U.S. workers filed more than 200,000 new unemployment claims in a single recent week, underscoring how sudden job loss remains a harsh reality across industries. In 2023 alone, American employers announced hundreds of thousands of layoffs, from tech to biotech startups. Against that backdrop, a growing number of employees report being told to “find a new job” rather than being formally fired or laid off. Employment lawyers say the wording matters. It can shape severance eligibility, unemployment benefits, and even legal rights.
In one recent case at a 15-person biotech startup, an employee says the CEO gave a deadline of March 31 to secure another role and “leave on your own terms.” The CEO reportedly stated the worker was not being fired or laid off. Colleagues suspect the phrasing was deliberate. The startup’s grants are set to expire this summer, raising concerns about financial instability rather than performance issues.
This situation highlights a broader workplace question: Is being told to resign legal? And is it worth fighting for severance?
What counts as termination under U.S. employment law?
Most U.S. workers are employed under “at-will employment.” This means an employer can terminate an employee at any time for almost any legal reason. The employee can also quit at any time. But the legal classification of an exit matters.
If a company formally fires or lays off a worker, that is a termination. If a worker resigns voluntarily, it is typically considered a quit. The difference directly affects unemployment insurance eligibility and severance pay.
When a CEO tells someone they are “not being fired” but must leave by a specific date, legal experts often examine whether this could qualify as constructive discharge. Constructive discharge occurs when working conditions become so intolerable that a reasonable person would feel forced to resign. Courts apply strict standards. It is not enough that the situation feels unfair. The conditions must be objectively severe.
In a small biotech startup with expiring grant funding, financial stress can trigger workforce reductions. If the company cannot sustain payroll, it may push employees to leave voluntarily to reduce financial obligations. But the law focuses on substance, not labels. If the message is effectively, “You have no long-term future here,” it may resemble a termination.
Severance pay: Is it required by law?
Many employees assume severance is mandatory. In most cases, it is not. U.S. federal law does not require private employers to provide severance pay unless there is a written contract, employment agreement, union contract, or established company policy that promises it.
Startups, especially venture-backed biotech firms dependent on grants, often do not guarantee severance unless it is outlined in offer letters or executive agreements.
However, if a company conducts a formal layoff, especially a group layoff, additional rules may apply. The federal WARN Act requires certain employers with 100 or more employees to provide 60 days’ notice for mass layoffs. A 15-person startup would not meet that threshold.
That said, some companies offer severance to protect reputation, reduce legal risk, or secure signed release agreements. If the CEO avoids using the words “fired” or “laid off,” it may reduce pressure to offer severance. But the absence of those words does not automatically eliminate the possibility of negotiation.
Unemployment benefits and “voluntary resignation”
One of the most critical issues in cases like this is unemployment insurance eligibility. State unemployment agencies typically deny benefits if an employee voluntarily quits without good cause. But they often approve benefits if the employee was terminated due to lack of work or financial reasons.
If grants are running out and the role is ending for financial reasons, that leans toward a layoff scenario. If the company frames it as a resignation, the burden may shift to the worker to prove they did not truly quit voluntarily.
Documentation becomes essential. Written communication stating that continued employment is not possible beyond March 31 can help establish that the separation was employer-driven. Verbal statements are harder to prove.
In biotech startups facing funding cliffs, workforce reductions tied to expiring grants are common. In such cases, unemployment agencies often view the separation as a layoff due to lack of funding, not misconduct or voluntary quitting.
Is this legal or wrongful termination?
Legality depends on several factors. At-will employment allows termination without cause. But employers cannot terminate workers for illegal reasons such as discrimination, retaliation, or whistleblowing.
If the employee’s performance was not cited as an issue and the reason appears financial, that generally falls within legal boundaries. Financial instability is a lawful basis for ending employment.
However, misrepresenting the nature of termination to avoid unemployment obligations or contractual severance could raise legal concerns. Each state’s employment laws vary. Consulting an employment attorney for a short consultation can clarify options. Many attorneys offer initial consultations at low or no cost.
The emotional impact should not be overlooked. Being told to leave but not formally terminated can create confusion and distress. It can also affect professional references and future job searches.
Should you fight for severance or negotiate quietly?
In small biotech startups, relationships matter. The industry can be tight-knit. Burning bridges may carry long-term consequences. But that does not mean employees must accept unfavorable terms without question.
A professional approach often works best. Instead of confrontation, employees can request clarity in writing. For example:
“Can you confirm in writing whether my position is being eliminated due to funding constraints?”
That shifts the conversation from emotion to documentation.
If the role is ending due to expiring grants, it may be reasonable to request a modest severance package. Even two to four weeks of pay can provide stability during a job search. Employers sometimes agree if approached calmly and professionally.
The key is to avoid framing the discussion as a legal threat unless necessary. Start with negotiation. Escalate only if needed.
The biotech sector depends heavily on grant funding, venture capital, and milestone-based financing. When grants expire, payroll pressures rise quickly. Small teams feel the impact first.
In a 15-person startup, even one salary can significantly affect cash runway. If multiple grants end this summer, workforce reductions may be inevitable.
For employees, understanding the company’s funding timeline provides context. It also strengthens the case that the separation is financial, not performance-based. That distinction matters for unemployment claims and future job interviews.
Practical next steps for employees facing forced resignation
First, document everything. Save emails. Take notes after meetings. Keep records of dates and statements.
Second, review your offer letter and employee handbook. Look for severance clauses or layoff policies.
Third, consult an employment attorney in your state. Even a brief consultation can clarify rights.
Fourth, begin an active job search immediately. Update your LinkedIn profile. Reach out to contacts. In biotech, networking can move faster than cold applications.
Finally, protect your mental health. Job loss, even when financially driven, can feel deeply personal. It is normal to feel overwhelmed or emotional.