How To Legally Fire an Employee To Minimize Lawsuit Risks

Terminating an employee is never pleasant, especially in a small business where you may know your workers personally. It’s also important to understand the legal risks involved in letting someone go.

This article provides a step-by-step guide to help you navigate the process and minimize those risks. If you have concerns about terminating a specific employment contract or need help establishing the employee termination process for your business, consult with a local employment law attorney.

Establishing and Documenting Just Cause for Termination

Firing someone without cause or notice may be technically possible, but it’s not a good idea. While at-will employment allows termination for nearly any legal reason, having a clear, documented basis for the decision helps protect you in the long run. Firing an employee with a vague statement like, “You’re not working out,” creates significant risk. If that former employee later files a lawsuit alleging an illegal motive, such as discrimination, your company will be in a weak position to defend itself without documented proof of a legitimate, non-discriminatory reason for the termination.

Legally defensible reasons for termination typically fall into five categories:

• Conduct covers things like unexcused absences, insubordination, safety violations, or sexual harassment complaints.
• Capability covers job performance issues or an inability to fulfill the job description, even with reasonable accommodation.
• Redundancy is commonly used during layoffs or downsizing. If you have two employees and can only pay one, you have to fire the other.
• Statutory restriction refers to situations where an employee cannot hold the job for legal reasons but is otherwise qualified. For example, a worker who lost their driver’s license but needs to drive for their job.
• Some other substantial reason (SOSR) includes a legitimate reason that doesn’t fit the other four categories. Examples include conflicts of interest, the end of a fixed-term contract, or reputational damage. For example, a law firm dismissing a partner after the attorney is caught in a compromising scandal.

Before you fire an employee, they should know what constitutes a fireable offense and have been warned when they committed it. A termination policy is important, and employees must know it. Document the termination process, and keep a paper trail for each step of the offense.

If repeated tardiness is a firing offense, your employee handbook should state how many times an employee may be late before they get a warning and whether the warnings will be oral or written. Have copies of these warnings when it’s time to fire the worker.

Even in at-will employment states, you can’t fire an employee in bad faith. A written policy and documentation showing the steps taken prevent an employee from claiming bad faith or favoritism. They can’t claim you fired them for a single incident of tardiness when another worker was late 15 times before a write-up.

Prohibited Reasons For Termination

Even at-will employees are protected from being fired for certain reasons. You can’t fire someone for:

• Whistleblowing: Whistleblowing occurs when an employee reports wrongdoing to a government agency, such as OSHA. State and federal whistleblower statutes have steep fines for wrongful termination in these cases.
• Participating in protected activities: Voting, jury duty, unionizing, or being a witness in an EEOC investigation are all protected activities. Firing someone for doing any of these protected acts violates federal law.
• Being a member of a protected class: You can’t fire someone or refuse to hire someone solely because of their race, religion, gender, sexual orientation, national origin, age, or disability. This includes other protected categories in the Americans with Disabilities Act.

At-will employment means you can fire an employee for almost any legal reason. Terminating someone for any of the above puts you at risk of a lawsuit.

Preparing for a Lawful Termination

Proper preparation is the most critical step in minimizing the legal risks of firing an employee. This process involves gathering required documentation, making strategic decisions about severance, and planning the logistical details.

Every state has specific laws regarding termination. Regardless of location, you’ll need to have several key items ready before the final meeting. These include:

• Final pay: Some states require you to give employees their unpaid wages on their last day, so learn your state’s final paycheck requirements and include any owed vacation time, back pay, or commissions
• COBRA information: If your employee had healthcare benefits, you must give them information on continuing their insurance through COBRA continuation coverage
• WARN Act: Larger businesses conducting mass layoffs must meet the Worker Adjustment and Retraining Notification (WARN) Act standards, which may require 60 days’ notice
• Unemployment information: If the employee is not being fired for cause, provide them with information on how to apply for unemployment insurance

If the worker has been there long enough for performance reviews, you should have copies of these as well.

Offering a Severance Agreement to Limit Liability

A severance agreement is a powerful tool for reducing the potential of a lawsuit. It’s a contract that offers an employee benefits, such as a lump-sum payment or continued health insurance, in exchange for the employee agreeing to release the company from all potential legal claims related to their employment and termination.

This “release of claims” is the employer’s primary benefit. It significantly reduces the risk of a costly wrongful termination lawsuit. Even if a termination was lawful, offering a modest severance package can be a worthwhile business decision for the peace of mind it provides. Key components often include:

• Severance payment
• Release of legal claims
• Benefits continuation
• Non-disparagement clause
• Confidentiality clause

Severance agreements are complex legal documents with specific state and federal requirements, especially for companies with over 40 employees. Have an experienced employment law attorney draft or review any severance agreement to ensure it is legally enforceable.

Employer’s Final Termination Checklist

Take the time to cover all of these bases before terminating an employee. Make sure you:

• Review the employee’s personnel file and documented reasons for termination
• Consult with your employment law attorney
• Prepare final paycheck in accordance with state law
• Prepare all required COBRA and unemployment benefit notices
• Draft a legally sound severance agreement
• Plan the termination meeting and reserve a private room
• Create a plan to collect all company property (laptops, keys, etc.)
• Arrange for IT to deactivate passwords and system access at the time of termination

Taking care of these things should leave you well-prepared for the termination.

How To Conduct a Termination Meeting

When conducting a termination meeting, focus on clarity, professionalism, and minimizing legal risk. Whatever day or time you choose, follow these crucial steps:

• Keep it private: Unlike a planned retirement or departure, firing a worker is never pleasant and often embarrassing for the employee. Have the employee come to a private location and keep spectators to a minimum.
• Keep it brief: Nobody will be happy, least of all the employee. Explain the issue, review the disciplinary steps and why this is the final step, and end the meeting.
• Keep it honest: Be direct about the reasons for termination. For example, “You have been tardy 15 times in the last two months, receiving three verbal warnings and three written warnings. You had one suspension. You were tardy again yesterday. We have no choice but to terminate your employment.”
• Don’t argue, and don’t waver: If you have kept complete records, there should be nothing to argue about. Do not suggest that “things just aren’t working out” or “maybe if things were different,” you would keep the worker. This can create grounds for legal action.
• Collect all keys, keycards, and other access equipment: Remind IT to change or disable the employee’s passwords and passcodes. Do this during or immediately after termination.
• Let the employee take their personal possessions: If the termination is amicable, they can retrieve their possessions themselves. Otherwise, have them discreetly escorted to their desk or personal space. Don’t make a spectacle of having security march them to their desk with a box.

If you have concerns with a specific employee and a possibility for workplace violence, have a security guard present or contact police for help.

Post-Termination Meeting Tips

Don’t let office gossip about the terminated employee spread. Rumors are always bad for employee morale, especially when they involve someone who’s no longer there. Don’t discuss the employee’s performance or circumstances surrounding the termination.

If the former employee returns for any reason, be cordial. At the same time, notify security if you have any, and law enforcement if you do not. If the employee initiates any kind of lawsuit, contact an employment law attorney immediately.

Get Legal Advice

If you’re firing an employee, remember that they may have rights to unemployment compensation or other benefits. You can avoid a wrongful termination claim or discrimination lawsuit by finding a competent employment attorney to discuss your situation.