Employee Terminations: Steps to Reduce Liability

Every supervisor dreads having to tell an employee, “You’re fired.” In fact, many employers secretly hope problem employees will “get the message” before these words have to be spoken. Employees naturally dread the news that their services are no longer required. In fact, there are studies suggesting that being fired is among the most traumatic events to occur in a lifetime.

Of course, not every termination is based on an employee’s poor work quality or inappropriate conduct. Downsizing and restructuring needs also often result in involuntary job loss.

Whether a termination is based on an employee’s performance or an internal reorganization, employers can reduce their potential liability by taking appropriate steps before and during the termination process. This includes evaluating the facts to ensure a sound decision, following applicable law regarding final pay and other matters, providing terminated employees with the applicable forms and paperwork, and taking steps to maintain the morale of remaining employees.

The Decision-Making Process

When terminations result from restructuring or a reduction-in-force, the central issue for employers is who to select. The more objective the decision-making process, the less likely a legal challenge will be successful. For example, basing layoff decisions on length of service is relatively non-controversial. Similarly, if the employer is eliminating an entire department, or outsourcing a job function, the decision will be simple and low-risk.

A purely objective analysis is not always possible or appropriate. For example, using wage rate as the sole criterion can be evidence of age discrimination. Additionally, subjective criteria, such as attitude, reliability, helpfulness, and the like are valid reasons on which to make employment decisions.

Employers will always want to maintain their best employees during a reduction-in-force. Why not focus on the “problem” employees and use downsizing as “cover”? That way, the theory goes, only the “good” employees will be left. This works, of course, only if employers have the necessary data to evaluate work performance. It is tempting to target employees with a history of making complaints about internal procedures or who take leaves of absence, for instance, rather than focusing on actual work performance and individual contributions. Without documented performance history on each of the employees under consideration, a subjective approach can be problematic.

Whatever the criteria, the employer must support the decision. It is wise for employers to compare the person selected with other similar workers based on the selection criteria the employer is using. The level of sophistication for the analysis will vary depending on the employer’s resources, the size of the layoff, and the criteria used for selection.

What about those employees who simply cannot do the job, and the time has come to sever the employment ties? These terminations are often more difficult for employers because the decision is truly personal to the employee.

Some supervisors try to make the news less unpleasant by giving false reasons for termination. For example, to avoid addressing unacceptable job performance, a supervisor may tell a worker “her position is being eliminated” due to a “restructuring” or “downsizing,” even though that is clearly not the case. The employer then may hire someone new for the position, but change the title of the job or slightly modify the duties.

The United States Supreme Court imposed potentially serious consequences on employers who are less than truthful about the reasons for termination. In Reeves v. Sanderson Plumbing Products, Inc., the Court considered whether a former employee who challenged his termination as age discrimination should be required to present additional evidence of his employer’s intent to discriminate against him on the basis of his age, or whether it was sufficient for him to show the employer’s reason for the termination was false. The Court decided it was sufficient for Mr. Reeves merely to show the company’s stated reason for his termination was false.

The Court in Reeves emphasized that evidence demonstrating an employer’s reason is false will not always be sufficient to impose liability. For example, an employer could still prevail if the evidence conclusively revealed some other, nondiscriminatory reason for the employer’s decision, or if the employee created only a “weak” issue of fact as to whether the employer’s stated reason was untrue. Indeed, later decisions emphasize that the law prohibits discrimination, not lying.

Reeves and similar cases outside of the discrimination area demonstrate the danger in sparing employees’ feelings when communicating the reasons for termination. Supervisors should not assume what they tell employees at the time of termination will go unchallenged, and should be trained to understand the potential legal ramifications of shading the truth.

Some Traps to Avoid

There are certain termination decisions that are relatively more risky because of the circumstances involved. For instance, if an employee has made prior complaints about equal employment opportunity issues, or protested certain workplace practices or conditions, the employee may claim the termination was in retaliation for protected activity. Of course, this does not mean employees in these situations should not be fired if there is a legitimate reason to do so. In these circumstances, it is critical to establish that similarly situated employees would be treated the same. It also is important to have appropriate documentation establishing the basis for the termination decision.

