I was working at a café for 10 months... After my shift one day the owner needed to talk to me. No problem. She explained that her daughter wanted to work there and to make room for her she would have to let me go. She explained that I did a great job and she had nothing against me, she just wanted to let her daughter have yet another shot at serving there. She let me know that if her daughter flaked out on her again, she would call me back. Obviously this puts more strain on me than needed. My feelings were hurt because I cared so much for the business and my customers. I had no warning and support my family alone.

Legally its OK... Ethically... its really messed up. Nepotism is a horrible way to run a business and you are probably better off without them. If she comes running back to you, tell her where to go.