Avoid legal grief when firing employees

More and more fired workers are suing their former employers. When the ex-workers win--as they often do--the verdicts can be financially disastrous, especially for a small business. One jury recently awarded $525,000 to a salesman whose employer fired him after 14 years on the job. The jury ruled in favor of the ex-worker who argued that the employer's oral promises of job security amounted to a contract.

In another case, a jury awarded $2.8 million to a long-time employee who was fired because "the chemistry was wrong." The jury found this to be an insufficient cause for the discharge.

Even where the employer wins a lawsuit, the cost of defending the case can be ruinous. It's not unusual for a company to pay $50,000 or more in defense costs. Therefore, it is important to understand what wrongful discharge cases are all about--and what you can do to reduce the risks.

Claims of wrongful discharge For many years, the basic rule of employment law has been the "at-will" doctrine: If there's no contract covering termination, you're free to fire an employee at any time, for any reason or for no reason at all. That law still applies today, but the "at-will" rule is subject to many limitations. For example, despite the "at-will" rule, a fired employee may claim one or more of the following grounds in a wrongful-discharge case:

*"My firing violated anti-discrimination laws." Federal and state statutes have long prohibited firings based on an employee's race, color, religion, sex or national origin. In addition, anti-discrimination statutes now protect people 40 years old and older, as well as qualified people with disabilities.

* "My firing violated an implied contract that my employer could only fire me with good cause." Many courts will enforce explicit promises of job security that an employer made, even if the written employment agreement does not contain them. If an employer makes such a statement at the time of hiring, it can amount to a promise of job security.

* "My employer created a legitimate expectation of job security and then fired me without a good reason." Courts look at whether an employer's policies and procedures instill a "legitimate expectation" of job security. If so, the employer must show a just cause for any firing.

Ex-employees often point to statements in an employee handbook to show that the employer created an expectation of job security.

* "My firing violated public policy." An employer can't fire an employee in retaliation for whistle-blowing, refusing to participate in an illegal act, or enforcing a legal right such as filing a worker's compensation claim.

Using common sense A discharged worker who can't show that his or her firing was wrongful still can sue the employer for related conduct: defamation, invasion of privacy or intentional infliction of emotional distress, for example. All in all, it's not a pretty picture for an employer. Still, you can take many common-sense steps to ward off wrongful discharge cases--or to minimize the impact if one is started against you. Here are 10 suggestions:

1. Print a disclaimer. Have prospective employees acknowledge in the job application that, as the employer, you have the option to terminate employment with or without cause, and with or without notice, at any time. Put a similar statement in your employee handbook.

2. Have a good reason for any firing. Even with a disclaimer, it's best to fire people only when there's good cause. Disclaimers are notinfallible. Some cases go to a jury, and jurors inherently dislike the "at-will" doctrine. To them it seems unfair and arbitrary. Therefore, rely on it only if you have no other choice.

3. Adopt a program of progressive discipline. State your procedures in an employee handbook. List examples of behavior that can lead to discipline or firing, but make it clear that your list is not exhaustive. Additionally, be evenhanded in administering discipline. If you treat people differently for the same infraction--tardiness, for example--the jury will hold it against you.

4. Evaluate performance periodically. Workers need to know where they stand so they can try to improve. Let them know the consequences of not improving. A firing should never come as a surprise. Put evaluations in writing and save a copy. Written records can help you establish in court that you had a good reason to fire an employee and didn't violate anti-discrimination or anti-retaliation laws.

5. Put each firing to the fairness test. Ask yourself, "How would you feel if your spouse, child or parent were fired under the same circumstances?" If you would question their employer in a similar situation, you should reconsider your reasons for firing an employee.

6. Tell the employee the real reason for the firing. If you talk around the truth to protect the employee's feelings, it can come back to haunt you. You will compromise your credibility if the employee sues you and the court requires you to disclose the real reason for the firing.

7. Get a release. If possible, have the terminated employee sign a release of any claims against you. To be valid, a release cannot be coerced and it must be supported by adequate consideration (some benefit to the employee such as severance pay, a continuation of health-insurance coverage or the waiver of a non-compete agreement). Special rules apply to releases that older workers sign.

8. Be helpful. Consider extending benefits even if you do not get a release in return. Or, perhaps, offer out-placement services. Such steps may reduce the employee's anger when you let him or her go. You want ex-employees to feel good about your company, if possible, but at least feel neutral.

9. Use discretion. When firing an employee, try to preserve the employee's dignity. Because termination sessions can be stormy, try to terminate at the end of the day when other people are not around. The fired worker will appreciate the privacy.

10. Be cautious in discussing the discharge. Within your company, give details only to those who need to know the facts. Before giving information to a prospective employer, make sure everything you say has a solid basis, especially if you state that the ex-employee was incompetent or dishonest. Otherwise, they may sue you for libel or slander.

Protecting yourself and your company Abiding by any or all of these tips--no matter to what degree--will help you make the most appropriate decision when considering the termination of an employee. Furthermore, you will have a deeper understanding of the legal issues that an ex-employee may raise upon termination. Also, you can take a proactive approach to protecting the reputation of your company as well as yourself. It is good to learn from mistakes, but whenever possible, it is better to avoid them altogether.

Fred S. Steingold practices law in Ann Arbor, Mich.

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