By Katie Zemtseff, Journal Staff Reporter, Seattle Daily Journal of Commerce
Imagine terminating an employee in the best way possible: you call the person into your office, have a one-on-one discussion about performance and they leave later in the day without a fight.
Sounds pretty harmless, right? Wrong. According to lawyers at Stanislaw Ashbaugh, you just exposed your business to a hefty lawsuit that could cost many thousands of dollars.
Stanislaw Ashbaugh says there is a right way and a wrong way to terminate an employee. David Ashbaugh, partner and chair of the Commercial Litigation Group, and Jenny Faubion, a lawyer with the firm, discussed different approaches during a recent Webinar offered by the AGC.
What was wrong with the situation above? The employer should have had another person in the office during the termination, taking notes. This person would be a witness if the matter ended up in court. After the firing, the employee should have been escorted out of the building so they didn't have time to erase electronic documents.
It's unpleasant but Ashbaugh said employers must think of terminations strategically and treat every one as if it could end up in court some day. “There can be a lot of pitfalls that you have to be aware of that really aren't obvious.”
Firing pitfalls
Claims can be brought against an employer for wrongful discharge, discrimination, breach of contract, intentional or unintentional infliction of emotional distress, defamation, misrepresentation and negligent hiring.
Faubion said the average cost of settling with a former employee is between $400,000 and $500,000, she said, not counting a company's legal charges. The average amount a plaintiff can win at trial is between $500,000 and $1.5 million, she said, because the employer owes back pay from the date of termination, front pay until the date of probable retirement, the employee's taxes on that money and the employee's attorney costs.
Terminating someone, Ashbaugh said, can be pricey.
“On the one hand, you terminate people so that you can increase your profits. On the other hand, if you don't terminate them properly, you end up destroying your profits.”
No longer can an employer fire an employee at any time. Many employers think they are protected because Washington is an “at-will state,” meaning employers can fire people when they want to, absent a contract. But Ashbaugh said legally, numerous exceptions have weakened that provision.
Exceptions include people who are part of a protected class or do protected activities; people involved in collective bargaining agreements; and circumstances related to an employee handbook or personnel policies.
Faubion said an employer may not discipline, treat differently or terminate an employee because of their “protected class.” In Washington, these include age, gender, sex, pregnancy, families with children, sexual orientation, political ideology, disability, race, national origin, ethnicity or being a veteran. To prove discrimination in court, all an employee needs to do to is show his status as a protected class was a factor in the termination. Juries, she said, are being generally sympathetic to employees in these cases.
If an employee handbook or policy says someone can only be terminated for “just cause,” this creates a higher standard. It means someone can only be terminated for a strong reason that is supported by substantial evidence.
Steps to take
If you have decided to terminate an employee, there are a number of steps to take. First, go over all notes relating to the person and review the situation.
“Even though it's kindergarten stuff, sometimes the basics are the most important,” Ashbaugh said. “I guarantee you that there are people that don't do this.”
In court, the reasons cited at a termination are sometimes the only things a jury will consider in deciding whether someone was terminated for good cause. An employer needs to have sufficient evidence that the person has not done the job or has acted inappropriately. Information discovered after a termination is often inadmissible.
Before termination, Ashbaugh suggests gathering all e-mails and documents into one file so someone can review it and make a decision about whether termination is the right option. Relevant letters from people inside or outside the company should be included in the file.
Company reviews should accurately reflect a person's work or identify problem areas. Often, he said, it seems like there is no reason to fire a person judging by the documents. This can be confusing during a court case. During litigation, lawyers seize on good performance reviews.
Companies also must document disciplinary actions. After such an action, Faubion said the employer needs to write a short note, sign it, date it and stick it in a file. “You need to be consistent about documenting, and in treating people equally.”
To ensure equal treatment, it helps to have a single person review terminations at the company. That way, if there is a court case, there is a single reviewer of information.
After a termination, escort the employee out of the building. Ashbaugh said the employer also should retrieve any electronic devices such as PDA's and laptops. Companies also need to back up electronic files regularly, at least every month. If possible, back up files the day before an employee is fired.
If an employee is terminated, be careful about writing letters of recommendation. Positive letters can be used during a court case. If there is any inkling that a termination could be a problem, contact your lawyer before going through with it.
Ashbaugh said it may be impossible to prevent a claim, even if you do everything right. But being careful should reduce the number of lawyers who are willing to take on a case.
Layoffs
Layoffs are subject to different rules. For example, Faubion said companies larger than 100 employees must give 60 days notice before mass layoffs or before shutting down a plant. When they do layoffs, large companies should try to use objective criteria such as laying off people based on the number of years employees have been at the company, or getting rid of an entire division. “Objectivity helps insulate their decisions.”
But even with layoffs Ashbaugh said following his advice for terminating employees can be useful. If your internal warning signals are going off regarding an employee, follow the above advice and be careful, he said.
“The truth is, we all live in a fairly litigious society (and) we're in an economy that is very, very tough right now,” he said. “Some people will maybe see it as an opportunity.”
Seven Steps
Here are seven steps to take in terminating an employee:
- Notice. Put an employee on notice if he or she does something that could end in a termination. Without a notice, be sure their actions are unacceptable as defined by an employee handbook or through training.
- Due process. When considering a termination, follow procedures in your employee handbook and collect legal evidence regarding the employee's actions.
- Investigation. Investigate the reasons why someone should be fired.
- Equal treatment. Make sure everyone in a company is treated equally.
- Documentation. Document both before and after a termination.
- Preserve electronic evidence. Make sure electronic evidence is not erased by employee.
- Severance packages and termination agreements. Talk with your attorney about setting these up. Do not create them without guidance.