Let’s talk about one of the toughest parts of running a business: terminating an employee. It’s never easy, and it’s almost always fraught with legal risk. A single mistake can trigger a costly and time-consuming wrongful termination lawsuit. At SKT Law, we see the fallout from these situations regularly, and we’re passionate about helping businesses avoid them. This blog is designed to be a practical guide, drawing on our experience, to help you navigate the often-complex world of employee terminations.
Understanding the Legal Minefield
It’s a legal term, and it’s important to understand it. Wrongful termination, or wrongful discharge, is a claim an employee makes when they believe their firing was illegal. This could mean it violated federal or state laws, or that it broke the terms of an employment agreement. As Eliot Krieger, Co-Founder and Managing Partner of SKT Law, states, “Ignorance of the law is no defense in a wrongful termination case. Business owners have a responsibility to understand their obligations under both federal and state employment laws.”
Many business owners operate under the assumption that “at-will” employment gives them free rein to fire employees. While at-will employment does provide flexibility, it’s crucial to understand that it’s not a license to ignore employee rights. There are numerous exceptions and protected categories that create a legal landscape you need to navigate carefully.
The Big Risks: Discrimination and Retaliation
Two of the biggest legal pitfalls are discrimination and retaliation. Let’s break those down.
Understanding Discrimination
Federal and state laws are very clear on this point: you cannot terminate an employee based on protected characteristics. These include race, color, religion, national origin, sex (and that includes pregnancy, sexual orientation, and gender identity), age (generally 40 and over), disability, genetic information, and military or veteran status.
The key here is that the employee doesn’t have to prove that the protected characteristic was the only reason for the termination. They only need to demonstrate that it was a motivating factor. Even a small contributing factor can be enough to create liability.
Avoiding Retaliation Claims
Retaliation is another significant area of concern. You absolutely cannot fire an employee for exercising their legal rights. This includes things like:
- Filing a discrimination complaint (either internally or with a government agency).
- Participating in a workplace investigation.
- Reporting illegal activity – what’s often called “whistleblowing.”
- Taking legally protected leave, such as FMLA leave.
- Requesting reasonable accommodations for a disability.
- Even opposing unlawful employment practices.
The timing of the termination relative to the employee’s protected activity is often a critical factor in these cases. Even if you have a seemingly legitimate reason for the firing, if it can be shown that the employee’s protected activity played a role, you could be in trouble.
Contracts Matter: Written, Oral, and Implied
Employment contracts, whether they’re formal written agreements, verbal understandings, or even implied contracts arising from company policies and practices, significantly impact your termination rights. These contracts often specify the duration of employment, outline the acceptable grounds for termination (often requiring “cause”), and may include provisions for severance pay or notice periods.
It’s important to remember that even casual statements made during the hiring process or in performance reviews can contribute to the formation of an implied contract. Be mindful of what you say and how you say it.
The “Public Policy” Exception
Many states recognize a “public policy” exception to at-will employment. This means you can’t fire an employee for reasons that violate fundamental public principles, even if there’s no specific law directly addressing the situation.
Think of it this way: you can’t fire someone for refusing to commit an illegal act, for performing jury duty, for exercising a statutory right like filing for workers’ compensation, or for reporting a violation of law that affects the broader public. The specifics of what constitutes “public policy” vary by state, so understanding your local laws is crucial. And of course, you can’t create such a hostile work environment, that your employee feels forced to quit. That is considered Constructive Discharge.
Building Your Defenses: Practical Steps
So, how do you protect your business? The best approach is proactive and well-documented.
The Employee Handbook: Your First Line of Defense
A well-drafted, consistently enforced employee handbook is your first line of defense. It should clearly outline your at-will employment status (where applicable), spell out your anti-discrimination and anti-harassment policies, establish a clear complaint procedure, detail performance expectations and disciplinary procedures, and define your leave policies. Make sure employees acknowledge receipt and understanding of the handbook in writing, and keep it updated to reflect changes in the law and your company practices.
Documentation: The Power of Proof
Meticulous documentation is absolutely essential. As Krieger emphasizes, “Documentation is key. It’s not just about what happened, but about being able to prove what happened with clear, contemporaneous records.”
Keep detailed records of everything relevant to an employee’s performance and conduct: performance reviews (both the good and the bad), any disciplinary actions taken, employee complaints and investigations, any accommodations provided, and, ultimately, the specific, objective, and well-supported reasons for any termination decision. Avoid vague or subjective language; focus on concrete behaviors and their impact.
Consistency: Treating Everyone Fairly
Treat all employees fairly and consistently. Apply your policies uniformly, regardless of protected characteristics. Any inconsistencies in how you handle discipline or performance issues can be used as evidence of discrimination or retaliation.
Progressive Discipline: A Path to Improvement
Where appropriate, implement a system of progressive discipline. This demonstrates a good-faith effort to address performance issues before resorting to termination. It typically involves a series of increasingly serious steps, such as verbal warnings, written warnings, and final warnings. Keep in mind, though, that certain serious offenses may warrant immediate termination.
Performance Improvement Plans (PIPs): A Tool for Success
When addressing performance concerns, a formal Performance Improvement Plan (PIP) can be invaluable. A well-structured PIP clearly identifies the performance gaps, sets specific and measurable goals for improvement, provides the employee with the necessary support and resources, establishes regular check-in meetings to monitor progress, and clearly states the consequences of failing to meet the plan’s requirements.
Training Your Managers: Empowering Your Front Line
Your managers and supervisors are on the front lines of employment decisions. They need to be thoroughly trained. Krieger notes, “Investing in comprehensive training for your management team is one of the most effective preventative measures a company can take.”
This training should cover anti-discrimination and anti-harassment laws, proper documentation procedures, how to conduct effective performance reviews and disciplinary meetings, how to handle employee complaints appropriately, and the critical importance of consistency and fairness.
Legal Review: When in Doubt, Seek Counsel
Before terminating any employee, particularly in a high-risk situation – for example, if the employee has recently filed a complaint or taken protected leave – always consult with legal counsel. An attorney can review the specific circumstances, assess the potential legal risks, and advise you on the best course of action. “A small investment in legal advice before a termination can save a company from a massive headache and expense down the road,” advises Krieger.
In some cases, offering a separation agreement with a release of claims might be a wise move. This involves providing the employee with severance pay or other benefits in exchange for their agreement not to sue the company. However, these agreements must be carefully drafted to be legally enforceable, so legal review is essential.
The Termination Meeting: Handling it with Care
The termination meeting itself requires careful planning and execution. “The termination meeting itself should be handled with professionalism and respect, even under difficult circumstances,” advises Krieger. “A poorly conducted termination meeting can escalate a situation and increase the likelihood of litigation.”
Have a witness present, ideally someone from HR. Be direct and honest but also compassionate. Explain the business reason for the termination clearly, and have all relevant documents, including the final paycheck and information about benefits, ready to go. While not always required, exit interviews can sometimes provide valuable feedback and help you identify potential problems.
The SKT Law Partnership: Your Guide Through Complexity
Employment law is a complex and constantly evolving field. This overview provides general guidance, drawing on SKT Law’s extensive experience, but it’s not a substitute for personalized legal advice. As Krieger emphasizes, “Proactive legal compliance is not an expense; it’s an investment in the long-term health and stability of your business.”
At SKT Law, we partner with businesses to help them navigate these challenges successfully. We work to minimize risk and create fair and compliant workplaces. Contact us today to take the next crucial step in protecting your business from the potentially devastating consequences of a wrongful termination lawsuit.