Perhaps no situation carries as much potential liability for an employer as the termination of an employee. In order to reduce the risk as much as possible, employers must implement procedures that require employee terminations be handled in a consistent and professional manner. As a general rule, the majority of states follow the employment at-will doctrine. This means the employer may discharge the employee at any time, with or without cause. The employee may also, in turn, quit his employment at any time, with or without notice.
There are, however, exceptions, imposed by federal law, state law and employment contracts (including collective bargaining agreements). Thus, it is important for the employer to keep these exceptions in mind and maintain prior, consistent documentation to support the termination should the employee later challenge the termination decision.
There are a number of circumstances that can lead employers to consider termination. Poor performance is a common problem. In that case, the employer should give notice and a reasonable time to correct the problem. The employer should offer goals for improvement and may also want to provide additional training and support to help meet the established goals. The employer should follow up with the employee to see whether the goals have been met. If the employee has not reached the goal, then the employer may elect terminate the employee in accordance with the notice that has been previously provided. The employer should be consistent when dealing with notice and improvement goals. It is also important to ensure there are not illegal or improper motivating factors in the employee performance improvement, discipline or termination.
If the employee has displayed gross misconduct, such as harassment, theft, violence or insubordination, the employer may elect to act immediately without notice and a performance improvement plan. If an explicit policy has been covered in orientation or the handbook, then the employee has been put on notice. The employee should act in accordance with the policy.
An employer also should remain mindful that, in exercising its management authority, two questions always arise in this context:
This chapter will address the first question.
There are several exceptions to the employment at-will doctrine. Various federal anti-discrimination statutes protect employees from being discharged on the basis of race, color, sex, national origin, religion, age, disability or military status. Employees working under a written employment agreement or a union contract may also be protected from discharge other than for good cause as defined by the particular agreement. Below are the generally recognized state and federal law-based exceptions to the employment at-will doctrine.
A variety of federal statutes protect employees from being terminated on the basis of race, color, religion, sex, national origin, age, disability, pregnancy and union activity. Most federal anti-discrimination and employment laws also prohibit retaliation against employees by their employers for exercising their rights to seek protection under these laws.
Over the years, many states have chipped away at the employment at-will doctrine and allowed employees to bring suits under wrongful discharge theories grounded in torts such as intentional infliction of emotional distress, defamation and violation of public policy.
Title VII of the Civil Rights Act, amended by the Civil Rights Act of 1991 (Title VII) applies to both private and public employers with 15 or more employees, labor organizations and employment agencies, but not to certain bona fide private membership clubs. Among other protections, Title VII prohibits an employer from discharging an employee on the basis of race, color, religion, national origin or sex (including pregnancy, childbirth or related medical conditions). See Chapter 12: Discrimination for a more detailed discussion of Title VII.
The Pregnancy Discrimination Act (PDA) also applies to both private and public employers with 15 or more employees, labor organizations and employment agencies. The PDA prohibits employers from discharging or otherwise discriminating against employees on the basis of pregnancy. The law requires pregnant women to be treated the same as men or non-pregnant women whose ability or inability to work is due to a non-pregnancy related illness or disability. The PDA does not, however, require better treatment for pregnant women.
Employer coverage under the Age Discrimination in Employment Act (ADEA) is similar to that under Title VII, except the ADEA only applies to employers with 20 or more employees.
The ADEA, as amended, prohibits an employer from discriminating against an individual with respect to discharge and other terms, conditions and privileges of employment on the basis of the individual’s age, provided that the individual is age 40 or older. See Chapter 12: Discrimination for a detailed discussion of the ADEA.
The Americans with Disabilities Act (ADA) applies to employers who have 15 or more employees. The ADA generally prohibits discrimination and harassment in any aspect of employment, including discharge, applications, testing, hiring, assignments, evaluations, disciplinary actions, compensation, promotions, leave and benefits. See Chapter 13: Disabilities and reasonable accommodation for a detailed discussion of the ADA.
The Family and Medical Leave Act (FMLA) applies to any employers who have 50 or more employees. Under the FMLA the employee is entitled to up to 12 weeks of unpaid leave for the birth or adoption of a child, the employee’s own serious health condition or to care for a spouse, parent or child with a serious health condition. An employer may not discharge the employee for exercising their right to leave under the FMLA. See Chapter 17: Family and medical leave for a detailed discussion of the FMLA.
