Employment Documents: Discipline, Termination, and Severance

Business owners use employment contracts and employee handbooks at the beginning of an employment relationship. These documents outline company policies and the duties of the employer and employee.

Many employers also have contracts and forms that define the end of the employment relationship. When firing employees, businesses may need termination documents to protect themselves against possible legal action. A termination contract may contain a non-competition or nondisclosure clause.

There are general forms available online for discipline and termination documents. But small business owners should ensure that the documents they have fit the situation. Consult an employment law attorney with any questions or concerns.

Disciplinary Policies and Documentation

Most employers dislike disciplinary action as much as their employees. This is why businesses created human resources departments. Absent some violations (e.g., discrimination laws), there are no state or federal laws telling employers how to discipline workers. Managing employee behavior is entirely at the discretion of the company.

Strict federal and state laws define what you may not do during your disciplinary process. You can't base your disciplinary policies on subjective factors. You must base decisions on objective factors like employee performance or job-related infractions.

You should document all employee discipline and keep copies in the employee's file. The documents should show a trail of progressive discipline and corrective action following your company's disciplinary policy. For example, a progressive discipline policy might look like this:

• Verbal warning
• Written warning, followed by a probationary period
• Suspension
• Final warning
• Termination

The Equal Employment Opportunity Commission (EEOC) advises keeping records of disciplinary action for at least one year following an employee's departure. State laws may differ, so you should discuss this with an attorney.

Termination Agreements

A termination contract sounds like an odd contradiction. Why would a business need a contract to document the end of employment? As it happens, you should document termination of employment carefully. You can avoid accusations of wrongful termination with a well-written and signed agreement.

Most states have "at-will employment." This means that either party can end the employment relationship for any reason without notice. But that doesn't mean employers should show workers the door whenever they wish.

Good reasons for a termination agreement include:

• Having the employee sign a non-compete or nondisclosure agreement that isn't included in the employment contract
• Having the employee acknowledge they went through the discipline system
• Confirming the employee received their final paycheck as required by state law
• Verifying that the employee returned all company property

Some employers include a clause stating the employee waives all rights to sue the employer in the future. Such clauses may only be binding on the employee if written correctly and if they include compensation. Consult an attorney before including these clauses in your termination contract.

Severance Agreements

Severance packages are often associated with big corporations and CEOs who receive big bonuses when they leave. But small businesses can also offer severance agreements in several circumstances:

• As a release of claims to prevent a wrongful termination lawsuit
• To encourage early retirement and avoid layoffs or downsizing
• When a contract or collective bargaining agreement requires it

Employees and employers negotiate the severance package. Both employers and employees should have the document reviewed before signing.

A severance package, as the name implies, is more than a simple agreement. It should include:

• Final paychecks, plus any bonuses, vacation pay, or accrued sick time
• Insurance, pension plans, and COBRA information
• Unemployment benefit information
• Referrals or letters of recommendation (discuss these with your attorney before including them in your severance package)

Downsizing and Layoffs

In general, small business owners terminate employees because of the employee's conduct. Poor performance, absenteeism, and other issues are the leading causes. Sometimes, the reason may be outside the employer's control. If you need to release employees for economic reasons, let your employees know what is happening as soon as possible.

The federal Worker Adjustment and Retraining Act (WARN Act) applies to businesses with more than 100 employees. Some states have similar laws that affect smaller companies. The WARN Act requires employers to give workers 60 days' notice before a mass layoff or shutdown. State laws have similar requirements.

Small business owners releasing individual workers should consider following WARN Act guidelines. This protects your workers from the shock of being suddenly unemployed. It also may protect you from legal action for wrongful termination.

Get Legal Advice About Documentation

America has a do-it-yourself culture. Small business owners like saving a few dollars by downloading paperwork and filling in the blanks themselves. Contact a local business law attorney and have them review your contracts and agreements. It's safer and cheaper than litigation.