Employee Termination

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Employee Termination

Employee termination is the release of an employee against his or her will. Termination may be, at will, for cause, or for lack of work. The process is unavoidably painful: it imposes a certain degree of pain on the terminated employee, and the vast majority of people do not enjoy inflicting pain. Terminations, however, are a necessary part of business life and must be carried out promptly when the need for such actions becomes obvious in order to preserve the health of the enterprise.

TERMINATION-AT-WILL

An employment-at-will doctrine emerged in the United States in the mid-nineteenth century and came to be applied in both state and federal courts throughout the late 1800s and early 1900s. A concise interpretations of the doctrine was rendered by the California Supreme Court in 1910: "Precisely as may the employee cease labor at his whim or pleasure, and, whatever be his reason, good, bad, or indifferent, leave no one a legal right to complain; so, upon the other hand, may the employer discharge, and whatever be his reason, good, bad, or indifferent, no one has suffered a legal wrong."

Employees have retained their rights to be employed at will, but employers' rights to terminate workers at will have been modified over time based on the circumstances of the termination. The federal Wagner Act of 1935 made it illegal for companies to fire employees because they were engaged in union activity. Subsequent laws and court decisions during the mid-twentieth century reflected increasing concern about "wrongful discharge," implying that circumstances do exist in which it is legally wrong for a company to fire a worker. During the 1960s and 1970s, particularly, Congress enacted a number of new laws to protect workers from wrongful discharge in all types of cases, including those related to bias, whistle blowing, and other factors.

The practical consequences of this legal evolution have been that employment-at-will remains theoretically in force but is hemmed in—principally by many employee rights related to discrimination—to such an extent that legal advisors to business almost never unambiguously and forthrightly recommend using the right. This is understandable. Every employee belongs to several of the so-called "protected classes" in that they have an age, a gender, and are members of a race. It is always at least possible for an employee discharged at will to claim that the real motive behind the firing was motivated by bias. To avoid unnecessary lawsuits, many employers use workarounds although these are not exactly publicized.

Nevertheless at-will employment continues to be the rule in most businesses in the mid-2000s, the policy usually published by the company in its employment documents. The majority of employees understand this right as reciprocal to their own right to quit at any time. The small business employer's right is also indirectly maintained by the fact that those inclined to sue prefer to sue deep pockets, but the small business owner must be prepared to handle complaints, investigated by state or local agencies. The practice of at-will termination also implies significant discipline on the part of the small business manager who cannot simultaneous rely on the at-will policy and also give an explanation to the terminated employee which amounts to a list of other reasons than simply the employer's naked will.

TERMINATION FOR BEHAVIOR

Employees may be dismissed for cause, one of which is employee behavior. Common behaviors that lead to terminations include: absenteeism and tardiness; unsatisfactory performance; lack of qualifications or ability; changed job requirements; and gross misconduct; misconduct might involve drug abuse, theft, or other breaches of company or public policy. The term "behavior-related" distinguishes this type of termination from "trait-related" dismissals; traits are immutable characteristics of the employee, such as color of skin or physical disability. Trait-related terminations may be legal if the employer can prove that the trait keeps the employee from performing a job satisfactorily. However, those cases are uncommon.

Employers may terminate workers based on any type of behavior they deem unacceptable, although laws and court interpretations of these laws have protected some types of behavior when the employer's retaliatory action is deemed: 1) a violation of public policy; 2) a violation of an implied contract between the employer and the employee; or 3) an act of bad faith. An act of bad faith is vaguely defined: it is simply a recognition of an employer's duty to treat employees fairly. For example, it might be considered illegal for a company to fire a worker because he refused to engage in an activity a reasonable person would consider excessively dangerous or hazardous.

One illustration of a public policy violation would be a company that fired a worker because she refused to engage in an unlawful act, such as falsifying public financial documents or giving false testimony in court. Another example would be firing an employee who exercised a statutory right, e.g., voting in an election or worshiping at a church. A third type of infraction in this category would be dismissal of an employee for reasons stemming from his exercising a right to perform an important public obligation.

Violations of implied contracts occur when a company dismisses a worker despite the existence of an insinuated promise. For example, if an employer conveys to a worker that he will receive long-term employment in an effort to get the employee to take a job, it could be liable if it fired the worker without what the courts deem "just cause" or "due process." Implied contracts often emanate from interviews, policy manuals, or long-term patterns of behavior by the employer in a relationship with an employee.

Even when an employer acts in good faith and does not violate the public trust or an implied contract, it can be legally liable for dismissing a worker for other reasons. Specifically, a business may be found liable if it cannot prove that: 1) its decision to dismiss an employee is not founded on bias against a protected minority; or 2) the firing does not produce inequitable results. Suppose, for instance, that a company decided to fire all managers who did not have a college degree. Doing so, however, resulted in the dismissal of a disproportionate number of legally protected minorities from its work force. The company could be held liable if it could not show that having a college degree was necessary effectively to execute the duties of the position.

