The Correct Way to Terminate an Employee By Noah Green, Kelly Ryan and Martin Levy
Terminating employees is one of the most unpleasant aspects of a business owner or manager’s job duties, but sometimes it is absolutely necessary in order to continue the business of the employer. But if terminating an employee is necessary, then it should be performed in the most ethical, and professional manner possible. Following the proper protocol in conducting the termination softens the blow to the terminated employee (who is very often surprised that they are being terminated); protects the business from potential litigation arising from the termination; and reassures the owner or manager that they did the right thing. Whether the terminated employee was a good worker or a bad worker is irrelevant. The decision to terminate an employee, once made, sets in motion a number of duties of the employer to handle the termination in a professional manner preserving the dignity of the terminated employee and protecting the employer’s interests as the employer does not want to see an angry former employee down the road in court.
Below is a short primer on the usual issues, both legal and professional, that arise under California law surrounding the termination of an employee. This article collects some of the information and observations we have gathered over the years and which we use to assist our clients as they navigate their way through this difficult area.
Should You Terminate?
There are a wide variety of reasons why employers would terminate an employee. As long as those reasons are not impermissible in accordance with California and Federal law, then the question of whether or not to terminate an employee is dependent on the facts and circumstances of each case and the business judgment of the employer.
Once it has been decided that it is in the company’s best interest to terminate an employee, certain practical business issues must be confronted along with the legal issues discussed later in this article. In the short term, the employer must decide how to distribute the terminated employee(s) existing projects and re-assign their job duties to other workers.
In the long term, the company will need to continue producing goods or services once the employee is gone, but, at least in the short term, will have fewer human resources available to produce those goods and/or services. A heavier burden will fall on the remaining workforce and they will be expected to increase their productivity. The company must anticipate how these additional stresses on the workforce, the company’s finances, and public image will be addressed prior to implementing the termination. Like all business decisions, terminations must be thought through and properly planned out before being set in motion.
Termination Risk Analysis
The decision to terminate an employee can raise many legal issues. The following checklist is designed to help you determine whether the termination is likely to lead to litigation. While there is no way to guarantee that an employee will not sue, using this risk analysis checklist can alert you to potential legal issues resulting in potential litigation. The identified issues could then be discussed with legal counsel before terminating the employee if you feel uncertain.
Step 1: Consider Your Company Policies and Documents
If applicable, review your Employee Handbook for policies which may limit your right to terminate, such as:
• Employment at-will policies
• Progressive discipline policies
• Internal dispute resolution or arbitration policies
• Termination policies requiring “just cause”
Is there a written employment contract? If so, what limits does it place on your right to terminate the employee?
If you have an established system/policy of progressive discipline (i.e., written warnings prior to termination), was the system followed in this case?
• If so, was the process of progressive discipline well documented? Documentation of the progressive discipline is important evidence should a legal claim arise.
• If not, can you show a valid reason for your failure to follow your own policy? For example, an employer might terminate a violent employee without warnings in order to protect other employees from harm.
If you have an internal dispute resolution system, was the employee given a fair chance to resolve problems under that internal system?
Do you have an established policy of giving a certain period of notice before terminating an employee? This policy may be in writing (i.e., Employee Handbook) or may simply be an unwritten policy that you have established by having given employees notice in the past.
Consider State/Federal Laws Protecting Certain Classes of Employees Americans with Disabilities Act
Is the employee physically or mentally disabled? If so, were attempts made to reasonably accommodate the employee’s disability? Were reasonable accommodation measures well documented?
Is the employee being treated in the same manner as other employees in similar situations?
Have other employees been given more chances before being terminated for the same or similar reasons as this employee? If so, are there legitimate, non-discriminatory reasons for treating this employee differently than other employees?
Pregnancy - Is the employee pregnant? Employees are entitled to four months off for pregnancy related disabilities.
Workers’ Compensation - Has the employee filed a workers’ compensation claim? Terminating an employee who has filed a claim, intends to file a claim, or has testified in a worker’s compensation hearing could be considered workers’ compensation discrimination.
Retaliation - Has the employee reported any illegal activity of the company to a state or federal agency? Even if the company is not in fact acting illegally, the termination could be seen as retaliation for “whistle-blowing.”
Has the employee participated in any official investigation of the employer (i.e., wage or safety violation) or testified against the employer in an unemployment insurance or other hearing? Is the termination in retaliation for the employee’s exercise of protected personal rights, such as freedom of speech or political activity?
Review the employee’s personnel file
• Is there sufficient documentation in the file to substantiate your reasons for termination? Examples include written warnings, performance reviews and attendance records.
• Is there anything in the file that might be evidence of an illegal termination? For example, a supervisor may have written a warning notice to the employee that her pregnancy was causing her to be absent too often. Legal counsel should be consulted if there are concerns.
Review personnel files for other employees who have similar problems. This comparison can point out potential discrimination issues. For example, could a female employee being terminated for attendance problems show that a male employee had the same number of absences but was not terminated?
