With few exceptions, employment in the US is considered "at-will." At-will employment means an employer can fire an employee at any time, for any reason at all, with or without notice, provided the termination isn't based on discriminatory reasons. Therefore, according to labor and employment laws, it is permissible to fire an employee while she's on vacation. Keep in mind that doing so can impact your business reputation and employee morale. There are circumstances wherein terminating an employee who is on vacation is warranted, however.
It's just not good business sense to handle a performance-based termination while an employee is on vacation. When an employee has shown poor performance but has been allowed to continue her employment — perhaps under an performance improvement program — termination during her paid time off is the wrong way to end the employment relationship. Handling a termination in this manner eliminates the chance for the employer and employee to discuss in a face-to-face meeting why the company made the decision to terminate her. In addition to being an unfair and awkward process, it complicates the next steps in the termination procedure, such as continuation of benefits and return of company property. This process also causes undue stress for the employee, whose vacation was intended to be a time for relaxation.
The Federal Reserve System issues guidance to financial institutions on how to manage employees' vacation and paid time off. The rule suggests that employees who plan vacations must be off work for at least 10 consecutive work days. The purpose of this rule is to prevent misappropriation of funds. The theory behind this employment standard is that when someone has complete control of sensitive information without any absences, there exists a possibility that sole control of the sensitive information or funds may lead to wrongdoing. Therefore, during an employee's required vacation, filling the vacant position temporarily is a form of conducting checks and balances while the person is out of the office. When embezzlement is discovered during an employee's vacation and there's solid evidence to support the allegations, an employer should handle the termination immediately.
Eliminating an employee's job during his vacation is another inadvisable employment action. The worst possible news an employee could receive is that after a family vacation, he won't be able to return to a job. If at all possible, delay a job elimination until the employee returns from vacation. While it's legal to conduct a termination under these circumstances, the aftermath would have a devastating effect on your company's business reputation. In the event of an emergency shutdown, all employees should be notified, whether they are in the office or on vacation or leave. Emergency circumstances are much easier for employees to process. However, in the case of one employee's job elimination, it's best to wait until he returns from vacation to handle the termination.
Terminating an employee while he's on vacation doesn't just affect the employee receiving the bad news. Water-cooler conversations about the timing of the termination can negatively impact employee morale. This might encourage your employees to start looking for jobs elsewhere for fear they will be the next person whose termination will occur during vacation time. Human resources staff must follow workplace policies and procedures, but there's also a level of compassion that human resources specialists have that makes them excel in their field. Terminating an employee is always difficult, but it's even more difficult when the termination is poorly timed.