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Before You Terminate an Employee Make Sure that You Understand…

Terminate. This word is frequently used by owners and managers in business. Most however, don’t really understand what it means to terminate an employee.  Educating decision makers on items to consider prior to termination and the different types of terminations is sometimes challenging.

First of all, there are different types of terminations and not all of them mean “firing” an employee. Termination may be broken down into two types, voluntary or involuntary. A voluntary termination is generally initiated by the employee. It may include events such as resignations and retirement. Employees who voluntarily terminate their employment may not be eligible for unemployment-related benefits in some states. On the other hand, an involuntary termination is initiated by the employer. It may include events such as discharging an employee and lay-offs. In most states, termination-related actions initiated by the employer do allow for the employee to apply for and possibly receive unemployment-related benefits, unless the employer is able to prove that they terminated the employee in good faith. Good faith means that the employer did not wrongfully terminate the employee and that they have followed employment-related policies and documented employee behaviors to support their termination actions. Most employers who terminate an employee involuntarily due to lay-offs and downsizing events will automatically be responsible for paying unemployment-related benefits as the employee had no control over the business decision to conduct the adverse employment-related action. Firing an employee though may lead to other employment-related implications for an employer.

Employment-at-will. These words are frequently used by owners and managers in business. While most states have employment-at-will laws to protect employers with involuntary terminations, it doesn’t mean that employers should use them. Employment-at-will does mean that the employee may be discharged at any time for any reason or for no reason at all. However, when an employer does not have a reason for firing an employee, it leaves them wide open for discrimination law suits. The employee may respond by saying that the employer discharged them due to race, sex, age, etc. and the employer’s defense may be vulnerable when trying to respond to any legal entity. The employer giving a false reason for discharge is even worse compared to giving no reason. Example: Discharging an employee due to budgetary reasons when in all reality that statement is not true will increase an employer’s vulnerability when they hire a new employee. It completely negates the budgetary reason. Involuntarily terminating an employee because of performance issues when the employer has given the employee years of “good” ratings and pay increases is a problem too. In most cases, the employer either lied about the “good” ratings or lied about the reason for termination. It doesn’t really matter, as once the legal entity concludes that the employer was not honest discrimination is the next logical conclusion. Thus, it is imperative that the employer follow a progressive disciplinary action process with legally defensible written documentation describing the specific facts with regards to the involuntary termination in order to hopefully avoid any legal actions on behalf of the employee.

Probationary Period. These words are frequently referred to when owners and managers are “thinking” about terminating an employee. Most management-level employees believe that as long as they terminate the employee within their probationary period which is usually 30, 60 or 90 days from the employee’s date of hire, that they may do so without any legal actions on behalf of the employee.  However, this is also no longer true. Employers who hire employees should follow a progressive disciplinary action process for involuntarily terminating an employee no matter if that employee has worked for the organization for one day, 90 days or longer. Having the proper documentation increases the employer’s odds of winning unemployment claims and other legal actions on behalf of the departing employee. New Focus HR highly recommends that companies that currently have a probationary period rename that to an introductory period.  Introductory periods should be used from a benefits and performance evaluation perspective only to assist with determining when an employee is eligible for paid time off (vacation, sick, personal days), healthcare insurance and other related benefits, retirement savings plans, performance evaluations, etc.  Employers are no longer protected with regards to paying out unemployment benefits for the departing employee and or other employment-related laws based upon the number of days in an introductory period.

Severance. To pay severance to a departing employee or not, is a frequently debated issue and should be discussed with a company’s employment law attorney or human resources consultant. Employees who voluntarily terminate their employment generally do not receive severance pay from a company.  However, companies may opt to payout severance to employees who are involuntarily terminated. Severance agreements usually ask that the departing employee sign an agreement that they will not sue the employer under any of the applicable employment-related laws in lieu of a final payout. Standard guidelines when determining the amount of a severance payout is two weeks for every one year of service with a cap of twelve weeks. However, there may be some exceptions when dealing with executive-level and/or other long-term employees. Employers may not want to consider paying out severance when they have solid documentation for the reason for the involuntary termination. A judge or unemployment adjudicator would ask why the employer paid the exiting employee money when they have violated a company policy or underperformed in the job. So, before automatically offering a departing employee a severance payout, make sure that it makes sense for the company not only in the short-term in the current situation, but in the long-term with regards to being consistent with future involuntary terminations.

So, what does this all mean in today’s workplace? First of all, companies need to make sure that they understand the difference between a voluntary and involuntary termination. When dealing with involuntary terminations making sure that a progressive disciplinary action process has been followed is critical.  Falling back on employment-at-will or a probationary period is no longer the “best” option as the written documentation from the process is relevant to defending any legal action. Finally, paying out severance is something that should be discussed first with a company’s employment law attorney or HR professional.

For additional information on understanding when to terminate, please contact New Focus HR, LLC.

Written by:  Kristen Deutsch, M.B.A., CCP

President

Revised 09/12/14

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