Many employers believe firing someone with a “protected characteristic” is likely to lead to liability. Of course, every employee in the workplace has several such characteristics (we all have a race, sex, national origin, sexual orientation, etc.). The real question should be whether the employer can establish the termination decision was not based on these characteristics. Again, this is all about proper contemporaneous documentation and ensuring employees are treated consistently.

Sometimes “contracts” or employer policies come into play when making termination decisions. For example, certain employees are not at-will, but rather work under an employment contract that permits only “for cause” termination. In those circumstances, proper drafting of the contract and a thorough understanding of what constitutes “cause” under California law is vital. Similarly, if the employer has a policy requiring all employees to provide at least two weeks notice of a voluntary resignation, for instance, there is an argument the employer must do the same.

Finally, if the employee will receive separation pay of any kind (other than final wages and accrued vacation/PTO—see below), the employer should consider requiring the employee to sign an appropriately drafted release. It rarely makes sense for an employer to provide separation pay without “buying” the employee’s waiver of the right to file work-related legal claims in the future. Employers must ensure the release complies with applicable legal requirements so it pays to obtain necessary counsel in this area.

The Termination Meeting

Once the employer makes the decision to terminate, the next step is communicating the decision to the employee. While the supervisor cannot control how the employee will react to the termination, the supervisor can maintain a professional attitude. A tense atmosphere may make the employee resentful and more likely to resort to legal action. Similarly, actions such as public firings or belittling the employee increase the likelihood that the employee will seek redress rather than moving on with her life. Also, employees who remain in the workplace will pay particular attention to how the termination decision is communicated. A positive approach will pay off in terms of maintaining employee morale.

To maintain the employee’s dignity during a difficult conversation, the supervisor may wish to begin by emphasizing, and even thanking the employee for, the employee’s positive contributions to the organization. This is not the time to harp on the employee’s deficiencies. Nevertheless, the employer should be able to clearly explain the grounds for the decision, including prior discussions concerning the deficiency. In addition, while it is appropriate to express disappointment that the relationship is ending, the supervisor should not take any blame for the relationship not working out.

The supervisor must be direct in saying the employee no longer work for the organization. This is not the time to beat around the bush. If the employee wants to respond, or express feelings about the termination, the supervisor should allow a reasonable time for the discussion before making clear the decision is final and not subject to debate.

During the meeting, the supervisor must provide the final paycheck, including all accrued vacation/PTO. Many employers complain that this requirement is too burdensome because it is not always possible to have the final paycheck ready at the time of termination. Unfortunately, there is no “it’s too burdensome” exception in the Labor Code. Late final paychecks result in “waiting time penalties” under the Labor Code, which can add up.

California law also requires that employees be provided certain notices at the time of separation (whether voluntary or involuntary). This includes the EDD’s form DE-2320 (available at http://www.edd.ca.gov/uirep/de2320.pdf), the HIPP notice (available at http://www.dhs.ca.gov/mcs/psd/TPL/PDFs/cobraeng.pdf), and a notice of change in relationship (a sample is available at http://www.edd.ca.gov/taxrep/de44.pdf, p.91). COBRA and/or Cal-COBRA notices also may be required depending

on the employee’s benefit status at the time of separation.

The supervisor should collect any items the employer provided to the employee, such as computers, cell phones, and the like, and consider which computer passwords, access codes, etc. must be changed.

It is important to explain to the employee how much time she has to gather her personal belongings and leave the premises. It can be problematic to allow the employee to remain for more than a few minutes. Any longer than that will provide the employee with the opportunity to discuss the termination with others, and potentially destroy files, etc. For this reason, it may be wise to conduct the termination meeting at times when few other employees are present.

Finally, unless the employee is part of an overall reduction-in-force, the supervisor should maintain the confidentiality of the reasons for the termination to maintain the employee’s privacy. That said, staff should be informed that the employee is no longer working for the organization, and be provided direction regarding the reassignment of the employee’s job duties until a replacement is hired (assuming the position has not been eliminated).

Conclusion

Employers that keep the above principles in mind will reduce their potential liability for termination decisions. In addition, by setting a constructive tone to the process, the supervisor sends a strong positive message to the remaining employees. This can help alleviate the disappointment and negativity that surrounds termination decisions when co-workers have different perspectives regarding the terminated employee’s value to the organization.

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