When someone leaves your company, founders often want to just “move on” - but whether the departure was voluntary or involuntary has lasting legal and financial consequences. From unemployment claims to final pay rules, the details matter.
Here’s a breakdown of how an employee leaves your startup is as important as why.
Fired = Involuntary Termination
When your startup initiates the end of employment, it’s considered a termination. This includes:
- Layoffs due to funding issues or restructuring
- Firings based on performance, misconduct, or culture fit
- Terminations at the end of a probationary period
Legally, this makes you the “moving party” - and you’ll likely bear responsibility for:
- Final paycheck timing and content
- Unemployment benefits eligibility
- Severance or WARN Act requirements (in large layoffs)
Quit = Voluntary Resignation
If the employee decides to leave, it’s considered a resignation - even if you’re relieved they’re gone. Employees may quit:
- With two weeks’ notice
- Immediately (especially if another job is lined up)
- Because of work conditions or personal conflicts
A resignation generally limits your obligations:
- You may not owe unemployment (unless they resigned due to “constructive discharge” like harassment)
- You may have more time to issue the final paycheck
- You don’t have to offer severance unless it’s company policy
Always get resignations in writing - even if it’s just a quick email from the employee.
Why It Affects Unemployment
Unemployment insurance is one of the most common post-exit issues. Here’s the general rule:
- Fired for no fault of their own (like layoffs)? Eligible.
- Fired for misconduct? Possibly ineligible.
- Quit voluntarily? Usually ineligible - unless it was for good cause.
If you misclassify the separation (e.g., saying someone quit when they were pushed out), it could lead to fraud claims or audits. Be honest and accurate when responding to unemployment agency notices.
Final Paycheck Rules Differ
State laws often give you more time to issue final paychecks to employees who quit - especially with notice. But fired employees often have to be paid immediately or within 72 hours.
Include:
- All earned wages
- Unused vacation, if required by law
- Bonuses or commissions earned through the last day
Check your state’s laws - or risk penalties that can add up quickly.
Communications Matter
Document the departure - regardless of how it happens. If the employee quits, acknowledge it in writing. If they’re terminated, keep a short termination memo. Communicate internally without airing grievances or breaching confidentiality.
Final Thoughts
Whether an employee quits or is fired impacts unemployment, final pay, and your legal risk. Having clear policies, proper documentation, and legal guidance can help your startup handle exits smoothly and compliantly.
Frequently Asked Questions
FAQs on Quitting vs. Firing in Startups
Does it matter legally if someone quits or is fired?
Yes. Terminations usually trigger more legal and financial obligations, including unemployment eligibility and faster final paycheck deadlines.
Can employees who quit still collect unemployment?
In most cases, no. However, if they resigned due to unsafe conditions, harassment, or other “good cause,” they may still qualify.
What should startups include in a final paycheck?
All wages earned, plus unused vacation or PTO if state law requires it. Bonuses or commissions earned up to the last day should also be included.
Should startups get resignations in writing?
Yes. Even a simple email confirmation helps avoid disputes later and provides documentation if questions arise with unemployment agencies.
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