Proper employee termination policies help reduce employer’s legal risks 

How to prevent wrongful termination lawsuits

The best way to escape a lawsuit it to avoid its inception. Implementing and following proper termination practices minimizes the risk of encountering a wrongful termination claim. Before initiating a dismissal process, employers must understand all applicable federal and state employee termination laws and policy requirements. To protect confidentiality, only include critical individuals in discussions.

Prepare for termination 

Before terminating an employee, employers should:

• Review personnel procedures. All staff members must be treated equitably. To prevent unequal treatment, employers must implement and follow standard company policies. Even a hint of favoritism or inequity increases the risk of a wrongful termination action. Include uniform company policies in the employee handbook that’s distributed during the new employee onboarding process.
• Determine rights and obligations. Review all documents pertaining to both party’s rights and obligations. Examples of employer rights are protection of confidential information and trade secrets. Employee rights may include entitlement to certain compensation and benefits, such as:
  • Health insurance
  • Pension plans
  • Vesting commitments
  • Wage payouts
  • Earned incentives (bonus plans, stock options, vesting, etc.)
  • Accrued vacation and sick day allowances 

• Select the worker’s last day. Employers must consider any minimum notice periods required under employer policy or practice, employment agreements, or a state-specific Worker Adjustment and Retraining Notification (WARN) Act. 
• Develop a transition plan. While employers often wish to retain a staff member through the completion of a specific project or transition period, the litigation risk posed by a terminated employee’s presence must always be considered.

Document performance issues and termination activities 

Documenting dismissal activities helps employers defend against discrimination, wrongful termination, or other employment-related claims. Nothing beats a paper trail! This paper trail includes personnel records that set forth:

• Performance inadequacies. Documenting performance concerns dramatically improves the odds of showing legal reasons for dismissal. Always include this information in the performance reviews. 
• Discipline concerns. Disciplinary decisions must be made in writing. Inadequate documentation creates suspicion that an illegal practice, like discrimination or retaliation is the actual basis behind discipline or termination. Always print or digitally save evidence of electronically committed infractions. If an employee is terminated for violating one or more of the employer’s policies, collect the relevant policies, communications, and evidence of violation. Also include relevant excerpts from the employee handbook and other policy documents. 
• Performance Improvement Plan (PIP). PIPs include examples of poor performance, the employer’s expectations, a description of how the team member can achieve improved results, the consequences of failure to improve, support resources available, and how the employee’s progress will be monitored. 
• Formal separation agreement. This agreement includes a description of how and under what circumstances the worker was terminated. 

All personnel issues must be documented and acknowledged via signature. 

Practical Law has a very helpful Departing Employee Checklist covering legal issues to consider (e.g. exit interviews, severance considerations, protection of confidential information and trade secrets) when an employment relationship comes to either a voluntary or involuntary end.

Review and adhere to federal and state document retention requirements

Various federal and state laws govern the retention of personnel records, including information relating to personnel actions such as employee layoffs and terminations. Corporate document retention policies must comply with laws and regulations such as:

• Title VII of the Civil Rights Act (Title VII)
• The Americans with Disabilities Act (ADA)
• The Age Discrimination in Employment Act of (ADEA)
• Applicable state statutes
• Federal contractor requirements 

Include only relevant parties in the termination process

Only provide termination information to individuals/departments such as:

• Payroll employees. These individuals need information relevant to the calculation of the former staff member’s final paycheck or any incentive payout.
• Human resources (HR) department. The department requires data to determine when the individual’s group health plan or other coverage will stop. 
• Information technology (IT) department. IT employees need clearance to access the former employee’s electronic devices (including laptops, phones, etc.) to disable online access.

A breach of confidentiality can open a company up to powerful wrongful termination litigation. Be sure to keep all information relating to the end of employment confidential by keeping documents in a secure location or password-protected electronic file. The information should only be available to individuals with a legitimate business reason for access. 

Meticulously following the above practices is all for naught if employers violate federal, state, or local employment termination laws. 

Applicable employment termination laws and contractual obligations

While at-will employment is the norm in the U.S., formal rules governing termination still apply. The specific reasons cannot violate anti-discrimination laws or other legal limits when discharging employees. To defend post-termination legal claims, point to objective, non-discriminatory and non-retaliatory basis for the end of employment.

