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Termination Basics

Small business owners have many duties. One of them, unfortunately, is firing employees. Employee termination is never pleasant, even if you have a human resources department that can handle the paperwork. If you must do the dirty work yourself, it becomes even more difficult.

How you fire an employee begins long before the last day. If done correctly, ending an employment relationship can be painless for everyone. There are steps you should take before calling a worker into your office for the final interview.

An employer must meet legal requirements when firing, laying off, or ending an employee's relationship with the company. There are times when you should not fire someone and situations when you cannot fire them. This article will discuss protecting yourself from wrongful termination lawsuits and keeping your employees happy, even when you have to fire them.

Before Termination

Business owners don't hire people intending to fire them. One of the biggest termination mistakes businesses make happens before onboarding begins. Employers need clear company policies about disciplinary processes. The employee handbook must be very specific about policy violations. Employees who don't know when they're violating the rules won't change their behavior until it becomes too problematic for others to tolerate.

Disciplinary actions must be immediate and fair. Developing a company culture that overlooks minor policy violations is easy, especially if they don't hurt anything. In that case, you should revise your policy so these "minor violations" are no longer violations.

Suppose company rules say employees may not have photos of significant others in bathing suits on their desks due to a complaint by an employee. A senior manager violates this rule. Since there are no complaints, you let it slide. Soon, many employees have similar photos on their desks. Then, a new hire arrives and places a picture of their partner wearing the type of bathing suit that garnered the original complaint. Since you didn't change your company policy, you've put yourself in an awkward position on disciplinary action with this new worker.

Have clear disciplinary and termination policies. Update your employee handbook regularly.

If your business is in an at-will state, get legal advice before firing employees "at-will." At-will employment does not mean you may fire workers on a whim. If you give workers any suggestion that you will not fire them for no cause, the courts may take that as a verbal contract. But, if your business gets a reputation for firing workers willy-nilly, you may have issues keeping employees.

Performance Issues and Remediation

Employee performance issues such as absenteeism and poor work performance are the main reasons for worker termination. A good business owner or manager should keep track of workers' productivity with regular performance reviews. As with policy violations, workers cannot know how they're doing unless you tell them. Nothing shocks a worker more than to learn out of the blue, "I'm afraid your productivity has been declining for the last 14 quarters, we're going to have to let you go."

You should provide performance reviews at least annually or quarterly if you have an HR department. Give the employee time to ask questions and offer their suggestions and input. A good way to avoid hostile or confrontational terminations is by having a performance review process that allows workers to speak frankly to you or the HR manager.

Alternative Measures to Termination

Sometimes, an employment contract will not allow immediate termination. Or you may not want to let an employee go despite underperforming in their area. If you are reluctantly considering termination as a last resort, there are other alternatives to try first.

  • Reassignment. If the worker is otherwise a good fit for your company, they may not be a good fit for that job. Consider asking the employee if another position would interest them instead.
  • Medical leave. The Family Medical Leave Act requires employers with more than 50 employees to offer up to 12 weeks of unpaid leave to eligible workers. This can help employees whose work is suffering because they are dealing with health issues or those of a family member.
  • Flex time or remote work. Since the COVID-19 emergency, more businesses have been experimenting with hybrid hours, remote work, and flex time. This flexibility can help you keep workers who need to arrive later or leave earlier or who need days off during the week. Full-time workers may appreciate the consideration.

Communication is essential in these alternative measures. Talking with your employees can make the difference between keeping workers and the unpleasant termination process.

Termination Process

When it's time for the final meeting, employers or their HR department managers often make major mistakes. We mentioned some of them, like having inadequate workplace policies, above. Common errors during the actual meeting can create an uncomfortable confrontation or worse. If you have everything in order, you can avoid this difficulty.

  • Inadequate documentation. Be sure you have all the paperwork at hand so you can answer any questions the employee raises. Have any documents state and federal law require, such as benefits information, final paychecks, and other material.
  • Poor timing. Either the firing is too soon, too late, or delayed while the employer hesitates about whether to fire. Most HR professionals recommend scheduling the termination meeting for Friday afternoons in a private office with few or no witnesses. Give yourself plenty of time to discuss the matter with the employee.
  • Arguing. At the same time, you must keep control of the situation. Don't argue with the worker over minutiae. Give them enough information about the termination, but don't dwell on things they cannot fix. If the worker is willing to discuss their exit from the company, do so. But don't debate what they could have done better.

Benefits, Severance, and Final Paycheck

Many states have specific laws on when employees must receive their final paychecks. Verify your state laws before your last interview since some states require you to give the employee their check at the exit interview.

Human resource management professionals differ on whether you should offer a severance package to all employees if they do not have an employment contract. Although severance pay is typical for C-suite executives, most employees do not get such perks. Small businesses seldom offer workers special benefits at termination, but you may wish to consider benefits for layoffs or voluntary retirement.

Some employee benefits follow the employee after termination. You are responsible for giving the employee this information when they leave, whether voluntarily or involuntarily. You need to provide your departing worker with:

  • COBRA information. The Consolidated Omnibus Budget Reconciliation Act (COBRA) allows qualified employees to continue their group health insurance following termination. If you provided group health insurance to your employees, you must offer COBRA information upon termination.
  • 401(k) and other accounts. Employees can cash out a 401(k) when they leave. If they opt to open a new account, you have a certain number of days to transfer the money to that account. You are also required to provide information about this to terminated employees.
  • Pension plans. If an employee has a vested pension plan, consult an employment law attorney on the best way to compensate your worker before termination. The employee is entitled to the total pension amount, and there are several ways to do so. This is not an area for the layperson to make a mistake. Get financial and legal advice in this area.

Protecting Yourself from Wrongful Termination Lawsuits

The Equal Employment Opportunity Commission (EEOC) guides small businesses about every facet of employment, including hiring and firing. State labor laws also dictate how to protect yourself during a termination. Keep these definitions in mind during the termination process.

  • Wrongful termination. There are unlawful reasons for firing an employee. Firing an employee based on their race, gender, religion, or national origin violates Title VII of the Civil Rights Act. Employees may not get fired because of their gender orientation or identity. Bostock v. Clayton County, Georgia, decided this. Any of these violations may lead to a wrongful termination lawsuit.
  • Retaliatory firing. A whistleblower is a worker who reports business wrongdoing or discrimination to outside authorities. State and federal laws known as "whistleblower statutes" protect these workers. Firing a worker involved in this type of activity is a separate violation and can result in stiff fines and more legal action.
  • Layoffs. If reducing your workforce is financially necessary, tread carefully. You should have written your layoff policy in your employee handbook. But if you didn't, get legal advice before handing out the pink slips. Workers often foresee layoffs before they happen, so be straight with your employees about what is happening and why. Employee layoffs should be strictly by seniority only. Avoid any appearance of discriminatory selection.

Get Legal Help

Contact a local employment lawyer if you have any questions about terminating an employee. They will help ensure your policies and practices are consistent with the law.

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