9
Termination and Discharge
How Do I Fire an Employee Legally and Humanely?

WHENEVER YOU HIRE AN EMPLOYEE, you have high hopes that you have made a good decision and that the employment relationship will be a long and mutually beneficial one. Sometimes, however, the arrangement does not work out as anticipated and you may want to end the employment relationship and hire someone more suitable for the position.

Firing an employee is never easy. Since it is difficult to tell people that they are going to lose their jobs, some employers will ignore a situation until it gets out of hand—and then suddenly and swiftly discharge the problem employee. This type of rash action can have painful consequences. Wrongful termination lawsuits are common, expensive, and time-consuming. In addition, you must consider that every time you terminate a worker, your remaining employees will be watching your actions very carefully. If you are perceived to be arbitrary, heartless, or unfair, employee morale will suffer, along with your reputation in the community as a desirable employer.

While firing in haste can create legal liability, taking the opposite approach and being afraid to terminate employees who are not working out can be just as hazardous for a business. As organizations face the challenge of developing a leaner workforce to remain competitive, it is more critical than ever to retain the flexibility to replace problem employees with those who will make positive contributions.

Do not let fear of legal action paralyze your decision making. There is no way to completely insulate your business from lawsuits; some individuals will sue whether or not they have a legitimate case. The practical goal is to minimize the risk of liability and negative employee perceptions—which you can do by developing, implementing, and consistently adhering to a system based on sound policies, guidelines, and procedures to support your terminations. This chapter will guide you in making the right termination decisions and carrying them out in a way that will decrease your potential exposure.

THE TERMINATION PROCESS

Every termination process must include the following four elements:

1. Determining whether the employee can be properly terminated

2. Ensuring that the proposed termination is adequately documented

3. Conducting the termination responsibly

4. Promptly handling follow-up matters

Never act rashly. Discipline your organization to follow these four steps every time you consider terminating an employee.

“Can’t an employer fire and rehire people as it wishes?”

Not really. The laws concerning what constitutes wrongful discharge vary by state, but there are certain instances where termination will always be considered illegal. In addition, there are other variables that will have a bearing on whether a particular termination is appropriate, such as whether there is a written employment contract, the wording of any employment handbook or policy manual, and the prior actions and practices of the company.

“What about ‘employment at will’?”

Some state laws support an “employment at will” doctrine, which maintains that both employer and employee are free to terminate the employment relationship at any time and for any reason (as long as that reason is not illegal). However, the concept of employment at will continues to be eroded in the courts, and even companies located in so-called “at will” states have incurred liability when the circumstances of the termination suggested that the fired employee was wronged in some way. It is therefore essential to adopt sound termination practices no matter where your business is located.

“What do I need to consider in determining whether I can terminate an employee?”

First, you need to determine whether your reasons for conducting the termination are proper and legal. There are many legitimate reasons why you might consider firing an employee. He may not be performing the job satisfactorily. She may have behavior or attitude problems, such as excessive absences or lateness or lack of cooperation with coworkers, which are affecting productivity and morale. The individual may have engaged in illegal or unacceptable activities such as drug use on the job or threats of violence. Or your business may simply be moving in a direction that requires that you replace an existing worker with someone with a different skill set.

On the other hand, there are some reasons that will always be considered inappropriate and illegal. As discussed in Chapter 7, firing an employee for reasons involving discrimination related to age, sex, religion, ethnicity, or other protected-class status is against the law. It is also improper to discharge a worker in retaliation for that person’s reporting a violation of an antidiscrimination, harassment, or safety law, for serving on jury duty, or to deny retirement benefits. Individual states have additional laws regarding employment terminations. You will need to be aware of the applicable laws of both the state where your company headquarters is located and the state in which the employee works.

Once you have determined that your reasons for firing are appropriate, you must consider whether there are additional factors that will complicate the termination process. Each time you conduct a termination, ask yourself the following questions:

• Can this termination reasonably be interpreted as being discriminatory or retaliatory? In other words, you may want to fire an individual for poor performance, but if this same individual recently complained of an instance of sexual harassment in her department, it is likely that she will claim that she was terminated because of her complaint.

