Before You Fire an Employee, CYA

Ending relationships with employees can prove to be surprisingly expensive. If your business is in a position where it needs to cut the payroll in order to save overhead, be aware that without careful preparation and execution, terminations and layoffs can cost you more than they save you. Fighting a wrongful discharge claim can be pretty daunting, even when the claim is entirely false. Suppose an employer has done absolutely nothing wrong and has the documentation to prove it. Getting a simple termination-related lawsuit through a successful motion to dismiss could easily cost $100,000 or more and take more than a year—which is why most cases settle. Investing a little effort in the termination process can prevent expensive headaches.

In order to file a claim of wrongful termination with a federal or state agency or court, a former employee must allege that he or she was let go on either a discriminatory or a retaliatory basis. Under federal, state, and local laws, it is illegal to terminate an employee on the basis of age, race, creed, color, national origin, gender, disability, and a host of other “protected characteristics.” While most business owners are aware of these laws, many are unclear as to how to legally protect themselves against violating them. The same holds true for retaliation claims. One third of all federal claims of wrongful discharge now include an allegation that the termination was carried out in retaliation for exercising the right to complain or engage in protected activity.

In retaliation cases, the time line is very important. For example, if an employee complains of on-the-job harassment, or publicly engages in union-organizing activity, and is fired within a matter of days, the employer will be hard-pressed to convince a judge or jury that the firing was not retaliatory. Most of these cases are “fee-shifting”, meaning that the burden of paying the complainant’s legal expenses may be moved to the employer if the complainant is successful, but the reverse is never true. Consider terminations for cause (individual terminations based on employee performance problems) and mass layoffs (group terminations based on the company’s economic issues) carefully before making them, no matter how much immediate financial pressure you face. Some strategies for planning and executing low-risk terminations and layoffs are discussed below.

What to Consider

Before making the final decision to terminate an employee, carefully consider all the possible outcomes and whether you have the ammunition you will need if you are forced to defend it.

• Make sure you have a documented history of providing the employee with meaningful feedback if you are terminating due to performance issues. If you have repeatedly discussed disciplinary or performance problems with the employee, and the employee has been consistently unwilling or unable to address the issues you have raised, make sure you have written evidence demonstrating this experience.
  



• Think about whether the employee is a member of any group protected under discrimination laws and could have any possible grounds for making a discrimination or harassment claim. Legal review is essential before any action is taken whenever such a claim is a possibility. If harassment may be an issue, a thorough investigation of any alleged incident will have to be conducted.
  
  • If you decide to terminate employees for economic reasons, ask yourself whether there is any alternative, such as a reduction of hours or benefits, that could be tried in lieu of termination. Some employers succeed in instituting a four-day workweek during difficult periods. Review employee utilization of your current benefit plans— sometimes eliminating a benefit that is not particularly popular with employees can result in meaningful savings.
  



• Consider reviewing the proposed termination with an employment attorney before taking an action that may place your company at risk. It is possible to terminate an employee with a potential claim (discrimination, retaliation, leave law violation, etc.), but it requires extra steps.
  



• Be aware that your actions should be perceived as fair, by both departing and remaining employees. Terminations that are perceived as unfair diminish company morale and increase litigation risk. An employee should not hear about performance problems for the first time in a termination meeting; this may precipitate a discharge claim. Surviving workers who think others have been fired arbitrarily will fear that they are next, and may begin seeking other employment and/or agree to serve as witnesses in a former co-worker’s action against your company.

Employment at Will

In an “employment at will” state like New York, New Jersey, or Connecticut, employers are nominally within their rights to terminate any employee not covered by an employment contract at any time for any reason. As a practical matter, firing an employee arbitrarily always raises the risk that he or she will claim the true motive for the firing was discrimination or retaliation. A paper trail documenting a justifiable, nondiscriminatory reason for any termination is essential.