TL;DR (Quick Summary)
Termination under an Employer of Record (EOR) model often confuses businesses. In simple terms, the EOR is the legal employer and ensures compliance with local labor laws, but the client company still decides when and why to terminate an employee. The EOR’s role is to handle the legal aspects of termination, file the paperwork, and prevent non-compliance issues such as wrongful dismissal. This partnership helps businesses avoid risks while maintaining control over workforce decisions.
Introduction: Why Termination Under an EOR Can Be Confusing
Expanding globally through an Employer of Record is an attractive option for companies that want to hire quickly without setting up a local entity. But when it comes to terminating employees with an Employer of Record, many business owners and HR leaders ask:
- Who actually makes the call?
- Does the EOR fire the employee, or does the client company decide?
- What local labor laws apply, and who is liable if something goes wrong?
These are critical questions because mishandling termination can lead to costly lawsuits, reputational damage, and compliance penalties.
In this guide, we’ll break down Employer of Record termination laws, explain how termination works with an Employer of Record, and provide clarity on EOR responsibilities in employee termination.
Understanding Employer of Record Termination Laws
An Employer of Record (EOR) is the legal employer on paper. This means the EOR handles payroll, taxes, benefits, and compliance with local labor laws. However, when it comes to termination:
- The client company directs the decision (e.g., poor performance, redundancy, business restructuring).
- The EOR carries out the termination legally to ensure compliance with local regulations.
For example, under the Employer of Record Philippines termination laws, the Labor Code of the Philippines governs terminations. Specific rules exist for just causes (misconduct, neglect of duty) and authorized causes (redundancy, retrenchment). A company terminating through an EOR must follow these same laws, or they risk wrongful dismissal claims.
How Termination Works with an Employer of Record
The process typically looks like this:
- Client decides on termination – The company informs the EOR of the reason for dismissal.
- EOR reviews compliance – The EOR checks if the termination aligns with local labor laws.
- Notice and documentation – The EOR prepares the required paperwork (e.g., termination letters, final pay calculation, government filings).
- Termination carried out – The EOR communicates with the employee and manages the exit process.
- Post-termination compliance – The EOR ensures notice periods, severance, and final pay are settled properly.
This ensures both EOR employee termination compliance and employer obligations in termination under EOR are met.
Why Local Labor Laws Matter in Termination
Every country has its own labor laws. What’s considered “at-will employment” in the U.S. doesn’t apply in the Philippines, Europe, or Asia.
- In the Philippines, termination requires legal justifications and due process.
- In France or Germany, employee protections are even stronger, requiring negotiations or works council approval.
- In at-will countries like the U.S., termination is easier but still subject to anti-discrimination laws.
The EOR and local labor law compliance factor is crucial because businesses that ignore this risk face fines, lawsuits, and damage to their brand.
Benefits of Using an EOR for Employee Termination
The main advantage of an EOR during termination is risk reduction. Here’s how:
- ✅ Ensures compliance with local laws and prevents wrongful dismissal.
- ✅ Manages documentation like termination letters, severance pay, and government filings.
- ✅ Reduces liability by ensuring all legal steps are followed.
- ✅ Supports employee communication during sensitive termination processes.
- ✅ Protects client companies from reputational harm caused by non-compliance.
In short, while the client company makes the call, the EOR handles the legal aspects of termination with compliance precision.
Pain Point: Confusion Around Control vs. Compliance
The biggest pain point for businesses is confusion about control:
- Do they lose the authority to terminate staff?
- Can the EOR stop a termination?
- Who bears responsibility if something goes wrong?
Solution: Think of it as a partnership. The client retains managerial control (deciding when to terminate), while the EOR ensures compliance with termination rules under Employer of Record models. Both sides work together to balance authority with legality.
Common Risks in Terminating Employees with an EOR
Without understanding the legal aspects of termination with an EOR, businesses face:
- ❌ Wrongful termination lawsuits.
- ❌ Penalties for skipping required notice periods.
- ❌ Unpaid severance claims.
- ❌ Reputational harm in the local market.
- ❌ Breach of labor contracts.
This is why companies must rely on the EOR responsibilities in employee termination to avoid costly mistakes.
Best Practices for Termination Under an EOR
To minimize risks, companies should follow these best practices:
- Document performance issues before termination.
- Consult the EOR early in the decision-making process.
- Follow local notice period laws strictly.
- Provide severance packages if legally required.
- Respect employee dignity during the process.
- Keep communication clear and professional.
By combining managerial authority with EOR employee termination compliance, companies can ensure smooth exits.
FAQs: Employer of Record and Termination Laws
1. What are the termination laws when hiring through an Employer of Record?
They are the local labor laws of the country where the employee works. The EOR ensures compliance with these laws during termination.
2. Does an Employer of Record handle employee termination on behalf of the client company?
Yes. The client decides on termination, but the EOR executes it legally and manages documentation.
3. Who makes the decision to terminate—EOR or client company?
The client company makes the decision, while the EOR handles compliance and process execution.
4. What legal responsibilities does an Employer of Record have in termination?
The EOR ensures the termination follows local labor codes, notice periods, severance requirements, and government filings.
5. Can an EOR protect companies from wrongful termination claims?
Yes, by ensuring compliance, the EOR helps reduce the risk of wrongful dismissal claims.
6. How do local labor laws affect termination under an EOR?
They determine whether termination is legal, what notice or severance is required, and how the process should be documented.
7. Is the termination process different with an Employer of Record compared to direct hiring?
Yes. With an EOR, the EOR executes the process legally, whereas in direct hiring, the company manages everything itself.
8. What notice period applies when terminating an employee under an EOR arrangement?
It depends on the local laws of the country. For example, in the Philippines, at least 30 days’ notice is often required.
9. Can an Employer of Record terminate an employee without the client’s approval?
No. The EOR does not initiate terminations unless instructed by the client company.
10. How can businesses ensure compliance with termination laws when using an EOR?
By working closely with the EOR from the beginning, documenting decisions, and respecting local labor codes.
Conclusion: Clarity and Compliance Are Key
When it comes to Employer of Record termination laws, the golden rule is:
- The client controls the decision.
- The EOR ensures compliance.
This model allows businesses to maintain authority over their teams while relying on the EOR for the legal aspects of termination. By understanding how termination works with an Employer of Record and following best practices, companies can reduce risks, avoid lawsuits, and protect their reputation when managing global teams.
✅ Final takeaway: Termination under an EOR isn’t about losing control—it’s about gaining compliance support.