• Did you make verbal promises to the employee about her employment status or term of employment? It is never advisable to make representations such as, “You will have a job here as long as we are profitable” or “You will only be fired for good reasons.”

• Is there an employment agreement between the company and the employee? If so, you will need to carefully review the agreement to ensure that the termination does not violate the company’s contractual obligations. Many employment agreements spell out the term of employment, as well as reasons and procedures for discharge, and provide for severance payments or other penalties if the contract is terminated.

If you answer yes to any of the questions above, it is still possible to terminate an individual for a legitimate cause, but you will have to take further steps to set the right legal groundwork to support your actions. Consult an attorney to help you with this process.

If your reasons for the firing are proper and you have answered no to all the previous questions, you still have more work ahead of you before you can discharge the employee. There are very few instances in which you can safely terminate an employee on the spot. These include extreme situations involving violence or threats to harm others; fraud, significant dishonesty, or other criminal activity; possession or use of alcohol or drugs in the workplace; and unauthorized disclosure of trade secrets. In other circumstances that do not involve immediate threats to the company, its employees, or its customers, you will need to take the time to ensure that you set the stage for the termination through adequate documentation and communication.

“How do I ensure that the proposed termination is satisfactorily documented?”

In Chapter 3, we discussed the progressive disciplinary system and how to document performance and behavioral problems. It is critical that before conducting a termination, you make sure there is adequate documentation of the reasons for termination and of the fact that the performance issues have been communicated to the employee. Because you never know who will file a suit for wrongful termination, it is prudent to look at every employee termination as a potential lawsuit and have the data available for each discharge to defend yourself and demonstrate that you acted responsibly and within the law.

When you are considering a termination, review the individual’s employment file to ascertain whether the following documentation is in place:

• Records that clearly note and explain incidents of unacceptable performance or conduct and that show that the employee was notified of these deficiencies

• Documentation reflecting that the employee was notified that his or her employment may be terminated if improvements did not occur

• Documentation that the employee was offered a reasonable opportunity within a reasonable time frame to make the necessary improvements, and that the improvements did not occur

If any of these elements are missing from the file, it is better to hold off on the termination until the actions can be documented properly. While the prospect of postponing a termination can be inconvenient, the costs of acting too hastily are potentially far more serious.

“How do I prepare for and conduct the actual termination?”

As a guiding principle, keep in mind that no matter what the specific circumstances, it is important to treat the departing employee in a dignified manner at all times during and after the discharge. Employees who feel humiliated during the process are more likely to spread damaging comments to others or take legal action than those who believe they were respected. The way you conduct a termination sends a message to all employees—let that message be that you are a responsible and concerned employer.

• Scheduling the termination meeting. Schedule the meeting when the employee will be at work and not on leave or vacation. Friday afternoon is the worst time to fire. Sending the employee home for the weekend fresh from the shock of losing a job is heartless, and it does not give the company time to assess and control the situation if there is negative fallout among other employees. Conducting the termination earlier in the week, at the end of the day, gives the employee time to emotionally prepare for the weekend ahead and allows the individual to leave the office without having to give embarrassing explanations to colleagues.

Plan to have the meeting in a quiet and private place, such as a supervisor’s or human resources representative’s office. If no private office is available, use a conference room. Have two people present for the termination discussion, usually the individual’s manager and either a human resources professional or another manager who has had contact with the employee. This way you will have a witness if the employee later disputes what was said or done at the meeting.

Limit information concerning the discharge to those employees with a need to know, such as discharged employees’ managers, functional area heads, and the appropriate legal and human resources representatives. Make sure these individuals understand the need to keep the matter totally confidential. If the affected employee feels he was the last to know about his termination, this will only elevate resentment.

• Conducting the termination interview. How you open the meeting will set the tone for everything that follows. Although you may be anxious about the unpleasant task before you, you must be clear, courteous, and direct. Do not engage in extraneous conversation, but state the fact that you are terminating the individual’s employment and offer the reasons for your decision.

