Is an Employer Required to Give a Termination Letter When They Fire You?


A termination letter (sometimes called a service letter) is used to formally document why an employee is terminated and the date of their last working day. While a termination letter is considered good practice, there are no federal or Arizona state laws that require it. In fact, because Arizona is an “at-will” employment state, an employer is under no obligation to provide any reasoning for terminating an employee.

At-Will Employment

“At-will” employment means that the employment agreement between an employer and an employee is severable by either party at any time, for any reason, unless there is a signed contract, collective bargaining agreement, or company policy that says otherwise (ARS 23-1501). Every state in the US except Montana has at-will employment laws. While at-will employment is important to allow employees the freedom to change jobs in the pursuit of their career, it doesn’t leave employees with much protection in terms of how and when an employer can lay-off or fire people.

There are only a handful of circumstances that can be considered wrongful termination, and they almost exclusively deal with discrimination and retaliation. The only exception is with employees who have a formal contract with the employer that dictates the conditions under which an employee can be terminated. If an employer takes any actions that are contrary to the contract (even if the contract isn’t signed but is in the company’s employee handbook), that constitutes a breach of contract.

Is an Employer Required to Pay Out Unused PTO?

This topic is unfortunately a gray area in employment law. Generally speaking, employers are not required to give employees paid time off, so by extension an employer isn’t explicitly required to pay out unused PTO. However, the legal definition of wages in ARS 23-350 includes “nondiscretionary compensation due an employee in return for labor or services rendered by an employee for which the employee has a reasonable expectation to be paid whether determined by a time, task, piece, commission or other method of calculation.”

Under this definition, it could be argued that a terminated employee who earned PTO according to hours worked could reasonably expect to be compensated for their unused PTO, in which case the employer should include unused PTO in their final paycheck. If you have a substantial amount of accumulated unpaid PTO that you believe your employer should have included in your final paycheck, you should speak with an employment attorney.

Is an Employer Required to Offer a Severance Package with Layoffs?

Employers are not required to offer a severance package unless severance compensation is included in a formal contract, a collective bargaining agreement, or the employee handbook. In these situations, the value of the severance package depends on the contract or company policy.

If your employer asks you to sign a release of claims waiver in order to receive your severance package, you should consult with an attorney before signing the waiver. Requiring a release of claims waiver is a fairly common practice, but it removes the employee’s ability to take civil action against the employer. If you have been wrongfully terminated or have unpaid wages, signing the waiver may seriously limit your ability to sue the employer for damages.

Can an employer withhold your final paycheck when you have been terminated?

When an employee is terminated, the employer is required to issue their final paycheck on the next regular payday or within seven days of their last working day, whichever is sooner. Generally speaking, employers cannot withhold an employee’s paycheck unless there is a reasonable good-faith dispute over the wages due. The most common disputes involve an employee who is accused of property theft, property damage, or misuse of company assets (e.g. using a company credit card for personal charges).

In these cases, the employer can only withhold the portion of the paycheck that is disputed—not the entire paycheck—and the employer is required to settle the dispute within a reasonable amount of time.

Wrongful Termination

At-will employment laws allow employers a significant amount of leeway to terminate employees how and when they please, but the employer is still held to state and federal employment laws that prohibit discrimination and retaliation in the workplace. Employees who are terminated due to discrimination or in retaliation for participating in a protected activity have the right to file a complaint against the employer and take civil action to recoup damages.

If you believe you have been wrongfully terminated, it’s important to consult with an employment law attorney who can assess your case and advise you on the best course of action. It’s especially important to meet with an attorney if any of the following circumstances apply to your termination:

  • Your manager, supervisor, or superior has taken actions or made statements that imply you were fired for discriminatory reasons
  • You recently submitted a complaint of discrimination or harassment in the workplace
  • You recently announced that you’re pregnant
  • You recently revealed to your employer that you have a disability
  • A manager, supervisor, or superior has taken actions or made statements that imply you were fired due to your actual, perceived, or prior disability.
  • You recently filed a complaint of unsafe working conditions, or requested a safety inspection
  • You recently applied for or used FMLA, and you have reason to believe that was a factor in your termination
  • You have a contract or collective bargaining agreement with the employer that limits how and when they can terminate employees
  • You recently reported illegal activity

How to File a Complaint Against Your Employer

Before you take civil action against your employer, you’ll need to file a formal complaint with the appropriate federal regulatory agency:

  • Equal Employment Opportunity Commission (EEOC) – handles cases of workplace discrimination based on race, color, religion, national origin, gender, pregnancy, age (over 40), and disability. The agency also handles cases of retaliation against employees who file a discrimination complaint or participate in an investigation of discrimination.
  • Department of Labor, Wage and Hour Division (WHD) – handles cases of retaliation against employees who file complaints or participate in investigations into unpaid wages, child labor infractions, and FMLA retaliation.
  • Department of Labor, Occupational Safety and Health Administration (OSHA) – handles cases of retaliation against employees who file a workplace safety complaint, who request a safety inspection, or who participate in a workplace safety investigation.

Call our Employment Law team at (480) 464-1111 to discuss your case today.

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