The National Labor Relations Act (NLRA) prohibits discrimination, including discriminatory discharge, based on the employee’s exercise of protected concerted activity (including but not limited to union activity).
The Employee Retirement Income Security Act (ERISA) governs all employee benefit plans unless specifically exempted. ERISA prohibits discrimination against employees (benefit plan participants), including discriminatory termination, who exercise rights under ERISA.
An employer may not discharge, discipline or otherwise penalize an employee who is absent from their employment for the purpose of attending a judicial proceeding in response to a subpoena, summons for jury duty or other court order or process that requires the attendance of the employee at the judicial proceeding.
An employer may not, as a condition of employment or continuance of employment, require that an employee join a labor organization. Nor may an employer require the employee to refrain from such membership. This law is more commonly known as the “right to work” law.
Employers cannot discharge or take any adverse employment action against an employee solely for transporting or storing a firearm or firearm ammunition in an employer parking area.
No employer may terminate an employee because their earnings have been subjected to garnishment for indebtedness, even where more than one summons of garnishment may be served upon such employer with respect to the debt.
An employer may not discharge an employee for requesting information regarding hazardous chemicals, filing a complaint relating to the employer’s use of hazardous chemicals under either TOSHA or the Public Employee Hazardous Chemical Protection and Right to Know Act or otherwise reporting or participating in an action under either of these laws.
An employee who has entered into a written employment agreement that specifically provides a definite duration of employment or limits the circumstances under which her employment may be terminated may bring a claim for breach of contract, claiming that the discharge violated the terms of the contract. In these situations, the employee commonly asserts that the employer did not have good cause (as defined by the contract) to terminate their employment.
Note: A more complete list is located in Chapter 10: Discrimination.
Reductions in force (RIF) may be subject to the Worker Adjustment and Retraining Notification Act (WARN Act). The WARN Act requires most employers with 100 or more employees to provide 60 calendar days’ notice in advance of mass layoffs or plant closings. A “mass layoff” is when a layoff of six months or longer affects 500 or more workers or at least 33% of the employer’s workforce. However, the WARN Act does not apply if a layoff affects fewer than 50 workers.
Although an employer may legally terminate an employee for good reason, bad reason or no reason at all (so long as that reason is not discriminatory), the company will be in a much better position to defend any challenged termination decision if it takes certain precautions prior to the decision to discharge.
It is important, should a termination decision be challenged, that an employer has established written work policies and/or rules that support the basis for the decision to terminate. Rules and policies that are both clearly communicated and consistently applied are very helpful in the defense of an employment claim.
It is important that an employer continue to emphasize in its policies that it has the right to skip all levels of discipline and proceed to immediate discharge should the conduct at issue warrant this approach. The employer should also reserve the right to change its rules and policies at any time and note that any published rules and policies are not all-inclusive. Management should be thoroughly familiar with the employer’s rules and policies so that managers and supervisors may fairly and accurately carry them out.
Any decision that is based on incomplete or inaccurate facts will be suspect, not only by the employee, but also by a jury. Thus, it is important for management, preferably an outside, objective party such as human resources, to review the decision to terminate, interview people with knowledge of the facts, meet with the employee and hear the employee’s version of events and make a written record of the investigations. It is important to be mindful that any record relating to the termination could be used as evidence in a wrongful termination lawsuit. Only facts and entries supported by sound reasoning should be reported.
As stated previously, wherever possible, it is important to involve human resources personnel at all stages of discipline and/or termination. Supervisors should contact human resources whenever a problem with an employee arises. Meetings to discuss the employee’s disciplinary problems or to terminate the employee should always include at least one representative from human resources to act as a witness and consultant. A factual record of a meeting with the employee is appropriate in most circumstances.
It is vital for employers to be consistent in their treatment of employees. Management should determine what the company’s past practice in situations similar to the situation at hand and consider whether the employee is being treated the same as other employees in similar situations. If not, employers should consider whether different treatment can be adequately justified? Some things to consider are the employee’s length of employment, position held, performance and disciplinary history and other special circumstances that might distinguish the current situation.
The decision to terminate the employee as recommended by lower line management should be evaluated and confirmed by the executive in charge of that department or area, as well as a human resources executive.
