The decision to terminate an employee can be both emotional and frustrating. If not handled properly, it can also result in expensive litigation. These days, wrongful termination lawsuits are not idle threats. According to a recent study conducted by Jury Verdict Research, recently fired executives who sued are winning often and winning big. In a review of 1,700 verdicts rendered between 1988 and 1995, it was found that these executive plaintiffs won termination suits 64 percent of the time, compared with 42 percent for general laborers. Executives are winning in court, say legal experts, because they often have strong communication skills and can afford better legal representation.
When an employee wins a lawsuit for unfair termination, the remedies for unjust dismissal have ranged from simple reinstatement to back pay and actual damages and, in certain cases, even to punitive damages. Employers have also faced charges of discrimination or violation of federal statutes in connection with the termination of an employee. In order to successfully defend against these types of claims, you must be prepared to demonstrate that your policies contained in personnel manuals—as well as the performance evaluations you give employees and the grounds you state for their termination—were implemented and enforced in a nondiscriminatory fashion and not as a result of any act contrary to applicable federal law. Specific, clear and uniform guidelines should be developed for probation periods, opportunities to improve job performance, availability of training and termination procedures.
What follows are five steps for preventing lawsuits that can and should be taken prior to, during, and after an employee has been fired:
STEP 1: The first step, which should be implemented well before the actual termination, is careful documentation. A comprehensive record should be kept on each employee, including any formal performance appraisal or informal warnings, comments or memos prepared by a supervisor to demonstrate the employee's poor work or misconduct. If a case ever gets to litigation, these documents and records may be the only evidence available to support that there were valid reasons for terminating the employee.
STEP 2: The second step prior to termination is to ensure that you have a proper basis for termination. This involves a careful review of personnel manuals, policy statements, memoranda and related documentation to ensure that no implied representation or agreement has been made regarding the term of employment, severance pay or grounds for termination that may be inconsistent with the company's intentions. The various grounds for termination should be clearly stated in the personnel manual, which should include (but not be limited to) the following:
- Discriminatory acts towards employees or hiring candidates
- Physical or sexual abuse
- Falsifying time records or other key documents; willful or negligent violation of safety or security rules
- Violation of company policies
- Unauthorized disclosure of the company's confidential information
- Refusal to perform work assigned by a supervisor
- Destroying or damaging company property
- Misappropriation or embezzlement
- Drug abuse or gambling on company premises
STEP 3: The third step is to ensure that all alternatives to termination have been considered. An employee who has been performing poorly should be provided with plenty of advance notice of management's disappointment with his or her performance through personal and written evaluations, warning notices and published employment policies. Where the cause for termination involves an act of insubordination, improper conduct or related incidents, witness statements, accident reports, customer complaints, and related documentation should all be collected and reviewed. Even once a termination decision has been made by the immediate supervisor and the evidence supporting the cause collected, there should be an independent review of the proposed dismissal by a member of management at least one level above the direct supervisor of the employee.
An opportunity to cure the defect in performance should be strongly considered. The reviewer should take the time to confront the employee and hear his or her side of the story prior to making the final dismissal decision. Written records of these meetings should be placed in the employee's file. The reviewer should question the supervisor and co?workers of the employee to gather additional facts and to ensure that all company policies and procedures have been followed, especially those regarding performance appraisal and employee discipline.
STEP 4: Once the decision has been reached, management should conduct an exit interview. It is important that the reasons for the employee's discharge are explained during this meeting. The explanation should be candid and concise, in accordance with all available evidence, and consistent with any explanation of the termination that will be provided to the employee. The manager should emphasize to the employee that the reasons for termination are legitimate and are consistent with the company's past practices under similar circumstances. The employee should also be advised what will be told to prospective employers and be reminded of any covenants not to compete and of the employee's continuing obligation to protect the company's trade secrets.
STEP 5: The fifth and final step is to prepare a comprehensive release and termination document to further protect the company against subsequent litigation. The employee should be given an opportunity to have it reviewed by legal counsel. The release and termination agreement should:
- Be supported by valid consideration (e.g., some form of severance pay or covenants)
- Be signed by the employee knowingly and voluntarily
- Include the grounds for termination in the recitals
- Contain covenants against competition, disclosure and litigation
- Include all possible defendants in an employment action (company, officers, directors, subsidiaries, etc.)
- Avoid commitments regarding references to future employers
- Be checked carefully against all applicable federal and state laws.
The broad scope of federal and state anti-discrimination laws make it imperative for owners and managers to understand their obligations in structuring employee recruitment, selection, training, compensation, reward, testing, and seniority programs. A company can t arm itself against charges of discrimination if proper documentation is maintained, such as a complete personnel file of the former employee, detailed records of complaints of supervisors and cworkers related to the cause of termination, copies of actual work produced by the employee that was unsatisfactory, a written record reflecting the race and sex of other persons dismissed or disciplined for the same or similar purposes and the name, race and sex of the individual replacing the discharged employee.
Employees are clearly among a company's most valuable assets. If they are treated unfairly in the hiring or termination process, however, they can become a large liability. Employment agreements and personnel manuals are useful tools to define the rights and obligations of the employer and employee to each other. Owners and managers are well advised to carefully structure personnel policies within the bounds of applicable labor and employment laws.
© 2007 Andrew J. Sherman. All rights reserved.
Andrew J. Sherman Partner Dickstein Shapiro Morin and Oshinsky LLP