It is common that even when you state the purpose of the meeting directly, employees may not fully understand that they are being fired. Give them a chance for the message to sink in, and be sure they comprehend the action you are taking. You will want to give people the chance to ask questions, but do not let the session become argumentative or allow an employee to revisit the details that led to the termination. Gently explain that the decision you have made is final, and move on to the rest of your agenda.

Different people react to bad news in different ways. Some may cry; others may get angry or defensive; some may say nothing or show no emotion. Allow emotional workers to regain their composure before moving on. Do not respond to anger by getting angry yourself. It is your role to stay in control of the meeting.

You will then want to explain about COBRA and other benefits (see the next section on post-termination) that are available to assist the employee in transition to new employment. Give the employee a written description of these benefits or say that details will be mailed in the near future. Provide the name of the proper person to contact if there are questions about transition benefits. Collect any company property, such as security ID cards, laptops, cell phones and smart phones, company credit cards, and file cabinet or office keys. Finally, document the termination meeting, including the date, time, attendees at the meeting, and major points discussed, and place a copy of the documentation in the individual’s employment file.

• Collecting personal belongings and leaving the premises. After the meeting, allow the employee to return to his work space to gather personal belongings and any additional company property to be returned. Again, permitting the individual to retain his dignity is key. While it is usually advisable for terminated employees to leave company premises as soon as possible, this is not necessary in all situations. If there is no valid security concern, do not add insult to injury by sending them back to their desks accompanied by uniformed security guards or escorting them off the premises. Use alternative methods of addressing security issues, if available, such as deleting employee access codes to the company’s computer systems, remotely, while the termination meeting is taking place.

“What if the employee requests to resign instead of being fired?”

Occasionally, an employee may feel that it is less of an ego blow to resign than to have the employment file reflect a termination. There is no reason not to agree to this request. When you agree to a resignation in lieu of a termination, do not attempt to challenge the individual’s collecting unemployment benefits. The unemployment agency will view this type of resignation as a discharge and almost always allow the worker to collect.

POST-TERMINATION COMPENSATION AND BENEFITS

When you terminate an individual’s employment, there are certain compensation and benefits that you must offer and others that are optional. Before the actual discharge meeting, make a list of the required and optional items you will provide and review them with the employee during the termination meeting.

“What post-termination compensation and benefits am I required to offer to discharged employees?”

• Final paycheck. No matter what the circumstances of the termination, you are obligated to pay the employee for time worked through the date of discharge. State law varies as to when the final check must be delivered; understand your obligations before acting. You are not permitted to “offset” amounts that the employee owes you against wage or vacation time payment. For instance, if the final paycheck amount is $500, but you claim that the employee owes you $100 for failing to return a company-provided cell phone, you cannot deduct $100 from the paycheck or withhold pay until the phone is returned. All such matters must be settled separate and apart from the payment of wages.

• Vacation pay. Most state laws do not require that you compensate employees for earned but unused vacation time upon termination of employment, but many states mandate that if an employer takes or omits to take certain defined actions, it will be required to pay unused vacation time. In addition, if you have a policy or practice of making these payments, you will be required to do so on a consistent basis. Any vacation pay due the terminated employee should be included in the final paycheck.

• Stock option, 401(k), pension, and non–health insurance benefits. If the employee has vested stock options, 401(k) or other retirement savings, or pension benefits, provide instructions for continued participation in the plan (if allowed under the plan) or for distribution of funds. If the company’s life insurance or other non-health-related insurance plans offer participants the option to convert to individual coverage, inform the individual of this feature.

• Continuation of health insurance coverage (COBRA). The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires employers with twenty or more employees (with the exception of plans provided by the federal government and certain church-related organizations) to provide the opportunity for continued health insurance coverage for employees who lose their coverage due to a “qualifying event” such as termination of employment. Generally, you must provide the same level of benefit to any employee, spouse, or dependent who was covered on the date of termination. The period of coverage continuation is usually eighteen months, but it may be extended up to thirty-six months in certain disability situations. Employees elect to continue the coverage at their own expense, at a rate no greater than 102 percent of the cost of the premium.

