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Terminating an employee is never easy. Today, though, a more complex legal environment makes the task downright risky. You face a growing threat of being sued under a variety of wrongful discharge claims.
"Whenever the economy turns down and companies scale back, there is typically an increase in discrimination lawsuits," warns Lawrence C. Winger, a Portland, Maine-based attorney with more than 20years of experience defending businesses in employment law matters. There are a number of reasons for the increase in court action, according to Winger. Not only are more people let go in a downturn, but today more laws protect the rights of workers, and more lawyers represent plaintiffs on a contingency basis.
In any court case, being right is no guarantee against financial loss. Every case costs money to defend. "Even a small employer can spend $50,000or more defending these cases," says Herbert E. Gerson, managing partner of the Memphis, Tenn.,office of Ford & Harrison. "And the costs escalate if you lose a case brought under federal or state anti-discrimination laws. You can pay up to $300,000 in punitive damages, as well as the fees of the plaintiff's lawyer."
You can protect yourself from the expense of defending wrongful discharge lawsuits by following the proper termination procedures. Your firing practices should not appear to select people for termination based on age, sex, race, national origin,disability or religion. Here are some guidelines from leading employment law attorneys:
Establish written policies for terminating people
Just why was Sally let go and not Sam? If Sally claims she was terminated because she was a woman, it will be up to you to prove her wrong.
The best defense is a good offense—and that means preparing, and following, written policies for selecting who must get off the company truck when the road gets bumpy. "You need to follow the same set of rules for everyone to avoid discrimination charges," says Gerald E. Berendt, professor of law at John Marshall Law School in Chicago. "If the first person you let go for tardiness belongs to a protected minority group and you have not terminated other individuals for tardiness before, then you are inviting charges of discrimination. Avoid treating employees in protected categories differently than all other employees."
Your policies should specify the legitimate reasons for termination, such as poor performance, disciplinary problems,failure to get along well with coworkers or less seniority.
Pay special attention to your key vulnerabilities
Any area of potential discrimination is cause for concern; however, you face a growing degree of danger in three areas,attorneys say. An increasing number of lawsuits are being filed for alleged discrimination by age, disability, or for violations of the Family and Medical Leave Act (FLMA).
• Age discrimination. "In an economic downturn, the primary exposure is from claims for age discrimination," Gerson says. "In doing reductions in force, frequently companies will look at reducing not only head count but dollars spent in salaries. They achieve a greater impact when they terminate highly compensated employees, who are usually the long-term personnel over the age of 40, and these people are protected by age discrimination laws."
You can avoid trouble, Gerson says, by defining what your workforce will look like before and after proposed terminations. The percentage of people over 40should be about the same after the round of terminations as before.
• Disability bias. Recent court cases have expanded the protections of individuals under the Americans with Disabilities Act, as well as state laws. "If you are laying off people who happen to have medical conditions, you need to be sure that the reasons for their termination are independent of their medical conditions,"says Winger.
• Violation of the Family and Medical Leave Act. "More people today are away from the workplace for reasons that relate to family leave," says Winger. "If these people are laid off, make sure that the documentation makes clear that the layoff is motivated by financial reasons independent of the person's leave status."
Assess performance truthfully
Employers who fail to clearly communicate their disapproval of employee performance risk wrongful discharge claims down the road. In contrast, those who communicate clearly, through a combination of on-the-spot corrections and formal performance reviews, documenting every action, are protected.
This fact hits home when a wrongful discharge lawsuit hits, says Ronald J. James, an employment law attorney at Cleveland, Ohio-based law firm, Squire,Sanders & Dempsey. During depositions,plaintiffs often make statements such as:"I was never told I was not doing my job," "I realized there was a problem, but I didn't realize it was so serious I would lose my job," "All he did was scream at me and I didn't know why," or "I couldn't get my boss to listen to me."
Here's a real world example: Ann spent too much time talking on the telephone. Joe, her boss, saw the problem but did not communicate disapproval. Instead, Joe barked out obnoxious orders, such as: "Get off your duff and get those documents copied. And have them in my office in 20 minutes."
Joe figured Ann would translate "get off your duff" to "stop spending so much time on the phone." That never happened. Ann just saw a rude, offensive boss who was treating her like dirt. When Joe finally fired Ann for performance problems, it came as a big surprise. When Ann discovered that Joe had replaced her with a younger woman, she sued for age discrimination.
When Joe's attorney reviewed the case,he found his client had never explicitly told Ann about her performance failings. There was no written documentation of formal counseling sessions. A jury likely would conclude that Joe had discriminated against Ann. Further, plenty of employees could testify about Joe's workplace behavior, which would be enough to convince a jury to award the plaintiff heavy punitive damages.
