Employment arrangements are a bit like marriages. It takes a good fit for them to be successful, and both sides need to be willing to work on creating a mutually beneficial arrangement. When an employee leaves a company, whether voluntarily or involuntarily, this transition is often referred to as a separation of employment. This parting of ways can take many forms, including involuntary termination, or firing.


A separated employee is one who leaves an employment situation for any reason, whether voluntary or involuntary. A terminated employee is involuntarily let go, usually because of poor performance or lack of work.

Separation vs. Resignation

In a situation where an employer is dissatisfied with an employee's performance, it can be mutually beneficial for the employer to inform the employee that a termination is imminent, giving that employee a chance to voluntarily resign instead. This approach may save the employee face and also make it easier to seek future employment because most employers would rather hire someone who has left a position by choice rather than having been fired.

Rules for eligibility for unemployment insurance vary from state to state and from situation to situation. States typically pay unemployment insurance when an employee has been terminated due to inability to perform a job properly or from lack of work. However, a resignation in lieu of involuntary termination may still leave an employee eligible for employment security funds if there is documentation to show that the separation occurred at the suggestion of the employer.

If you encourage an employee to leave voluntarily for strategic reasons such as avoiding unemployment claims or legal action, it is important to have a clear strategy and to document the process. This may include asking the employee to sign paperwork saying the separation was voluntary or creating a written agreement stating that severance pay is contingent on the employee agreeing to forego legal action if there is any cause for concern that such measures may occur.

Types of Separation

Separation of employment can take many forms, including:

  • Retirement. For the most part, this is a voluntary development that comes at the end of an employee's work life. If the employee has planned well and has not encountered undue hardship, financial and social strategies will be in place to ease the transition. Retirement is usually voluntary but may be involuntary as well, such as when a business forces older and higher-paid employees to step down and be replaced by younger staff earning less.

  • Resignation. This occurs when an employee takes the initiative in terminating employment. Resignation may occur because an employee found a position elsewhere, is dissatisfied with the work conditions or the pay structure or because personal circumstances make it impossible to continue in a current position. Resignation can also be involuntary or not entirely voluntary, such as when an employer offers an employee this option because of poor work performance in lieu of firing.

  • Layoffs. Employees are typically laid off because of lack of work when business is slow or when a position has been eliminated due to consolidation or a shifting business model. Employees who are laid off are typically eligible for unemployment benefits, and this wrinkle in their work histories is unlikely to be a liability when seeking future employment.

  • Termination for cause. Also known as firing, termination for cause occurs when something about the employee's work performance is deemed sufficiently unsatisfactory as to merit involuntary separation. Employees who are terminated because of an inability to perform required tasks tend to be eligible for unemployment benefits. Employees who are terminated for bad behavior or bad attitude usually are not eligible for these benefits.

  • Termination of employment contracts. Some positions were never meant to be permanent in the first place, and they simply come to a contractual end when the agreed-upon work or time period comes to an end. This typically occurs with independent contractors, who are not eligible for unemployment benefits because they weren't hired as employees.

Employer Advantages, Employee Advantages

The best reason for separation from a company is when employees and employers have reached a mutually beneficial parting of ways. In the real world, a parting of ways is usually more advantageous to either the employer or the employee depending on the specifics of the situation. Although it would seem on the surface that employers tend to have the upper hand when negotiating a separation, businesses do need good workers, and this reality can sometimes give employees the upper hand.

A work separation may work to an employer's advantage when the employee has been underperforming or the business is not earning enough to pay that person's wages. Hiring decisions are sometimes made on the basis of wishful thinking or faulty planning, and if a business is unable to meet its payroll obligations, it risks debt or bankruptcy. In this situation, the exit of an extraneous employee, whether voluntarily or involuntarily, can ease a considerable financial burden.

Employees usually benefit from work separations when these moves are voluntary, such as if the employee has found another position with higher pay or a better work environment. However, sometimes employees stay with struggling companies out of loyalty, so involuntary separations can also be beneficial to these workers, giving them an impetus to find a better situation.

Employers' Separation of Employment Strategy

The best way to approach a separation of employment situation is to be clear about what you want and need. Defining your overall strategy and desired outcomes helps you to take steps along the way that will help you to reach your goal most effectively. If an employee has been stealing from you, you'll need to decide whether you want to pursue restitution and press criminal charges or whether you simply want the stealing to stop and the employee to leave.

If an employee's work has been shoddy, you have the option of asking for a resignation, leaving room for that person to frame the job in a positive light on future resumes. Alternatively, you can fire an employee who has been doing substandard work, acting punitively in response to your frustrating managerial experience. The path you choose in this instance will have more serious consequences for the terminated employee than it will for you, and your decision may understandably be more emotional than practical.

A separation from employment strategy may have practical consequences for an employer if an unemployment insurance claim is at play. If you terminate an employee in a way that makes that employee eligible for unemployment benefits, this may cost your company money in increased premiums. However, if you bear that employee no ill will and wish to provide some safety net, the modest additional premiums may be worth the opportunity to act out of kindness.

Employees' Separation of Employment Strategy

For employees, the nature of an employment separation may be critical when seeking future employment positions. You may need to list your current employer as a reference on future job applications. In addition to the positive or negative reference that your current employer may provide to a prospective employer, it is better to truthfully say that you left a position willingly than to indicate that you and your past employer separated acrimoniously.

It is advisable to document an employment separation where you feel you have been unjustly treated or if you believe that you have grounds to file an unemployment claim. Having clear and relevant information will allow you to make your case convincingly, and it will be well worth the time you invest in gathering and keeping these records.