If you’re deciding to terminate an employee, an important consideration many companies overlook is whether they are creating a risk of wrongful termination litigation. The risk is real, and the consequences of having to defend a wrongful termination claim can include incurring significant attorneys’ fees, the possibility of having to pay a settlement or judgment to the former employee and the certain disruption of ongoing business operations.
If the employer follows good practices and procedures, it should be in a position to avoid frivolous wrongful termination claims. But if the company cut corners, its lawyer will likely advise to settle the claim, pay a settlement and avoid litigation. The employer will feel like a blackmail victim, and most often it will be right. But an employer can “pay now” by taking the time before a termination situation arises to set up proper procedures and follow them and thus “save later” by avoiding frivolous claims.
While the laws vary somewhat from state to state, most state laws permit an employer to terminate an employee at will, that is, without notice and without reason, as long as the termination is not retaliatory or discriminatory.
Most discrimination claims allege that the terminated employee was treated differently than other employees.
Thus, in an at-will employment situation, the key to avoiding litigation is to set up a good human resources process, to ensure that management follows the process with regard to every employee, to document each employee’s history and to review the file before terminating an employee.
If there is documentation to show that similarly situated employees were not treated differently, and any improper conduct is properly documented, the chances of a frivolous lawsuit being pursued are extremely unlikely.
Handbook is essential
The first step in setting up a good process is to have an employee handbook. A basic handbook sets forth the company’s procedures as to what is expected of employees and what happens when the employee violates the rules or performs poorly. When a violation occurs, the handbook will provide the employer with a clear and unambiguous basis for discipline.
The employer must have every employee acknowledge receipt of the handbook, whether it is in paper or electronic format, and that they have read the handbook. Every time the handbook is updated, the company must ensure that each employee acknowledges receipt and review of the update. A copy of every employee’s acknowledgement must be dated and saved in the employee’s employment file.
It is absolutely critical for the employer to consistently apply the handbook’s rules. The rules must be applied to everyone, not just the manager’s least favorite employee. Consistency is a key to avoiding frivolous claims that the terminated employee was treated differently.
Documentation is critical. When an employee violates a rule or performs poorly, the event must be documented and a note placed in the employee’s file. A better practice is to meet with the employee regarding the violations and to have the employee acknowledge in writing that he or she was advised of the violation or poor performance. At the very least, a record of unacceptable employee performance must be dated and placed in the employees file at or near the time of the event.
Finally, when a company has determined that an employee needs to be terminated, management must review the file and ask the following questions:
(1) Is there a non-discriminatory reason to terminate the employee?
(2) Did the company establish a proper procedure and follow it for this employee as well as other similarly situated employees?
(3) Is there a record supporting the reasons that the employee is being terminated, which records were made contemporaneously with the events?
If the answer to each question is yes, then management has put the company in the best position to avoid a frivolous lawsuit. If the answer to any one of the questions is no, then the company needs to decide whether the timing of the termination is appropriate given the company’s business goals and the risk of a possible claim.
If there is doubt about possible claims, the company can consider reducing its risk by offering the employee a severance package that would require the employee to sign a release of all claims.