Since the "new economy" took a downturn in April 2000, more and more U.S. employers are asking this question. An increasing number of dot-coms and other companies have been forced to substantially pare down staff recruited during the high-tech boom.

Very few employment relationships in the United States are governed by written employment contracts. The general rule is "employment at will," which means either the employer or employee may terminate the employment relationship at any time, subject to certain limits. Thus, in general, an employer in the United States can fire an employee at any time, with or without cause and without notice. The employer's rights may, however, be restricted by individual employment contracts, a collective bargaining agreement, or the employer's own employee handbook or employment policies. Moreover, employers do not have the right to terminate employees for reasons that are discriminatory or violate public policy.

Federal laws forbid employment discrimination based on race, color, religion, sex, national origin, age (for employees over 40), mental or physical disability, or citizenship. Federal law applies throughout the United States. Certain states and cities provide additional protection to employees. For example, many states forbid employment discrimination based on the employee's sexual orientation or marital status. Some states, such as Michigan, even go so far as to forbid discrimination based on the employee's weight! Employers must take care to treat their employees equally throughout the course of employment. Employers should use uniform criteria to evaluate and promote employees, as well as to discipline or terminate employees. Furthermore, employers should be particularly careful not to violate public policy. For example, an employer cannot discipline or terminate an employee because the employee:

• has refused to engage in illegal behavior on behalf of the employer
• has discovered and exposed the employer's wrongdoing
• has claimed a right to which the employee was entitled (such as the right to participate in a trade union or the right to be paid minimum wage)
• has performed legal duties (such as jury duty or the duty to testify in court)

Although U.S. employers have broad power to dismiss employees, employers should nonetheless take certain precautions to minimize exposure to lawsuits by angry employees. In terminating employees, an employer must fulfill the obligations required by law. For example, the employer must pay all wages (including vacation and sick pay) earned by the employee up to the date of termination. Moreover, the employer should carefully review any obligations arising from the employer's own established practices and policies. If the employer has consistently paid severance in the past, the employer should continue to do so. If the employer is laying off a large group of employees (a "mass layoff"), the employer should establish specific criteria for determining which employees are terminated. The employer must ensure that the criteria do not have a disparate impact on members of certain legally protected groups (minorities, women, older workers, disabled workers, etc.). In addition, the employer must verify whether the Federal law which governs mass layoffs ("the Worker Adjustment and Retraining Notification Act") is applicable. If so, the employer must make sure it complies with the Act's provisions. It guarantees certain rights to laid-off employees (for example, to be given a two-month notice).