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Employee Termination

As an entrepreneur, startup founder, or a manager in a growing company, you'll most likely be entrusted with the power and responsibility to hire and fire employees. For the vast majority of people, the former activity is infinitely more fun than the latter.  Letting someone go can be dreadful even if you're absolutely sure it’s the right decision.

Firing someone requires using business judgment and taking into account legal considerations at the same time. As a manager, you'll typically be in the best position to discern the timing and manner in which you terminate employees. However, even if the decision to terminate makes perfect business sense, it can't be made without considering the legal ramifications. Employment law is complicated and presents many challenges for employers. Therefore, it’s always a good idea to give this decision careful thought or consult with legal counsel rather than making an impulsive decision that could prove costly to the organization in the long term.

Legal considerations

In the United States, all states except Montana follow the employment-at-will doctrine. This means that an employer can fire an employee for any reason even without just cause, as long as the termination doesn’t violate other laws or public policy. Other countries have different employment laws, which are frequently more stringent and restrictive of an employer’s ability to terminate an employee. 

Before terminating an employee, take into account the state and federal laws. You also need to determine whether the employee is employed at-will as part of a formal employment contract, or as part of a union with collective bargaining rights. If your employee is under an employment contract or part of a union, you must follow the contractual termination procedures laid out in the employment contract or the collective bargaining agreement. If your employee is an at-will employee and your company has an employee handbook or other official employment policies, make sure you are following the procedures set forth in these policies.

According to the US Equal Employment Opportunity Commisionit’s illegal to discriminate against someone because of that person’s race, color, religion, sex, national origin, age (if they're 40 or older), disability or genetic information. It's also illegal to fire someone because he or she complained about being discriminated, filed a charge of discrimination, or participated in an employment discrimination investigation or lawsuit. Numerous state and federal laws prohibit employers from taking adverse actions, including termination against employees who report unsafe work conditions or other improprieties and illegal activities.

Practical Matters

While your workers may be at-will employees, and you are free to hire and fire as you wish, many state and federal laws provide protections to employees who are fired without just cause. Even if you try to do everything by the book, some employees may still perceive that discriminatory factors caused them to get fired. Litigation can be a very costly and time-consuming proposition, even if you ultimately prevail. These steps could help you mitigate the legal risks of terminating employees.

Risk Mitigation

As a manager, one of the most important things you could do to mitigate legal risks when terminating an employee is to be empathetic and understanding throughout the process. An employee who's treated with dignity and respect is far less likely to harbor resentment, which could trigger the issuance of a lawsuit down the road.

Another method to mitigate risk is by negotiating and entering into a severance agreement with the employee. Typically, a severance agreement would give the terminated employee certain benefits in exchange for the employee waiving legal claims and signing a non-disclosure agreement. These agreements, however, are not bulletproof. Courts would consider these agreements invalid if the employee could show that the agreement was not entered into “knowingly and voluntarily.” A terminated employee could still file a charge for discrimination with the EEOC. Even if the severance agreement will ultimately lead to a dismissal of a lawsuit, an EEOC charge, which is typically filed before a lawsuit, could be costly to address and defend.

Lastly, another way to reduce legal risks is by acting decisively when you make the decision that terminating an employee is in the best interest of the company. It's best to let employees who are not a good fit go. Keeping employees because you don't want to offend them could backfire in unpredictable ways.

The decision to terminate an employee is never an easy one and it shouldn't be taken lightly. Your best business judgment combined with empathy and an understanding of important legal issues will help you reduce the risk of legal ramifications and ensure that the process goes as smoothly as possible even under difficult circumstances.


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