Protect Yourself: Firing an Employee

The last blog post here was about hiring a new employee. Today, we go to the opposite end of the spectrum. What about firing an employee? The potential for legal problems is high. No one wants to deal with a lawsuit from a disgruntled former employee. How can you protect yourself while ensuring a smooth transition?

Before you start: The employment-at-will policy allows employers the choice to have an “at-will” policy, allowing them to fire any employee at any time for any reason. However, you will need to check your employee contracts to see if anything in them works against this policy.
Obviously, there are many exceptions to the at-will policy. You cannot fire based on age, gender, race, religion, or disability. Employees cannot be fired for reporting or complaining about illegal activity, harassment, or health code violations. You also cannot fire people for taking family or medical leave.
Even though the at-will policy exists, because there are so many exceptions, you need to carefully document your reasons for terminating an employee. Be sure to hold onto any performance reviews. Although you are not required by law to maintain paper records of disciplinary actions, maintaining records of these incidents is the best way to avoid legal trouble when firing. A good rule of thumb is “Have everything in writing.” Even if you don’t think you’ll need it, have it in writing.

During the termination meeting: Keep a list with you of the records you have kept.You must notify employees that they are eligible for unemployment insurance. Remember, severance pay is not required by the Fair Labor Standards Act; it is arranged between the employer and the employee. For more information on taxation of severance pay, see this Wall Street Journal article.

After the employee has left: Fired employees must remain eligible for vested 401(k), profit-sharing, or pension benefits. Also, keep your records of the reasons for termination even after the employee has left.

There is one last consideration for companies with over 20 employees. COBRA is a federal law. According to COBRA, if you have more than 20 employees and a group health plan, you will need to temporarily continue their health coverage at group rates. This applies not only to the terminated employee, but also his or her spouse and dependents. If the employee was fired for “gross misconduct,” however, he or she may be excluded from the plan. If the above applies to you, alert your group health plan administrator within 30 days of firing or terminating your employee to start the COBRA process.

Following procedures and keeping documentation of all incidents can help protect you against lawsuits after firing an employee. However, there are no guarantees. If you haven’t already found a reliable business lawyer, be sure to choose one before you let an employee go.

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