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5 Legal Tips Before You Lay People Off

By Betty Wang, JD | Last updated on

When you're running a business in a sluggish economy, layoffs may be inevitable. But before you hand out those pink slips, you may want to consider a few legal tips first.

As you probably know, wrongful termination claims are among the most common types of employee lawsuits. That's why it's important to make sure you're complying with federal and state employment laws.

So before you make the difficult decision to let your employees go, here are five legal considerations to keep in mind:

  1. Are they at-will? It's important to know what kind of employee you are laying off. If you have an at-will employee, this protects you for the most part, and gives you leverage to fire them for whatever reason. However, you need to know for sure if your employee is indeed at-will. Otherwise, you could be sued for not having "good cause" to let him go.
  2. Are they contractors? If your employee instead was hired on a contract, make sure you know exactly what the terms of the contract lay out. For example, what does the termination clause say about the reasons for a contractor's dismissal? How much notice should he be given? Also, are your contractors bound by an arbitration clause? If so, you can bring this up if they decide to sue you for any reason after termination.
  3. Are they disabled? The Americans with Disabilities Act (ADA) is a federal law that protects disabled employees. Make sure that you are familiar with what the ADA says, because there are many factors that may or may not affect your decision to dismiss a disabled employee. While you are free to terminate an employee with a disability, make sure it's not strictly because of their disability. You need another articulable reason, such as being unable to meet legitimate requirements for the job.
  4. Did you give them proper notice and time? Not only is it respectful to give workers proper time and notice when laying them off, but it could be the law. Advance notice is often required, under federal law, in some work places. The Worker Adjustment and Retraining Notification Act (WARN), for example, requires large employers (plants and big corporations) to give workers 60 days' notice before a closing or mass layoff.
  5. Did you give them a good reason? While nobody ideally enjoys hearing that they're being let go, you can still make an ideal situation out of it by honestly laying it out for them. This will ensure that you end your business relationship on good terms. Tell them that you acknowledge their value, and it's just an unfortunate situation that is out of your hands at this point. Whether that's because the worker's position is no longer needed, or because your business just needs to downsize, these are all certainly more valid (read: legal) reasons than firing someone because you're racist.

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