COBRA provides certain specified notification and action requirements, as follows:

Key Event	Time Frame
Company must notify plan administrator of a “qualifying event”	Within 30 days of termination or other “qualifying event”
Plan administrator must notify individual of rights under COBRA and period for electing to participate	Within 14 days after notification to plan administrator (described above)
Individual must notify company of his or her election to participation under COBRA	Within 60 days after receiving notice from plan administrator (described above)
Participating individual must pay initial premium	Within 45 days of electing coverage

If you have questions about COBRA requirements, your company’s health plan administrator is a good place to start. The Department of Labor also makes available comprehensive employer compliance information. In addition to COBRA, many states have insurance continuation laws that provide additional or extended rights or benefits to terminated employees, or so called “mini-COBRA” laws, that extend benefits to terminated employees of companies too small to be covered under federal law.

“What types of optional post-termination compensation and benefits might I consider offering?”

• Severance pay. Severance pay is an amount of compensation, in addition to money owed for time worked, that is paid to the terminated employee. Severance serves both as a gesture of goodwill and to help tide workers over until they obtain new employment. An employer generally has no legal obligation to pay severance, and the amount you pay will usually be totally within the discretion of the organization. Some companies have structured severance policies that clearly spell out the conditions under which discharged employees are entitled to severance and the amounts they will get. Most businesses prefer to handle severance on a case-by-case basis without locking themselves into a formula that they might not always want to apply. Severance payments will either be “mitigated” or “unmitigated.” Mitigated severance cuts off if the employee finds a new job within the severance period; unmitigated severance is payable whether or not the employee becomes employed while severance is being paid.

• Outplacement. Several types of outplacement arrangements are available to help the fired worker accept the loss of a job, acquire job search skills, and move on to new employment. These services can range from half-day workshops on resume preparation and interview techniques, to expensive senior executive programs providing private offices and administrative support. Providing outplacement not only eases an employer’s guilt over a discharge, but can also demonstrate to employees that the company cares. Good outplacement counseling can help to diffuse employee anger and redirect energies toward planning for the future. The quality and cost of outplacement services vary widely. Before retaining the services of an outplacement professional, ask for details on the program and check references.

You cannot force anyone to participate in an outplacement program. Often workers will say they don’t need any outplacement assistance, requesting instead that you pay them directly the money you otherwise would have spent on the program as part of their severance package. It is best not to agree to this request, because direct payment will not serve the purpose of diffusing anger or focusing attention on new employment. Explain gently but firmly that the outplacement is being offered not as compensation, but as a benefit to encourage success in the job search process.

• Other compensation and benefits. You can create other features of a severance package tailored to a specific situation. You may offer an executive with a company car the opportunity to continue using the vehicle for a designated period of time until she purchases a new one. Or you might forgive an employee loan or allow a manager to keep his laptop computer or other equipment. If you can accommodate a person within reason, you can go far toward easing a difficult situation.

“Am I free to pick and choose what optional benefits I will offer individual terminated employees?”

Yes, as a general rule you are—provided you do not create a situation where employees can claim they are entitled to certain separation benefits that would normally be considered optional. If your handbook has a written severance policy that states, for example, that employees will be paid severance of two weeks for every year worked, you will be obligated to abide by the policy for all terminated employees. Similarly, if you have a signed employment contract with a stated severance provision, you are bound to the terms of the agreement. Even if you have no employment contracts or written severance policies or procedures, you may be obligated to provide certain severance benefits and payments if the company has a history of providing severance to employees who were discharged under similar circumstances.

When you are deciding what optional severance benefits to offer in a given situation, be fair and rational in your determinations, and do not discriminate among certain classes of employees. For example, a practice of offering larger severance payments to men than to women will likely get you into trouble.

“Are all terminated workers entitled to unemployment benefits?”

No, they are not. Although the decision whether to award unemployment insurance to a given employee is up to the state and not the company, most states do not allow employees fired for serious cause or misconduct to collect benefits. The conduct that would disqualify a person from receiving unemployment benefits generally needs to be intentional and seriously injurious to the employer, its employees, or its customers. Sexual harassment, on-the-job drug use, and theft are, as a rule, offenses serious enough to prevent a worker from collecting unemployment. Merely having a difficult personality, being a sloppy worker, or not being skilled enough to perform a job are not sufficient justifications to deny someone unemployment benefits.

