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HBiz Law 2011

Preserving Dignity and Avoiding Litigation in Employment Terminations

HBiz Law 2011
By: Christopher S. Yeh, Partner of Marr Jones & Wang

One of the most challenging aspects of managing a business can be terminating an employee. Not only can the termination meeting be uncomfortable, but the termination can lead to claims of discrimination, retaliation, and other wrongful conduct.

When terminating an employee, a company needs to consider many issues. For one thing, in the case of a performance-based termination, there should be clear documentation of the events leading up to termination – prior counseling, discipline, and efforts at remediation. However, even if a company has a good “paper trail” and is acting for legitimate business reasons, it can still be at significant risk of facing a legal claim if it does not properly handle the termination process.

     Christopher S. Yeh, Partner of Marr Jones & Wang

A study of 996 terminated Ohio workers1 considered various factors that could motivate an individual to sue his or her former employer after being terminated. These factors included the perceived likelihood of prevailing, the magnitude of the financial hardship following termination, and the perceived fairness or unfairness of the termination process. The study concluded that the most significant factor in an employee’s decision to sue was the perceived fairness or unfairness of the termination process. For instance, among the participants who felt they were treated with “very much” respect in their dismissal, only 0.4% filed claims against their former employer. By contrast, among the participants who felt they had “not at all” received respectful and dignified treatment, 14.9% filed claims against their former employer. (This is broadly analogous to studies which have found that patients are much less likely to sue for medical malpractice when they perceive positive doctor-patient relations, including good communication and bedside manners from their physicians.)

1. The study was supported by grants from the National Science Foundation and the American Bar Foundation. See E. Allan Lind, Jerald Greenberg, Kimberly Scott, and Thomas Welchans, The Winding Road from Employee to Complainant: Situational and Psychological Determinants of Wrongful-Termination Claims, Administrative Science Quarterly, September 2000; Bad Treatment at Termination Leads Many Ex-Employees
To File Suit, Ohio State University Research website research archives.
 

A company can do several things that are not legally required but that might soften the impact of termination and, therefore, reduce the risk of a claim. For instance, there are accepted conventions as to the logistics of a termination meeting, such as conducting it in a discrete location and preferably at the end of the day, not having too many people in attendance (often only the manager and human resources representative), and maintaining a calm and respectful tone and avoiding argumentation. Also, under appropriate circumstances, a company might consider offering psychological counseling, offering assistance in finding another job, or keeping the individual on the company medical plan (such as by delaying the employee’s formal separation date, even if the employee functionally stops working on an earlier date). Some other considerations are discussed below.

How much notice should I give?

Although most employees are at-will (meaning that they can be terminated for any reason at any time, with or without notice), a company should consider giving some advance notice of termination; two weeks is an accepted practice. This allows the employee to continue his/her income stream while searching for another job. Of course, in certain cases, it might not be appropriate to give the employee much or any notice. This could be where the employee has engaged in serious misconduct (such as theft or violence), where the employee’s ongoing performance problems could harm the business, or where the company reasonably believes that the employee might sabotage the operations if allowed to work after being given notice.

Should I allow the employee to resign?

Offering resignation can be a costless way to show the company is at least somewhat sympathetic to the hardship of termination. Furthermore, it would allow the employee to tell prospective employers that he or she resigned, which in turn might help the employee find subsequent employment, mitigate financial difficulties, and psychically “move on.” A resignation under these circumstances would probably not disqualify the employee from unemployment benefits.

When a company gives an employee the opportunity to resign, the company should have documentation and inform the employee that a final termination decision has already been made and that resignation is being offered in lieu of termination as a courtesy to the employee. This reduces the risk of the employee then engaging in protected activity (for example, filing a discrimination complaint) and claiming that the termination was in retaliation for that activity.

Should I offer severance?

Although severance is obviously not costless to the company and might not be appropriate depending on the circumstances, it helps to mitigate the financial hardship of termination and could bolster the employee’s sense of fair treatment.