Joe settled out of court for a large sum.
What to do: These problems can be solved partly by on-the-spot corrections. James suggests using this formula: "When you … you …, so …." For example, Joe could have told Ann: "When you talk on the phone too much you don't get your work done, so please stop doing that." These informal corrections must be backed up with documented performance reviews.
Be forthright about the cause of termination
Sometimes it's tempting to be less than truthful about the real reasons for termination. Very often, for example, a company does not want to admit that revenues are falling. But it's a mistake to invent a reason for termination, such as stating that a person's performance has been poor. If the fired person sues, and you cannot present documentation that your reason was legitimate, a jury may feel you fired the person for discriminatory reasons.
"The best thing to do is to be fair and tell people the truth," says James. "People should not have to sue in order to find out the real reason for their termination. Suppose you have 10 sales people and you only need seven, and you have used seniority and performance appraisals to determine who must be terminated—then tell people that."
Treat people equally. Once you have established policies for progressive discipline, make sure all groups of individuals are playing under the same rulebook.
Further, be consistent in similar situations. "Suppose a female employee is terminated because of attendance problems," says Gerson. "The question now becomes: Did you treat the male employees with similar attendance records in the same fashion? It never ceases to amaze me that once you get into records, you see that it is not the case."
That's costly in terms of credibility with the court system. "When you have to go in and explain exceptions, that's where the employer ends up with exposure to state agencies and possibly to a jury," Gerson says.
Apply progressive discipline in which employees are given oral warnings, written warnings, suspension and ultimately termination. Be consistent in applying this discipline in similar situations.
Maintain paperwork
Whatever the legitimate reason for laying someone off, you must have paperwork that backs up your action. "Successfully defending a lawsuit depends on how much documentation we have and how good it is," James says.
If you have used performance as your criterion, then you must be able to present documentation that supports your assessment of performance. And the documentation should show a history of poor performance and warnings. The individual should not be finding out about a performance problem on the day of termination. Says James: "Juries often ask, 'Was this the first time the person was told of a performance problem?'"
Tie severance packages to release
Some businesses are offering enhanced severance packages in exchange for documents releasing them from liability. "This is now a fairly common practice, especially when businesses downsize,"says John Myers, chair of the labor and employment department at Eckert Seamans Cherin & Mellott in Pittsburgh, Pa. "Although the documents have been challenged legally, they do hold up in court." Myers cautions, though, that severance agreements for those over 40 must conform to the Older Workers Benefit Protection Act (OWBPA). "There are provisions you need to include for a severance agreement to avoid federal age discrimination claims," he says.
Treat people with sensitivity
People will be less likely to sue if you treat them well during the termination process. This means holding a one-on-one conference during which the reasons for the termination are discussed. It also means going out of your way to help the terminated worker find other work. "Help people write résumés," James suggests. And volunteer to provide terminated workers with letters that describe their performance and inform potential employers of the reasons for termination.
People remember the last thing that is said to them longer than anything else. "Discharged employees often go to lawyers because something in the circumstances of their termination made them angry or seemed unfair," says Myers. "Treat the employee with dignity. I also counsel to give the employee a complete explanation as to why you are terminating, as opposed to being vague and elusive. This will help them understand why you are doing what you have done, and reduce the likelihood of going to court."
Indeed, attorneys suggest going the extra mile and taking a proactive stance in helping employees to move on. Consider arranging for outplacement. This helps people focus on getting on with their lives. People who are unemployed are more likely to file a lawsuit, because their focus is still on what happened and they have the time.
Whatever the circumstances of the discharge, keep the details confidential. "Avoid making general comments as to why a person is being terminated," says Winger. "Keep it between the employee and the company." This will avoid any charges of defamation by departed workers. Rehearse exactly what you will say during the termination session. Then keep to the program.
The guidance in this article should help you formulate policies that keep your business out of trouble when it comes time to fire a staff member. "You want to make sure you have some coherent plan,and are not just selecting employees on an 'ad hoc' basis," Myers says. Base your terminations on quantifiable standards such as length of seniority and performance. And have paperwork that backs up your assessments. "The more impersonal the selection process, the less risk of getting hit with a judgment," he says.
Two Suits
Although this article combines them, there are really two types of lawsuits that discharged employees may bring.
Wrongful discharge lawsuits can succeed if the employee can show you violated the terms of a written or oral contract, if you violated public policy by firing the employee for a protected act such as jury service, or for other specific reasons designated by state law.
Discrimination lawsuits are far more common—and more costly, because losing employers are subject to huge punitive damages. Both federal and state law outlaw discrimination for age, sex, race, religion, national origin and disability.