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Employment Termination

All businesses need to fire employees at some point. It may be due to performance issues, or you may need to lay off workers during an economic downturn. If your business is large enough to have an HR department, they can handle the termination meeting. Otherwise, the responsibility falls on you.

Whoever carries out the termination must ensure the termination process follows state and federal laws. Even in an "at will" state, following these procedures can help avoid possible legal action by a former employee.

The Termination Process

How a termination proceeds depends on several factors, such as:

  • The nature of the working relationship
  • The reason for the termination
  • Federal and state labor laws

Your termination process should be outlined in your employee handbook or available in your human resources department if you have one.

At-Will vs. Contract

At-will employment means that either the employee or the employer may end the employment relationship at any time for any reason. However, there are restrictions on what "at-will" means. An employer may not fire someone for unlawful reasons, such as discrimination.

If you have an employment contract with the employee, it sets the terms and conditions of the employee's termination. Some contracts guarantee the worker's employment through the end of the contract. However, the employer may still terminate "for cause," such as poor performance or violating company policies.

Policies and Procedures

Reviewing federal and state laws regarding employee termination before you need them is a good idea. Whether you fire an employee or they resign, there are things you need to give them when they leave. Don't wait until the last minute to learn what they are.

  • Employee Benefits: If your employee has been receiving health insurance, they may continue coverage through COBRA. There is a limited window for employers to provide their former employees with information on COBRA coverage.
  • Final Paychecks: All states have laws for when a final paycheck is due. In some states, such as California, it is due on the day of termination. You may be liable for treble damages if the final paycheck is late.
  • Federal Statutes: Small companies may not meet federal requirements for the WARN Act, which applies to mass layoffs. You should check if any other statutes apply to your business. FindLaw's Small Business Law Center can help you locate any applicable laws and regulations that might apply.

Right and Wrongful Termination

Even at-will employment has restrictions. Firing someone for the wrong reasons in an at-will state can be grounds for a lawsuit. Valid reasons for terminating an employee may include:

  • Poor Performance: You should track job performance via regular performance reviews according to company policy. Poor performance could include absenteeism, failing to meet training milestones, or insubordination.
  • Violation of Company Policy: Things like theft, damaging company property, use of alcohol or drugs, or using company property for personal business. A recent addition has been embarrassing the company on social media.
  • Business Needs: During work slowdowns, it may be necessary to reduce payroll. Explain these terminations so workers know they are not due to employee performance.

State and federal laws prohibit firing people in protected classes or for retaliatory purposes. If an employee believes or suspects they were wrongfully terminated, they can file a complaint with the Equal Employment Opportunity Commission (EEOC). They may also have grounds for a wrongful termination lawsuit.

  • Protected classes include race, gender, national origin, religion, disability, or age if over 40. Some states include sexual orientation and gender identity as protected groups.
  • Pregnancy, maternity or paternity leave, or time off under the Family Medical Leave Act (FMLA). Employees must return to the same or equivalent position if they take time off under the FMLA or maternity leave.
  • Retaliatory firing means termination due to an employee exercising their rights to file a complaint for discrimination, sexual harassment, or an OSHA violation. Federal whistleblower statutes protect these complainants. Wrongful termination can subject the employer to legal action and federal fines.

How to Terminate an Employee

What you do in the final meeting with an employee depends on whether they are leaving on good terms.

If They Are Being Fired

The exit interview should be done face to face, in a private location. If you have an HR manager, they should be present. Otherwise, keep the audience small. Keep the meeting brief. Any performance issues or policy violations should have been discussed at performance reviews before. You are not giving the employee one more chance. The final interview must make that clear. Give them their final paycheck if state laws require it, and then have them escorted off the property.

If They Quit

The exit interview is not as stressful if an employee quits on good terms. Interview the employee about their experience and opinions on the work environment and company culture. Ask what benefits might have made them stay with your company.

Hiring an Employment Law Attorney

As a small-business owner, you may need to terminate employees from time to time. Whether you need to fire or lay off an employee, it's important that you abide by applicable employment laws. To ensure that your employee termination policies and practices comply with federal and state laws, consult an employment law attorney in your area.

Learn About Employment Termination

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