Before making any decision to terminate, the employer should consider the state and federal laws prohibiting discrimination and evaluate whether the decision could trigger an employment discrimination claim. The employer should take into account:
Employers should be cautious when replacing an employee whom the employer suspects may file an employment discrimination claim. While it is always important to find the most qualified employee, it will make the former employee’s discrimination claim more difficult to prove if they are replaced by an employee of the same sex, race, national origin or age.
If the employer believes the employee may file a claim upon termination or if there is a major dispute between the employer and employee at the time of termination, it may be in the employer’s best interest to enter into a separation agreement that contains a release of liability from the employee. As a general statement, settlement and negotiation documents are not admissible under the Rules of Evidence in a later lawsuit involving the matter being negotiated. In a separation and release agreement, the employer agrees to provide some additional consideration (usually in the form of monetary compensation) in exchange for the employee’s agreement to release the employer from any claims the employee might have that arose during employment with the employer. Separation and release agreements should always be prepared by the employer’s attorneys. However, as stated above, best practice is not to present such a release at the termination meeting. Doing so places focus upon the release, not on the explained legitimate reason for the termination. The employer should explain that transition pay or severance may be available but would require signing of a release according to policy. If the employee expresses interest, explain that such a document will be prepared. Separation agreements containing a release of claims on the basis of age discrimination usually require that the separated employee be given:
Accurate documentation of employee performance issues and/or discipline leading up to an employee’s discharge is essential to the defense of any discharge decision. Written documentation is generally perceived as being true and accurate compared to recollections of witnesses. As such, all significant employer actions, including performance evaluations, disciplinary warnings, probationary periods and performance improvement plans, should be documented and retained in the employee’s personnel file. Documentation in employee files should reflect facts, not opinions.
An employer has a greater chance of prevailing when a termination decision is challenged if the documentation of the employee’s performance and/or conduct supports the decision to terminate.
Exit checklists can be extremely valuable. Checklists serve to ensure that the correct procedure is followed in the termination. During the process, employers should document whether the termination was voluntary or involuntary, as well as what the employee was told and how the employee responded.
In deciding what to include on an exit checklist, the employer should consider which departments must be involved to make sure every aspect of the employment is ended. Checklists should include a list of company items that need to be collected or returned by the last day of work. These items might include keys, passwords, ID cards, company credit cards, cellphones, laptops, tablets and any other company-owned items. The employee’s access to computer systems, telephones, voicemail, email, passwords and other modes of communication and access to information should be removed. Any confidential or company information located on the employee’s home/personal computer should be deleted, including any data or metadata. Some form of verification or acknowledgment by the employee of these items and information is often desired.
Before the employee’s last day, the employer should review any nondisclosure, non-solicitation or noncompete agreements with him or her. Remind the terminated employee that any breach of these agreements will be appropriately addressed. Securities and stock options should be reviewed and how long the employee has to exercise any stock option should be made known. Employee benefits, including 401K plans and life insurance policies, should be properly addressed. In regard to continued health insurance coverage, the employer should provide the employee with a COBRA letter or the state-law equivalent and explain it. The employer will want to ensure that the employee’s present address is known and verify any address changes. Final expense reports should be submitted and the final expenses paid. Finally, compensation issues need to be thoroughly reviewed, including any wages still owed to the employee and if any unused vacation days require compensation.
Terminating an employee is a delicate undertaking in the best circumstances. It is important that the employee understand the reasons for the discharge. Ideally, a representative of human resources should be present at the meeting in which the employee’s manager communicates the discharge decision. Someone who attends the discharge meeting should document carefully the reason provided to the employee for the discharge and any response by the employee.
The termination meeting should be short and to the point and the decision to terminate should be conveyed unemotionally and candidly. The employer should not try to soften the blow by complimenting the employee on other areas of performance as this sends mixed messages to the employee. The employee should be treated with dignity and respect at all times. Employees who feel they were treated unfairly are more likely to file a claim for wrongful discharge. Employers should keep in mind the following points when conducting a termination meeting:
Exit interviews are an effective tool for identifying and addressing workplace issues. Exit interviews are structured discussions that serve several important functions. An employee can gain closure, the employer can identify problems and the employer can obtain information about where to contact the employee in the future. They also allow for an orderly transition and assist the employer in directing the transition to comply with its procedures.
