Management Corner

Firing Employees Without Getting Burned

By Timothy Lee

  “Employment Laws are constantly changing.  It can become very confusing for Smaller businesses." 

Employment Attorney,   Michele Fox

Terminating employees is one of the most unpleasant tasks a small business owner has to perform. Unlike other business practices, time and experience does not make it any easier. The recent trend of employees suing former employers, for wrongful termination, and the government and courts leaning towards employee rights in recent years, has only heightened employer anxiety about employee terminations.

Wrongful termination suits filed by disgruntled employees are more prevalent than ever and the legal cost of defending against such lawsuits continues to rise. Low- end legal fees of $10, 000 to $20,000 are not uncommon. While these are substantial fees, even for larger firms, it can prove catastrophic for smaller firms with limited financial resources.

For companies found guilty of wrongful termination, the cost can be much higher. Under New Jersey’s discrimination law, there is no cap on the amount of damages that may be awarded to a plaintiff and enhanced attorney’s fees and attorney fee shifting may also apply.

"Terminating an employee is akin to walking through a minefield", says Walter S. White, president of W.S. White Computer Enterprises, Newark NJ. "One wrong step and it can blow up in your face."

Michele Fox, an attorney, arbitrator and mediator, who has practiced employment law for the last twelve years, agrees. "There are so many issues for an employer to contend with these days. You have wrongful termination suits, discrimination suits, sexual harassment cases, handbook violation cases, Conscientious Employee Protection Act cases, just to name a few." Fox’s office often gets calls from clients who simply don’t know what to do. Employment laws are constantly changing and evolving and employers have to keep up with it. She admits, "It can become very confusing."

If the employee in question falls within a protected class - someone who may be able to sue for discrimination based on race, religion, age, gender, etcetera - the employer must be even more careful about how they handle the termination.

So the question becomes, how does an employer terminate an under performing, counter productive or otherwise unsatisfactory employees without stepping on a legal landmine? The answer, says Ann Kiernan, a New Brunswick NJ based employment attorney, is to have an established, systematic and documented procedure in place for how your company handles discipline and terminations issues.

One way to do this is to have an employee handbook. The handbook should describe the company’s terms and conditions of employment, including working hours, vacation, sick leave, health benefits and pension benefits. It should also describe your company’s disciplinary and termination procedures.

Entrepreneurs and other small business owners tend to shy away from such mundane tasks because it takes them away from the task at hand - growing their company- however, these business people must remember one bad discrimination or sexual harassment case can put them out of business. A few hundred dollars in attorney fees today may help you protect your company’s future.

There is one caveat; an employment manual can be a double-edged sword. "An employee manual can be a tremendously valuable management tool if you do it right," says Kiernan, who is also a workshop leader and consultant with www.fairmeasures.com, "but, if you do it wrong, you can end up with some serious problems."

According to Fox, a partner at Cherry Hill, NJ based Pepper Hamilton LLP, "while New Jersey recognizes the concept of employment at will it also recognizes that employee handbooks and other employment documents can be considered contracts. If not written properly, a handbook can change your relationship with your employees from employment at will to that of contract workers."

For example, to maintain an employment at will relationship with your employees, your handbook should have a prominently displayed disclaimer that contains specific language, as prescribed by New Jersey courts. If your handbook doesn’t contain this disclaimer, or if it isn’t written and displayed in the way prescribed by the courts it, may be considered a contract.

To avoid this problem consult with your corporate attorney or a good employment attorney when creating an employee manual. Let them review the document before you finalize it. It’s also a good idea to have your attorney review any changes or amendments you make to an existing document.

"However," warns Kiernan, "if you have a handbook, follow it. The worst thing you can do is have a written termination policy and not follow the described procedures. It can make you look bad to the judge and the jury."

If you don’t have such a manual, and there is no law that says you must, your termination policy should still show consistency. "If you have a policy of two written warnings before termination, that’s fine," say’s Fox, "but you must be consistent. If you give one employee five warnings and terminate another after one, for the same infraction, you can create a problem."

Whether or not you have a written employee handbook you should have a written policy on discrimination and sexual harassment and have them posted where everyone can see them.

Documentation is another important issue. "The importance of documentation cannot be overemphasized," stresses Kiernan, "In real estate you have location, location, location, when disciplining or terminating employees documentation becomes key. Having a paper trail that documents your efforts and your willingness to work with the employee shows jurors you have been fair."

If an employee is not performing up to par, the employer should bring it to his or her attention. This should be done in a formal performance review meeting. Management should let the employee know how he is under-performing and what he needs to improve. Management should be as specific as possible. After the review, have the employee sign a form acknowledging the meeting and place a copy in his file. If there is no improvement and it becomes necessary to have additional meetings with the employee that should also be inserted in his personnel file.

You should give the employee ample time to improve his performance. What constitutes ample time depends on your company policy but be consistent. To be safe, you should review your union or other employment contracts and state laws. You should also check with a competent employment lawyer in your area.

As a general rule, the employee should be given several warnings and chances to improve. According to Rita Risser, an employment lawyer, speaker and author of Stay Out of Court! The Manager’s Guide to Preventing Employee Lawsuits, "the more counseling/warning sessions you have the better. You want to show that you gave the employee sufficient warning and a fair opportunity to improve "If it’s a misconduct issue- for example, if the person is caught stealing - you can terminate immediately, she adds.

Kiernan, an advocate of the three strikes and you’re out rule, say’s, "most Americans believe in three strikes and you’re out. What juries are looking for is fairness, consistency and documentation. If you can show these things, there’s a good chance they’ll decide in your favor."

When a manager decides to terminate an employee, it is usually a good idea to have someone from higher management review the termination. This way, you create company-wide consistency in your policy. The company can also stop any possible terminations that may have resulted from high running emotions rather than being based on performance or misconduct.

When the employer decides to terminate someone they should hold a meeting with the employee to inform him that, although he has been given several chances and warnings, his performance has not improved and he’s being terminated. While it’s usual to discuss your decision with the employee, it is not a debate and you should not let the meeting disintegrate into an argument. Tell him the truth about why he is being terminated. Don’t try to sugarcoat it or play it down to spare their feelings because it may come back to haunt you.

You should have all necessary documents checked and ready. You should have accounting check the employee’s records regarding back pay, unpaid sick days, vacation time, etcetera, and have a check prepared and ready at the meeting. It’s also a good idea to have a third party sit in at the termination meeting.

If the employee is to leave the premises immediately, monitor their exit, but don’t create an embarrassing situation by having security escort the employee off company property, unless the employee was terminated for stealing, or is possibly violent. Also, don’t badmouth the employee after he leaves.

While Fox cautions following these procedures will not guarantee a former employee will not file a lawsuit, it should reduce your exposure and provide a strong defense if you are forced into court.

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