Terminating Employees—A Risky Business!

By Mike DuBose and JoAnn Moss

There is nothing more stressful and traumatic than firing an employee! The employee is likely to go through emotions, similar to the death of a loved one, including fear, denial, shock, panic, anger, and finally, acceptance. In terminations, an employer is not only making a decision that is best for the company, but one that may drastically affect the lives of people.

No matter how sound your employment process, there will be times when the employee's performance is inadequate, the employee is a disciplinary problem, or doesn't share the company's vision and goals; therefore, the employee becomes a liability to the company and should be terminated immediately.

Risks Associated with Employee Terminations: Legislation aimed at protecting employees from un-lawful discharge began in the 1960's to erode the employment-at-will-doctrine and to ensure that employees were treated fairly. Unfortunately, some employers are so afraid of being sued that they delay or avoid terminating high-risk employees. This is not only costly in terms of productivity, but also in terms of reduced morale and potential danger to other competent company employees.

It is critical that managers understand the laws that protect employees from illegal discrimination and approach any termination event as if your company will have to defend it in court or at an EEOC hearing.

Members of Protected Classes: Federal law prohibits employment discrimination on the basis of race, color, religion, national origin, gender, pregnancy, age, disability, citizenship, and military status. Any employee who falls in one of these categories is considered to be a member of a protected class.

It is easy to understand the fear of being sued by a terminated employee, especially if the employee is a member of a protected class. According to the Equal Employment Opportunity Commission, it receives 90,000 discrimination charges annually! The number of employment lawsuits that made it to trial is smaller, but even if the case is settled out of court, dismissed, or the jury finds in the employer's favor, your company will expend a lot of time, legal fees, money, and labor investigating and responding to the claim.

We have seen organizations in which management was virtually held hostage by an unproductive employee who was a member of a protected class. This kind of "look the other way management" creates an internal culture of fear, distrust, and disrespect that will permeate the entire organization.

The safest way to avoid being sued by such an employee is to terminate the person as soon as you know they are not going to work out. It is harder for the employee to make a case for discriminatory treatment if you just hired the individual. At the same time, it is imperative that you treat all employees equally.

Employees Engaged in Protected Activities: Federal laws not only protect employees from employment discrimination but also from retaliation for exercising their rights.

For example, it is illegal to take adverse employment action against an employee taking leave under the Family and Medical Leave Act or reporting health or safety violations under the Occupational Safety and Health Act. Under new legislation, the Sarbanes-Oxley Act created civil and criminal liability for retaliation against whistleblowers.

The tricky issue is that it is easy for employers to take action against employees that may appear to be in retaliation, even though it was not the intention of the employer, and attorneys are lined up for these cases. EEOC reported 22,000 charges of retaliation in 2005 that resulted in $90 million in damages! Firing an employee who has engaged in protected activity may be one of the most dangerous employment decisions you make.

In the event that an employee files a retaliation claim, it is critical that employers have documented any problems they have had with an employee when the incident occurred, not after a retaliation complaint is filed.

Written Contractual and Verbal Agreements: Before you fire an employee, make sure that the employee-employer relationship is not bound by a contract. Even if you do not have a written contract, you may have inadvertently established an implied contractual agreement in several ways.

Courts have found that an initial employment offer letter could be interpreted as a contract. If a letter contains language that indicates the employee is offered a job for a certain length of time or that the employee can only be discharged for cause, you may be bound by an implied contract.

Another dangerous practice is staff verbally indicating to an employee that their job is secure. This kind of language can give rise to oral-contract or promissory estoppel claims.

Employee Handbooks: It is our opinion that the dangers of not having a handbook far outweigh the dangers of having a properly written manual. It should not include any language that indicates that the disciplinary procedures included in the handbook are mandatory. Your handbook should include a disclaimer indicating that the employment relationship is at-will and formatted in a way that is noticeable.

Ensure you have a signed statement in each employee file indicating they have received the handbook and understand it, that you can change it without notice, and that their employment is at will.

Let's assume that you have determined that you have cleared all the hurdles listed thus far in this article and you want to move forward in terminating an employee for cause. Before you make the final decision, take a few extra precautions.

Ensure you have documentation of honest evaluations for the employee. If you are terminating for performance issues, you may have to prove in court that you are terminating for legitimate work related reasons, not because the employee falls into a protected category. The worst thing you can do is terminate an employee for poor performance and later find out that the employee had not been evaluated on performance; therefore, had no reason to think they were performing poorly.

If you have a progressive discipline policy, make sure that you have followed your policy. Whether you have a policy on employee discipline or not, it is imperative that you treat all employees equally. If you are contemplating firing this employee for something in which you disciplined another employee differently in the past, you are asking for trouble.

Be Prepared: Don't act before conducting a proper investigation. If you fire an employee for disciplinary reasons in which he/she isn't guilty, you risk being sued by the employee for wrongful discharge. You should have standard investigative procedures in place and follow them consistently. An argument can be made for using an outside human resource consultant to bring objectivity and the appearance of fairness to internal investigations. Regardless who does it, make sure that it is done and documented.

Time to Terminate: Once the decision has been made that terminating this employee is in the best interest of your organization, don't delay. But, make sure you are prepared for your meeting with the employee. Remember this is not going to be easy on either of you, so taking the proper steps to prepare is crucial in making it less painful for you and the employee and reducing legal liability.

Remember, the fairer the employee thinks you are being, the less likely they are to sue or retaliate against you and your company.

After the Employee is Fired: The hard part is over, but there are a few important issues to keep in mind:

  1. If your company offers health insurance and you have 20 or more employees, you have to offer the terminated employee an opportunity to continue coverage under COBRA.
  2. Employees are not entitled to unemployment benefits if they are fired for misconduct, but, if the employee files a claim, consider carefully whether you want to contest the claim.
    3. Don't malign the employee to future potential employers or former fellow employees and make sure that others in your organization are aware of the liabilities associated with this kind of retaliation as well.

At some point, most managers will face the daunting task of firing an employee. There is no one size fits all instruction manual and we recommend you consult a lawyer and HR expert when terminations occur. Hopefully, this article has given you the tools to recognize and manage the risks of employee terminations.

About the authors: Mike DuBose is president of the Columbia Conference Center www.columbiameetings.com and six other corporations. He is the author of the new book, Building a Great Business, to be released in the summer, 2007. JoAnn Moss is President of Human Resource Dynamics, a human resource consulting firm that assists government, non-profits, and for-profit businesses. Comments can be directed to her website www.humanresourcedynamics.com


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