How to Manage Employee Terminations
Despite everyone’s best intentions, the reality of being an employer is that eventually the need to discharge an employee will arise. When confronted with this reality, far too many employers get unnecessarily tripped up both in how to go about preparing for an employee termination and implementing the action. Though never a pleasant action, employers can and should take steps that will render it less stressful and painful.
Pre-Termination Actions - Once an employment relationship has devolved to the point where a business wants or needs to move forward with a termination action, it is best to move forward and not further contemplating the action. That said, it is critical for employers to make an affirmative decision to terminate and to understand the reasons for that decision. If the reason is performance based, has the employer taken the time to document those issues and/or rehabilitate the deficiencies? If not, why? If, the reason is economic, understand that the termination is likely going to increase cost in the form of unemployment or other claims. By taking the time to clearly understand the basis, employers increase the probability of understanding the risks presented and can transition the employee in a way that reduces the business’ potential legal exposure.
Remember also that not all employees are “at-will” and so not all can be terminated for any reason or at any time. While the “at will” assumption is generally applicable, there are exceptions that include jurisdictional differences, public policy, express or implied contracts with the worker, and potential unfairness by the employer. Due consideration of the context and issues potentially underlying a termination action will help to structure the action in a way that ensures or presents less risk.
How and When to Terminate - Employers have various preferences differing reasons for when in the workweek to inform an employee of his or her separation. There is no one size fits all approach and each employer’s reason tends to mirror the needs of the business. Still, it is important to decide when the termination is to be effective: immediately or at a future date (e.g., end of the month). While some businesses need to protect intellectual property and therefore need the employee to leave the premises as soon as possible following termination, other businesses are less concerned about employee misconduct and are able to work with the employee to transfer duties to another.
Compensating the discharged worker - Barring an employment agreement, severance pay is not required. Still, many employers do choose to offer terminated employees separation pay. To the extent that separation pay is offered, we counsel clients to secure a “release of all claims” in exchange for that compensation. Without a properly drafted Release, the departing employee is free to take the separation pay and proceed with a claim against the Company.
Employers should also check to ensure that final pay is issued in accordance with state law requirements. Many jurisdictions, including Colorado, generally require terminated employees to be issued their final pay at the time of termination. Other issues can arise in the context of issuing final pay and therefore, consultation with an attorney is advisable (e.g., If an exempt worker is terminated mid-week, payment for the entire work week is not necessary). Various state law requirements may also require that the employee be issued compensation in lieu of all accrued but unused vacation, sick, or paid time off hours. Penalties for failing to issue final pay in accordance with state law requirements can be steep, so compliance with these rules is important.
Finally, remember to inform the terminated worker about fringe benefits, such as retirement plans and health coverage. If medical coverage is offered and the business has more than 20 employees, the terminated worker must be timely informed of his or her COBRA coverage. Some states require a COBRA-like notification for employers with fewer than 20 employees. Again, taking the time to check with state law requirements goes a long way towards mitigating compliance violations and associated penalties.
Security Considerations - Once an employee has been informed of his or her termination, remember to:
Reclaim company keys and other company property.
Remind the worker about any confidentiality agreement he or she may have signed at the start of employment.
Change passwords if the terminated employee had access to company data.
Smart Tip - When in doubt about taking proper and legal action, advice from an HR expert or employment law attorney should be sought.