls into three categories: (1) discrimination; (2) retaliation; and, (3) public policy violations.
The first category is discrimination. An employer in North Carolina cannot terminate an employee based on that individual’s race, sex, color, national origin, age, religious affiliation, or, recently, status as a pregnant woman. For example, an African-American employee cannot be terminated because of her race. This protection also extends to employees who are perceived to be members of a protected group. For instance, if an employer terminates an employee because it thinks he is gay, that termination would still be unlawful, even if the employee is actually straight. Mere consideration of an employee’s protected status, however, does not create an illegal termination. If, for example, an employer terminated a female employee because she expressly rejected the decision-maker’s romantic advances, the termination might well not be illegal, even if the termination was based on the employee’s sex.
The second category of unlawful terminations is retaliation. An employer cannot terminate an employee because that employee asserted a recognized legal right. For example, employees have the right to complain about workplace discrimination or unsafe working conditions or to pursue payment of overtime wages owed. Terminating an employee for doing so could violate federal or state laws expressly prohibiting retaliation by employers.
The third, more nuanced, category of unlawful terminations involves terminations that might violate public policy. For example, an employee who socializes with customers representing a competitor of her employer could be a violation of public policy if the employer fired her for that reason. However, given the at-will nature of North Carolina employment, courts have limited public policy claims to areas involving the protection of the public interest. So the public policy had to be public in a specific way, and not simply something that an individual believes to be in the public interest. Courts have found an unlawful termination for actions such as refusing to participate in racial discrimination, participating in jury service, and testifying for the government in a criminal proceeding. The North Carolina General Assembly recently enacted the WHISTLEBLOWER PROTECTION ACT, N.C.G.S. § 95-241 et seq. The Act provides a private right of action for a "violation of public policy" retaliation claim.
Employee Notification & Final Pay
While North Carolina has no statutes pertaining to the timing or means of providing either a notice of termination or a final pay check to a terminating or terminated employee, the North Carolina Employment Security Commission ("NCEES") provides a framework for both notices. In a bulletin published June 1, 2010, NCEES stated in part:
An employee discharged from his employment must be given a statement of the reasons of such discharge. The statement of the reasons should contain enough details, if any, so the employer’s position can be substantiated in future worker’s compensation hearings or if the employee file a claim against the employer. N.C.G.S. §95-36.3(b). The statement must not contain any information that would violate any state or federal statutes on privacy.
The amount an employer owes to a discharged employee for final pay includes all wages the employee earned, including vacation pay, back pay, supplemental pay, bonuses, commissions, etc. The basis for excluding certain forms of pay is set forth in the handbook or contract of hire and the employee must be advised of this language, preferably at hire, so she will know what circumstances will be considered as proper for such exclusion. Boilerplate language which reads that "all benefits cease upon termination" may not be sufficient. This is particularly true in the case of vacation pay. Effective January 1, 2006 an employer is required to pay final wages due to the employee on the date of termination unless the term of the contract or policy of vacation pay states otherwise, and does not fall within one of the noted exclusions. The term of the contract or policy must be specified in writing or electronic notification delivered to the employee.
In order to satisfy the requirement that employees receive their final wages on the day of termination, the employer must have a check ready to provide on that day. If by 5:00 p.m. on the day of termination, the employee has not received the final wages or they are not in an envelope ready to hand to her, then the employer is in violation. The Law does not allow additional time for the employer and further pay to the employee is discretionary. Educational Insights v. Farris, 515 S.E.2d 243 (N.C. App., April 7, 1999). Although those provisions may not be statutory requirements, you would be wise to consider the "NCEES Safe Harbor" a useful guideline. In addition, to avoid problems related to final paychecks, take care to follow consistent pay practices.
Contractual Termination & Unemployment Compensation
If you are involuntarily separated from your job in North Carolina, you might be thinking about filing for unemployment insurance benefits. Through the North Carolina Division of Employment Security (DES), the state provides unemployment benefits to workers if they lose their job through no fault of their own.
In determining whether you’re eligible for unemployment benefits after losing your job, DES will take into consideration whether you signed a severance agreement.
If you signed a severance agreement before losing your job, then it’s possible that your former employer will use the agreement to argue that you’re not entitled to unemployment benefits. If your employer withheld severance pay, then they’ll likely try to argue that the initial payment from the severance package should count as income for purposes of unemployment benefits . For example, if you received a $2,000 severance payment but normally earned $1,500 in income each month, your employer may argue that you should not receive benefits during the month in which you’re receiving severance because you’re making more than $500.00 per month through total compensation (i.e., the severance plus typical monthly pay).
You should generally be able to get around this by entering into a bridge agreement with your employer. This means that you would sign a new agreement that expressly states the portion of the severance that is accrued vacation. According to federal and North Carolina law, accrued vacation cannot be counted as wages. Alternatively, you could amend the existing agreement to allow you to receive unemployment benefits. Such amendments have to be unequivocally clear and you would need to provide reasonable notice of the new agreement to DES.
Binding Arbitration & Attorney Fees
Although "at-will" employment remains the norm in North Carolina, there are circumstances in which an employee may be able to contest a termination. Employees may file complaints with various agencies or institutions with regard to unfair treatment or discrimination. Some possible actions include:
- Reporting to EEOC or North Carolina Equal Employment Opportunity Commission: Employees may bring charges of unfair treatment or discrimination to these organizations.
- Filing a lawsuit: An employee may be able to sue the employer if the termination is found to be in violation of public policy, such as an employee being wrongfully terminated for whistleblowing, or an employee being fired for discrimination based on sex, age, race, or religious practice.
- Filing a grievance/change of records: If an employee believes that the circumstances of the termination are not accurately depicted in the files, he/she can file a formal grievance with the Human Resources Department or ask for a change to be made so it could be specified that the employee was "laid off" rather than being "terminated," for example.
- Attending a mediation board hearing: Requests from employers for unemployment benefits to be denied are reviewed by a North Carolina Employment Security Commission referee. An employee can attend this hearing and request that all relevant documentation be submitted if the employee wants his/her testimony to be given consideration. The employee should make sure to get a copy of the final agency decision.
- Asking for a hearing before a special panel of any informal decision by the referee: An employee has a right to ask for a hearing of any informal decisions made by the referee and might receive benefits if the panel orders it.
Recent Trends and Changes in Termination Law
The most notable changes that could impact an employee’s status is that, as a result of the Duke Energy class action and other litigation regarding the classification of the sales employees, the North Carolina General Assembly enacted legislation which clarifies that while a person employed as a sales person may be exempt from the minimum wage and overtime provisions of the Fair Labor Standards Act, such an exemption does not have any effect on the application of the provisions prohibiting the discharge or separation of an employee for making a complaint that the employee is owed wages that have not been paid , which would include overtime wages. The law was a response to the fact that the Department of Labor has tightened up on the number of exempt classifications that are legitimate and made classifying sales people as exempt employees challenging at best. The statute impacts any state law tort claims arising under North Carolina law, whether express or implied, arising out of an employee’s separation from employment on or after September 1, 2013.