Reduce Your Liability When Terminating an Employee

Reduce Your Liability When Terminating an Employee

Letting an employee go is never a pleasant thing, but sometimes it's the most reasonable option. Learn how to handle it professionally, and minimize your chances of being held liable.

By John Mulligan


As a small business owner, you are likely to work closely with many of your employees. For that reason, you may not want to spend time on something as unpleasant as putting processes in place for letting someone go. However, terminations are such a common source of complaints and lawsuits that it would be a mistake to enter into one unprepared. A professional and well-thought-out approach to dismissing workers is your best defense against a wrongful termination claim. 

Document Problems
According to attorney Andria Ryan, a partner in the Atlanta office of Fisher & Phillips LLP, employment laws protect employees in all aspects of their employment but the majority of employer discrimination lawsuits involve the termination of an employee.

To avoid discrimination claims, “you need to show the termination is based on a lawful reason,” says Elizabeth Gaudio, senior executive counsel for the National Federation of Independent Businesses (NFIB) Legal Foundation. How do you show this? “Documentation is key,” says Rania Sedhom, N.Y.-based regional leader, labor compensation and employee benefits, for BDO Seidman LLP. “You have to be able to back up terminations,” she says.

When you document concerns about employee behavior and performance, be specific, Ryan says. Don’t just write that an employee has a problem with tardiness — keep track of dates and how late the person was. If the problems are performance-related, specify which duties he or she is failing in and provide examples. If the cause of the termination is misconduct, such as inappropriate behavior around a customer or other coworker, obtain signed statements from any witnesses to the incident, if possible. Document any complaints against an employee made by other coworkers, regardless of whether termination seems likely at the time, Sedhom says.

Give Warning
Documenting lapses in an employee’s performance is something you should be doing not only for your benefit, but for the benefit of the employee as well. Terminated employees are more likely to question the reasons for their dismissal if they were never previously made aware of their own performance inadequacies. “A termination should not come as a surprise to an employee,” Gaudio says.

Ryan says that is a problem employers often create for themselves when they try to sugarcoat their assessment of how an employee is doing. “Many employers attempt to coax employees into better performance without documenting their efforts,” she says. “An employer runs the risk that an employee who has only been coaxed will never admit that he or she has been warned.”

Both Gaudio and Sedhom recommend that businesses conduct regular performance evaluations. Evaluations not only inform struggling employees of areas for needed improvement — possibly allowing them to save their jobs — but also provide proof that the employee has been made aware of his or her performance record. After an evaluation, always ask employees to sign a document saying they received the evaluation, regardless of whether they agree with what was said. Performance evaluations can also elucidate hidden employee issues and provide the employer with much-needed arsenal moving forward.

“Documented warnings are important,” Ryan says. “They link your decision to performance.”

Exit Interview
When it comes to the actual termination, it is best to do it in-person, in what is commonly referred to as an exit interview. “It’s very important to have that in-person exit interview. For starters, it gives you a clue as to how that employee is feeling, which may clue you into whether or not a lawsuit will be forthcoming,” Sedhom says.

In the meeting, inform the employee of your decision right away. Keep emotions out of the meeting, and stick only to the facts, Ryan says.

Be honest with the person about recommendations, Sedhom says. If you are prepared to give a positive recommendation, he or she will probably appreciate knowing that. If not, Gaudio says it is standard to inform the employee that you will verify dates of employment, and that is all.

Make sure you have a written termination letter ready to hand to the employee with reasons for their dismissal listed. Once again, be specific. Ryan says providing vague or untruthful reasons for letting someone go, such as “lack of work,” leaves you more vulnerable to accusations that your reasons weren’t legitimate.

At this time, you need to collect all of the company property the employee has, including laptops, credit cards, keys, handbooks, and access to any files, documents or client lists. You should have a list of items prepared ahead of time. You also will want to let the employee know about severance packages and remind him or her about any non-compete agreements that were a condition of employment.

Cover Your Bases
Finally, make sure you are in compliance with all of the employee termination laws particular to your state. If you’re worried, hire an attorney or consultant to review your termination processes and advise you on how to further protect yourself. “Just because businesses are smaller doesn’t mean they are held to lesser standards,” Sedhom says. “Treat every termination like a potential lawsuit.”