Some companies offer severance as a matter of policy or practice, whereas others elect to do it on a case-by-case basis, taking into account considerations such as the employee’s position, years of service, and/or whether the termination is particularly sensitive under the circumstances. If a company offers severance once on an individualized basis, it would not necessarily be obligating itself to do so in all future instances, but it should be able to articulate a business reason why severance is offered in certain cases but not others.

Some companies condition the severance upon the employee signing a release of claims. If the employee agrees to these terms, then both the company and the employee would have resolution and closure. However, if the employee declines the offer, then he or she not only would have missed out on the financial and psychic benefits that severance would have afforded, but also might become suspicious as to why the company was trying to “buy them out” of their claims.

How do I explain the termination?

Let’s say that you have an employee, Joe, who works in sales. Three months ago, Joe complained that the counseling he was receiving from his supervisor was harassment based upon his race. The company properly investigated, found no basis for the allegation, and closed the investigation. Since then, Joe’s performance has worsened and even elicited customer complaints. When counseled, Joe has not fully accepted responsibility for his deficiencies and has given excuses, such as a lack of proper training. Due to a recent business slowdown, there is a need to eliminate one sales position, and Joe is selected.

Consider the following four approaches for describing the termination to Joe in the termination letter. (The letter might also address housekeeping matters, such as the return of property and COBRA, which are not relevant here):

     “A company can do several things that are not legally required
     but that might soften the impact of termination and, therefore,
     reduce the risk of a claim.”
     Photo: Courtesy of

Approach #1: “This is to inform you that your employment is being terminated.” Since this letter offers no explanation whatsoever for the termination, it could leave Joe feeling confused and angry. In the above-mentioned study, among those who said they received a complete explanation of their dismissal, only 1.7% sued their former employer. By contrast, among those who said they received no explanation, 20.3% sued their former employer. Furthermore, if Joe were to consult an attorney and present this letter, the attorney would have to rely solely upon Joe’s account of the termination. The attorney might not have an accurate picture if Joe discloses his discrimination complaint but omits or glosses over his performance issues.

Approach #2: “This is to inform you that your employment is being terminated, due to economic conditions.” This letter attempts to be nice by not referring to Joe’s performance problems. However, the term “economic conditions” is vague and, unless Joe has been previously apprised of the business slowdown, he might view this explanation as unconvincing and pretextual. Furthermore, there is still no explanation as to why Joe, as opposed to his co-workers, was selected.

Approach #3: “This is to inform you that your employment is being terminated due to economic conditions, unacceptable performance, and poor attitude.” This gives more explanation, but the terms are still vague and possibly unconvincing to Joe. Furthermore, a phrase such as “poor attitude” could be interpreted as a reference to Joe’s discrimination complaint, even if that was not the company’s intention.

Approach #4: “This is to inform you that your employment is being terminated. Over the past six months, widget sales have declined by 10%, thus necessitating the need to eliminate one of our sales positions. Furthermore, as you are aware, you have been repeatedly counseled about errors when inputting sales figures and completing invoices, even though you have received the standard training given to all our sales employees. In addition, we have received at least four customer complaints concerning your interactions with them.” Admittedly, this letter could be perceived as adding insult to injury. Nevertheless, the letter presents a fairly detailed account that should help Joe (and/or the attorney he consults) understand that the termination is at least not arbitrary. Furthermore, the letter includes facts that are concrete and credible. Joe might be able to refute a broad and subjective statement of “unacceptable performance,” but he would have a harder time disputing the fact that he made errors, that he “received the same training given to all our sales employees” or that there have been “four customer complaints.”

Of course, if the company goes with approach #4, it must scrupulously ensure that the letter is factually accurate and touches upon all the reasons for termination. Any inaccuracies or incompleteness could be later ascribed to oversight, but they could also cast doubt on the employer’s true motives.

A termination is a significant event for an employee. Handling the termination process with thoughtfulness can go a long way towards maintaining the employee’s sense of dignity, avoiding a perception of unfairness, and reducing the risk of legal claims.

This article is intended to address issues of general interest and is not intended to constitute legal advice or to substitute for the advice of legal counsel.

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