Steps in a Behavior-Related Termination

Because of the legal risks inherent in dismissing employees, most companies terminate workers for behavior-related causes only after administering a progressive disciplinary and counseling process. Besides legal reasons, studies show that most companies try to correct behavior out of a perceived moral obligation to the employee. Furthermore, many employers benefit economically from correcting employee behavior, rather than terminating workers, because of the high costs of employee turnover.

Correctional efforts do not always succeed, however. In instances when termination does prove necessary, business experts cite several basic steps that employers can take to ease the blow for the targeted employee, minimize damage to workplace morale and community standing, and shield themselves from legal liability. These steps include:

Develop clear, written policies for termination and follow them unswervingly. These policies should be readily accessible to employees in an employee handbook. The termination guidelines should include definitions of poor performance and gross misconduct, detailed descriptions of the review procedures that may lead to termination, and policies regarding severance, future employment references, and the return of company property.

Document reasons for termination over time, in quantifiable terms where possible.

Conduct the termination meeting with the employee in a professional manner. The company representative conducting the meeting should be trained in dealing with the wide array of emotions—anger, denial, shock, etc.—that typically appear during such times.
Give credit for positive contributions. Many experts contend that the shock of termination can be eased somewhat if they hear positive feedback about some aspect of their work performance. "Even in a termination based on performance, prompted by the fact that acquired skills were not adequate for a particular situation, the person's assets and liabilities can still be acknowledged," wrote Richard Bayer in Business Horizons. "A termination-for-performance should not be an occasion for abuse."

Prepare an information package for the terminated employee that outlines all elements of any severance package, including benefits and assistance options. Depending on laws and company policies, the company may provide severance pay, unemployment compensation, compensation for earned vacation days, career and placement counseling, ongoing health insurance, or other post-termination benefits.

Craft considerate severance payout policies. The method of severance payout can be a major factor in easing (or increasing) an ex-employee's bitterness about termination. For example, Bayer notes that paying out severance in lump sums near the end of the calendar year will inflate the worker's W2 for the year and increase his/her tax burden. Small businesses can spare ex-employees this financial hit by absorbing the modest extra payroll expense of making regular severance payments.

Preserve an environment that enables the terminated employee to leave with dignity. "We should have no trouble arguing for compassionate termination policies that reduce stress on families, mitigate financial hardships, and decrease the chances that discharged employees will suffer debilitating emotional crises," wrote Bayer, who also cites the business advantages of dignified dismissals: "Employees who have witnessed termination with dignity will be more inclined to like the firm and support its goals and mission."

Notify others that are impacted by the dismissal in a timely manner. This includes other employees, affected clients, and other entities with which your company has a business relationship.

REDUCTIONS IN FORCE (RIF)

Reductions in force (RIF)—also known as work force reductions, downsizing, right-sizing, restructuring, and reorganization—may include a number of methods of eliminating worker hours, including layoffs. Employee terminations in such cases are usually the result of surplus labor caused by economic factors, changing markets, poor management, or some other factor unrelated to worker behavior. Because work force reductions make a company vulnerable to many of the same legal risks inherent in behavior-related terminations, companies usually terminate workers by means of a carefully planned and documented process. The process is typically conducted in two stages: 1) selecting the workers to be dismissed and then terminating them according to the above process; and 2) providing benefits to ease the transition, including severance packages, unemployment compensation, and outplacement services.

Selecting and terminating employees is handled carefully because most profit-maximizing organizations are obviously concerned about losing talent or diluting the effectiveness of the company. But care must also be taken to ensure that the reductions do not violate state and federal laws. As with behavior-related terminations, downsizing terminations cannot be based on bias against protected minorities, or even unintentionally result in an inequitable outcome for a protected group. In fact, extensive legislation exists to protect disabled workers, racial minorities, workers over the age of forty, women, and other groups.

In addition to bias-related laws, moreover, companies must comply with a battery of laws specifically directed at corporate layoffs. For example, the federal Worker Adjustment and Retraining Notification (WARN) Act of 1988 requires companies with 100 or more employees to file at least sixty days prior notice before conducting mass layoffs or work force reductions. Among other stipulations, the notice must be in writing and addressed to employees and specified government workers.

The second stage of the downsizing process, outplacement, is also heavily influenced by legislation aimed at protecting employees. But it is also used to maintain the morale of the work force and to enhance the public image of the company conducting the work force reduction. Outplacement usually includes two activities: counseling and job search assistance. Counseling occurs on both the individual and group levels. Both are necessary to help the displaced worker 1) develop a positive attitude; 2) correctly assess career potential and direction, including background and skills, personality traits, financial requirements, geographic constraints, and aspirations; 3) develop job search skills, such as resume writing, interviewing, networking, and negotiating; and 4) adjust to life in transition or with a new employer.

Many companies assist with the job search by hiring a job-search firm to help their terminated employees find new work. In addition to providing some or all of the counseling services described above, job-search companies act as brokers, bringing together job hunters and companies looking for employees. Job-search companies can expedite the job hunting process by eliminating mismatches from the interview process and by helping both parties to negotiate employment terms. In some cases, the former employer will reimburse job hunting costs as part of the severance package of benefits.

see also Constructive Discharge; Layoffs and Downsizing