Even an employee who quits voluntarily may be entitled to unemployment benefits if he had good cause for resigning. “Good cause” means that the worker would have suffered some compelling harm or injury if he continued on the job. Quitting a job because of serious company safety violations or because the organization asked the employee to do something illegal are examples of good cause. Workers who quit in lieu of being fired usually will not be denied unemployment compensation.

“Should I contest a terminated employee’s application for unemployment insurance?”

If the employee was not terminated for misconduct sufficient to justify the withholding of unemployment benefits, you should not contest the claim. You have no grounds to do so, and your baseless opposition to the claim will reflect poorly on you. Even if you terminated the employee for serious misconduct and you have grounds to contest the claim, you may want to think twice before doing so. Although each unemployment claim you pay may have an impact on your company’s insurance rates, it costs money and manager time to oppose a claim, and you will be sure to engender the animosity of the terminated worker. Sometimes, this animosity is great enough to lead the worker to file a wrongful termination lawsuit when he had not previously planned to do so. Before you decide to oppose any claim, carefully analyze your reasoning, the risks involved, and your anticipated benefits.

If you decide to contest a claim, you have the burden of proving that the employee is not entitled to unemployment benefits. The state unemployment office will request certain information in writing, and it is important that you adhere to any deadlines established by the agency. You may be asked to appear at an administrative hearing to discuss the case.

What is a “waiver” or “release,” and should I get discharged employees to sign one?

A waiver or release is a legal document in which the employee agrees not to sue the company over matters taking place during the course of employment. While you need not obtain a release from every terminated worker, it is helpful to request one in situations where you believe the employee is likely to file a wrongful discharge claim. A valid release in an individual’s employment file can save you many headaches down the road.

For a release to be valid, it must conform to specific criteria. As the document has significant legal ramifications, ask an attorney to prepare it. In general, all waivers must:

1. Provide an additional benefit to the employee. The employee signing the waiver must receive in exchange a benefit to which she would not ordinarily be entitled. This could be additional severance, outplacement, or other optional payments or benefits. It is not sufficient to offer benefits detailed in the company’s standard severance policy, nor can you withhold vacation pay, 401(k) plan funds, or any other items already due to the employee in order to obtain a release.

2. Be voluntary on the part of the employee. You cannot threaten, force, or coerce an individual to sign a release of claims. Give the employee a reasonable amount of time to review (or have an attorney review) and sign the release document. Do not make the waiver language unduly complicated or you risk employees arguing later that the release was not voluntary because they did not understand it.

3. Afford legally required protection to older workers. The Older Workers Benefit Protection Act (OWBPA) places certain additional requirements on employers when they obtain releases from workers age forty or older. Under this law, the release document provided to the employee must contain language that specifically:

• References the Age Discrimination in Employment Act and gives the employee up to twenty-one days to review and consider the document (forty-five days in situations involving a group termination).

• Advises the employee to consult with an attorney regarding the document.

• Allows the employee to revoke the release within seven days after signing.

In situations involving workers covered by the OWBPA, it is appropriate to withhold the payment of additional benefits until the revocation period has expired. However, do not hold up benefits or payments that are required to be paid beforehand.

4. Preserve the right of the employee to file a charge with the EEOC. Release documents that specify that the employee is waiving his rights to file a charge, testify, assist, or cooperate with the EEOC are unenforceable. The release can state, however, that if the employee files a charge with the EEOC or other administrative action, he agrees to forgo the right to collect monetary damages.

5. Not require that the employee waive future damages. The release covers claims arising up to the date of signature. You cannot ask the employee to waive damages that arise after the agreement is signed.

OTHER POST-TERMINATION MATTERS

“What do I tell remaining employees about a coworker’s termination?”

After terminating a worker, it is good practice to call together the employees in the affected employee’s workgroup or department and make a simple announcement, such as, “As of this afternoon, John is no longer employed by the company. His duties will be split between Mary and Jim until we find a replacement.” To avoid liability for defamation, avoid going into details about the reasons for termination or any of the circumstances surrounding the discharge.

