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How to Break Up With An Employee: 10 Tips for Avoiding Claims and Liability

As with other types of relationships, breaking up with an employee is seldom easy. And employee terminations result in more lawsuits than any other employment action. Employers should keep the following 10 tips in mind when handling employee terminations in order to reduce the risk of legal claims and liability.

1. Avoid surprise. It’s best to give an employee prior notice that his or her misconduct or continuing poor performance may result in termination. Management also should ensure that performance evaluations are candid and accurate. Discharging an employee for poor performance is made more difficult when the employee has received inconsistent ratings of meets or exceeds expectations on past reviews.

2. Investigate. If discharging for misconduct, be certain that there was a competent investigation of the employee’s conduct. Give the employee an opportunity to explain his or her side of the story. Document any admissions by the employee. If witnesses are identified during the investigation, speak to them about what they saw and heard.

3. Be Honest. Determine the precise reason why the employee is being discharged. When a termination decision is challenged as unlawful, the employer must be able to articulate a legitimate business reason for its actions. An employee’s wrongful termination lawsuit often will turn on his or her ability to show that the reason given by the employer is untrue. When an employer says one thing to the employee at the time of termination, even if only to spare hurt feelings, and then something else later in court, the employer’s defense may be severely impaired.

4. Be Fair. Consider the appearance of unfairness and how a third party will judge the employer’s actions. Is discharge clearly warranted for the employee’s misconduct or poor performance? Are there any mitigating circumstances? How have other employees been treated in similar situations?

5. Follow Procedure. Review any employment agreements, offer letters, and applicable policies to determine whether the employer has complied with any requirements for termination. Previously negotiated employment agreements may determine, for example, whether the employee must receive severance pay and whether a post-termination non-competition restriction is enforceable based on the circumstances of the discharge.

6. Assess Legal Risks. Assess whether the decision to discharge is vulnerable to legal challenge. Is the employee a member of a protected class (e.g., sexual orientation, age 40 or older)? Has he or she engaged recently in legally protected activity (e.g., taken medical leave, filed a complaint of discrimination or harassment)? Has the employee objected to doing something because of legal or ethical concerns?

7. Plan the Meeting. Plan the termination meeting carefully. Decide who will be present and where, when, and by what means the meeting will be conducted? Be careful to not cause unnecessary embarrassment to the employee. In the meeting, explain the reason(s) for the discharge in a direct, concise, and respectful manner and be prepared to discuss the employee’s benefits, any accrued vacation pay, group insurance continuation, and the employer’s position on unemployment benefit eligibility. If severance pay or other special termination benefits are being offered, try to move the discussion quickly to describing those benefits. Consider preparing a memorandum documenting what was said in the meeting. Try to keep matters surrounding the discharge as confidential as possible to reduce the risk of a defamation claim. In advance of the meeting, take all appropriate security measures to protect co-workers if there are safety concerns, and to protect the employer’s business interests (e.g., terminating computer access).

8. Pay Final Wages. Provide the employee with a final paycheck on the day of termination. The Massachusetts Payment of Wages Act requires that discharged employees be paid their final wages on the date of discharge, including pay for all accrued and unused vacation time and commissions (if such commissions are due and payable under the commission plan on the date of discharge). Any late payment will result in liability for three times the unpaid amount. If final payment cannot be made on the date of termination, an employer should suspend the employee or place the employee on administrative leave until final payment can be arranged. Employers also should not make any irregular deductions without careful consideration of the potential legal ramifications.

9. Use Separation Agreements Carefully. Separation agreements are not “one-size-fits-all.” They must be drafted carefully to be enforceable. If they are not, the former employee may get to keep the severance pay but also have the right to sue the company. In addition, releases of age claims under the federal Age Discrimination in Employment Act must contain specific provisions, such as a 21-day consideration period and a 7-day revocation period. Omitting these and other provisions may mean that the release does not waive age claims under federal law. Employers also should be aware that, in situations involving the termination of two or more employees, additional special rules apply to release age discrimination claims. Many states now also restrict the scope of confidentiality restrictions in separation agreements.

10. Provide Required Notices. Coordinate with insurance and other benefit providers to ensure that the employee receives notice of, for example, his or her rights regarding health insurance continuation under federal law (COBRA) or state law. State law may require that employers provide terminated employees with a notice from the applicable state unemployment agency concerning how to file for unemployment benefits.

Taking the steps outlined above will help employers to prevent “bad break-ups” with employees and avoid the mistakes that so often lead to employee claims.

For more information, please contact Scott Connolly or another member of Verrill’s Employment and Labor Practice Group.