Consider Legal Ramifications of Not Terminating the Employee
Failing to terminate an employee who has been violent or threatened violence could result in harm to other employees and lead to employer liability.
Termination of an employee who has sexually harassed other employees may be necessary to fulfill an employer’s legal obligations under sexual harassment laws.
Lay-Offs v. Terminations
It is important to distinguish between the two major types of terminations:
1) Lay-offs; and
Downsizing and the need to eliminate part of a company’s work force to reduce overhead costs is an unfortunate but common reality in todays stressed economy. In these cases, the terminations are not classified as firings, but rather as lay-offs. One hallmark distinction between a lay-off and a firing is that the terminated employee’s position is refilled, whereas a laid-off employee’s position is eliminated not re-filled.
On the other hand, “firings” are, at their heart, triggered by an employee’s poor job performance, rather than the company’s economic health. As distinguished from a lay-off, in these types of terminations, another employee is hired to replace the vacancy created by the termination of the employee.
The distinctions between the two types of terminations create different considerations for the employer prior to carrying out the termination of the targeted employee(s):
When to Do it
One school of thought holds that employers should carry out terminations on Fridays. Assuming that the employer’s office is closed over the weekend, it will give all parties involved a few days apart to allow emotions to cool. It will also reduce the risk of an angry employee showing up the following day and disrupting work.
Another school of thought believes that terminations should be done early in the week in order to give the terminated employee an opportunity to start looking for a job, applying for unemployment benefits, and making other necessary arrangements as soon as possible, rather than stewing with frustration and anger and no outlet for positive action over the weekend.
A third school of thought believes that it should be done at the end of a pay period. Our experience is that it does not make a difference or change the outcome of the termination. Rather, once the decision to terminate an employee is made by the employer, the timing of the termination should be immediate and carried out prior to the end of the work day if possible. If not, then the termination should be conducted at the start of the following work day (for which the employer will still have to pay the terminated employee).
Letting someone go at the end of the work day is generally not a good idea. When a terminated employee is leaving the premises the same time as all other employees there is a potential for employee interactions that might encourage inappropriate behaviors and other avenues for litigation.
The Last Paycheck
All outstanding wages, salaries, expenses, and unused vacation pay owed to the employee must usually be paid immediately upon termination.15 As such it is good practice to have the final paycheck available at the termination meeting to avoid claims of withholding pay.
Note that it is improper to condition receipt of the final paycheck upon an agreement by the employee to waive their right to bring suit, and tendering of the final paycheck should not be confused with severance pay. The employee is already legally entitled to all wages earned as of the date of termination and attempting to deprive them of such pay for any reason may be construed as in violation of the law.
An employee may only be asked to waive their right to bring a lawsuit if they are offered additional consideration in good faith, i.e., a good faith severance package.
Severance Pay Agreement
An employer may offer the employee additional payment in exchange for the employee’s agreement to waive their right to bring a lawsuit for wrongful termination and related claims. This is commonly known as “severance pay.”
Whenever possible, it is best to reach a severance agreement with the employee who is to be terminated. This will help ease the transition for both the employee and the company. In particular, it will help the employee by providing them with extra income to bridge the gap. The only time an employee is not owed their final paycheck immediately is if they voluntarily quit without giving at least 72 hours (three days) notice, in which case the employer has 72 hours to pay them all outstanding wages, salaries and/or commissions.
It also helps the employer by eliminating the possibility of wrongful termination lawsuit. All that said; the employer is not required to provide severance pay to a terminated employee unless there is a prior written employment agreement requiring such payment.
The best way to offer a severance package is to “fire” the person first then offer them the severance package. This makes it clear that the severance package is “consideration” for the employees’ waiving there right to sue. Otherwise, the person has not been fired and you are just entering a negotiation about what it would take to get them to leave!
Whether To Contest Claims for Unemployment Benefits
A terminated employee may apply to the State of California’s Employment Development Department (EDD) for unemployment benefits. If contacted by the EDD to confirm the lay-off, the employer should do so as soon as practical in order to facilitate the employee’s receipt of benefits.
If the employee was terminated for cause or quit their job however, that must also be reported to the EDD, even if it may jeopardize the former employee’s ability to collect such benefits.
In addition, there are two forms you must give all terminated employees. On is the EDD booklet (ED2320) and the other is the “NOTICE TO EMPLOYEE AS TO CHANGE IN RELATIONSHIP” (ISSUED TO PURSUANT TO PROVISIONS OF SECTION 1089, CALIFORNIA UNEMPLOYMENT INSURANCE CODE)
Do You Need an Attorney?
The decision to utilize an attorney really depends on the facts and circumstances surrounding the termination, the type of termination, whether any of the issues described above are present, the sophistication of the employee, and the amount of animus expected at the time of termination. An attorney can provide advice, draft severance agreements, and in some circumstances can attend the termination meeting and/or perform the termination of the employee. Of course, if an employee has filed a complaint against you or your company with a state agency or in court, you will need legal representation.
(Mod: Of course you will. Probably the point all along.)