The employer should schedule the exit interview promptly after the employee gives notice of the departure. Scheduling provides the employee and employer time to gather their thoughts and questions to make the conversation productive. The interviewer should also review the employee’s job functions, work history, employment contract or noncompetition agreement, among other documents.
Former employees may return for employment, refer other potential employees or customers to the employer, become employed by a customer or competitor or actually become a customer. Therefore, a departing employee should be regarded as a potential business asset or risk. For better or worse, the employee may know quite a bit about business operations. The exit interview may be the employer’s last chance to reaffirm a positive bond with the employee and expectations that arise from the employment relationship, even as it ends.
Information collected from exit interviews must be passed along to the appropriate persons so that it can be used for self-evaluation and benchmarking. Follow-up inquiries must be made in a timely manner. Doing so allows for an orderly transition.
An employee resignation always causes some disruption in the workflow; however, if the employee will work a notice period, the employee can assist in making a successful transition. The employee can wrap up loose ends, provide details about ongoing projects and assist in the notification of clients and others about their leaving.
There should be an organized way of handling on-going projects. Each file or project should be reviewed with the supervisor, project manager or person who will take it over. While that type of meeting is very important, the employee should also usually provide a memo or summary of the matter, its stakeholders, important contacts, deadlines and other essential information for continuity of the work.
Workers must be designated to take over the work of the departing employee. If those employees can confer with the departing employee, they will have a head start on understanding the challenges and details of their job. It may be a good idea to ask administrative employees and others with documented responsibilities to create a procedure manual prior to departure.
The employer should inform its employees of a worker’s resignation. Coworkers can be notified of the resigning employee’s end date. These notices should contain only basic information. A subsequent notice should inform employees of a timeline for replacement of the departing employee and how the new employee will be oriented to the business.
The employer must also ensure that all customers or business contacts are informed of the employee’s departure. This can be done by letter, email, phone or a face-to-face meeting. The employer should give the customer information (name, phone number, email, etc.) as to who their new contact will be. Continuity of contact is essential along with assurances that the employer will continue to serve the needs of the customer.
Any employee who leaves or is discharged from employment should be paid in full all wages or salary earned no later than either:
The final wages of an employee who quits or is discharged shall include any vacation pay or other compensatory time that is owed to the employee by virtue of company policy or labor agreement.
Employers should have departing employees fill out an address update form if the employee. Being able to locate the former employees is extremely important for employers when it comes time to send out W-2s.
The Supreme Court has interpreted the Fair Labor Standards Act (FLSA) broadly to protect employees who make oral complaints, not just those making written complaints, when the complaint involves wage and hour violations. Many employment policies have historically required written notice of complaints.
Following termination, former employees should receive a letter from the Human Resources office that outlines the status of their benefits upon termination. This includes life insurance, health coverage, retirement plan and expense account plans.
A departing employee may represent a threat that the employer’s trade secrets will be disclosed or misused or that customer relationships will be exploited unfairly. Any confidentiality agreement or noncompete agreement that the exiting employee signed when commencing employment should be reviewed to make certain the employee understands what is expected. Remind the employee that any breach of confidentiality will be addressed.
The employer should also notify its network administrator or other appropriate staff person of the date and time on which to terminate the leaving employee’s access to computer and telephone systems.
Depending on the access methods, the employer should disable the employee’s building entry code, disable the entry swipe card or collect the employee’s keys. It is in both the employer’s and the former employee’s best interest that he or she cannot access any company property.
Exiting employees must be required to turn in all company books, materials, keys, ID badges, computers, credit cards, cellphones and any other company-owned items. Because employers may want to keep the departing employee’s email and phone accounts active for a short period of time after the departure in order to communicate with customers, employees should provide their supervisors with passwords and other information pertaining to accessing computer files and telephone messages.
Perhaps the most efficient way to ensure that all appropriate documentation is included in an employee’s personnel file is to create a checklist of all that needs to be completed when an employee is discharged.
If an employee states their intention to leave their employment, ask them to write a resignation letter that states that they are leaving and their termination date. This letter should go into their personnel file.
Documentation of that an exit interview was conducted should also be kept in the terminated employee’s personnel file. It may also be a good idea to document whether or not a terminated employee returned all company owned property to the employer.
Policies and Forms
Chapter 22: Termination