Sometimes employees will seem especially upset or distracted after a coworker is fired. Understand that they are probably wondering whether they will be the next to go. You can help the situation by taking care to acknowledge good performance, especially in the wake of the termination. Let employees know that their work is valued.

“Are there steps I should take to protect company confidential information when an employee leaves?”

If your employees signed a confidentiality agreement at the commencement of their employment, you will want to remind them upon termination that their obligation not to disclose or improperly use trade secrets or other proprietary company information extends beyond the term of employment. In addition to the other termination paperwork provided to workers, you should also include, and ask employees to sign, a document that states that they understand their obligations under the confidentiality agreement and that they agree not to violate the contract. If the employee refuses to sign this document, send a letter explaining that the individual is bound to maintain confidentiality and that the company will prosecute violations.

“Is it appropriate to provide references for terminated employees?”

This decision is entirely up to you. Often a discharged employee will request that the employer provide references to potential new employers. Deciding whether to give a reference is confusing to many organizations, mostly because of the fear of defamation lawsuits. As a result, many organizations adopt policies that confine reference information to the position held and dates of employment—so-called neutral or “name, rank, and serial number” references.

It’s true that when you give a negative reference, you run the risk of exposure to defamation, invasion of privacy, or discrimination lawsuits by former employees. However, there are often good reasons to provide more comprehensive references. If an employee is discharged for reasons other than poor performance or unacceptable conduct— such as lack of work or the company’s need for a different skill set— failure to pass along positive information may unfairly penalize good workers. In addition, just as your company wants to learn as much as possible about a prospective worker before extending an offer, other employers want to gain knowledge as well.

Increasingly, courts are recognizing that employers have a legitimate need to exchange performance-related information and are protecting companies that opt to provide more detailed employment references, as long as employers provide information that is job-related, based on reasonable evidence, and without malice. If you do decide to give more detailed references, follow these guidelines:

• Obtain a release form. Provide a reference release form for employees to sign upon leaving the organization, releasing you from any liability for responding truthfully to any questions asked during the course of giving references. Tell departing employees that without a signed release, the organization will provide “neutral” references only.

• Establish a point of contact. Assign a point of contact within the organization responsible for handling all reference inquiries. Instruct employees not to provide any information, but to direct all reference calls or letters to this individual. Make sure the individual designated as the point of contact is properly trained as to the organization’s reference policy, as well as the do’s and don’ts of providing reference information.

• Provide only accurate and verifiable information. An employee cannot win a defamation suit unless the reference provides intentionally false information. Provide only honest opinions, and express opinions as opinions rather than statements of fact. Do not respond with malice. Limit the information given to the employee’s job-related performance. Do not divulge gossip or information that might invade the former employee’s privacy, such as information about an individual’s medical condition, political beliefs, or religious practices. Do not provide unsolicited information; address only the specific questions asked.

• Give references to proper parties only. Verify the identity of the person requesting the reference. Make sure that the person is an appropriate individual to be receiving the information and that the former employee knows that her references are being checked. If in doubt about the identity of the person requesting the reference, ask for the request in writing. Do not give out any information to parties unless they have a legitimate need to know (e.g., an employee or agent of a prospective employer, a job placement firm, etc.).

“Do I have any obligation to pass on negative information in a reference?”

In general, you are not required to do so. If you fire a worker for poor performance or unacceptable conduct, the employee will probably not request that you provide references or sign a reference release, and you are well within your rights to give a simple neutral reference. However, if the reasons for termination involved fraud, theft, violence, or some other form of illegal or egregious behavior, you could be held liable for failure to disclose this information to a future employer when called for a reference—even if your company policy does not allow detailed references. In these situations, consult with an attorney before providing an employment reference.

“Can I now expect terminations to go more smoothly in the future?”

Terminations are not pleasant, but they are a necessary part of operating a successful organization. As long as you remember that they are business decisions, not personal decisions, and if you follow consistent guidelines, then the termination process will be less painful for everyone involved.