Former employees frequently file lawsuits claiming termination was related to their protected status, as opposed to poor performance. Federal and state law prohibits employers from firing members of a protected class for their legally protected traits. Examples of protected considerations include age, color, country of origin, disability, sex (including gender), race, religion, and genetic information. Claims alleging retaliation often form the basis for wrongful termination lawsuits. 

That does not mean protected individuals cannot be terminated, but it does mean employers great care must be taken to ensure these individuals are not being treated differently than their team members. Always construe potentially protected conduct broadly. 

Federal employment statutes 

No single federal statute governs an employer’s obligation to avoid improper termination practices. Discharging an employee in violation of the following federal laws creates extreme legal exposure. 

• Discrimination. Title VII prohibits employers from firing an employee for discriminatory reasons, including age, color, country of origin, disability, sex (including pregnancy, gender identity, and sexual orientation), race, religion, and genetic information. Negligence is not a defense to a discriminatory firing. An employer may be held liable for negligence under Title VII if the employer fires an employee based on a non-supervisory coworker’s discriminatory actions (ex. coworker maligns the individual with the intent to cause the individual’s termination). 
• Retaliation. Retaliation against an employee for engaging in a protected activity - such as filing a wage discrimination claim, making a request for a reasonable accommodation, or reporting a superior’s improper conduct is likely indefensible in court. 
• Whistleblower. Under the Whistleblower Protection Act (WPA), whistleblowing is a protected activity. Adverse employment actions taken against whistleblowers (including termination, demotion, reduction of hours, reassignment, or relocation) opens employers up to a lawsuit they will most likely lose. 
• Benefits. The Employee Retirement Income Security Act (ERISA) prohibits employers from terminating employees based on their use of benefits. 
• Medical and family leave. Terminating an employee after they utilized the Family and Medical Leave Act (FMLA) can be viewed as improper. Employers who terminate individuals who have utilized FMLA provisions must demonstrate that the discharge was unrelated to the leave. 
• Criminal history. The Equal Employment Opportunity Commission (EEOC) has issued guidelines on the use of criminal history in employment decisions. Criminal history inquiries and subsequent termination decisions pose a risk of creating disparate treatment discrimination claims. 

State and local employment laws 

State and local employment laws may create even broader employee protections than federal laws. Before engaging in discharge decisions, employers should consult their legal counsel regarding state-specific laws, such as: 

• Anti-discrimination, anti-retaliation, or civil rights laws
• Workers’ compensation laws
• Analogues to federal laws governing the employment relationship
• Employment leave statutes
• Whistleblower protection laws
• WARN act provisions

Employment contract 

The existence of an express or implied contract that limits the methods or reasons for termination changes the termination calculus. 

When an individual files a breach of employment contract claim, the employer can contest the breach accusation or attempt to justify or excuse the alleged breach. As most U.S. workers are at-will employees, this type of claim is not exceedingly prevalent. 

Integrity is as important as following the law. Employers who are open and honest with their employees experience less legal strife. 

Final steps in a smooth, non-litigious termination process 

Communication is key! Not only must employees be informed of termination decisions, but it is also important to follow-up after the individual is discharged. Well-informed, respected individuals are less likely to file wrongful termination claims. 

The termination meeting 

The managers and supervisors involved in termination meetings should coordinate with the employer’s legal, HR, and other appropriate departments to craft a clear and concise message. Drafting talking points and conducting a mock exit interview helps improve the process. Communicate all decisions expeditiously. 

Relevant documentation presented at a dismissal meeting includes a severance package agreement, a letter outlining any post-employment obligations, and a termination letter. Practical Law offers a helpful termination letter template with important explanations and drafting tips.

Exercise caution when responding to questions about the employee’s discharge during the meetings. Never be dismissive or flippant when answering the individual’s questions. To support an amicable departure, provide contact information for the state’s unemployment agency (if applicable), unemployment insurance, counseling services through any employee assistance programs, COBRA information, and job placement services.

Waivers and releases

Employers who believe a former employee may file a discrimination, harassment, or retaliation lawsuit can try to insulate themselves against litigation risk by asking departing staffers to sign a waiver and release of claims in exchange for something of value, e.g. severance pay, protection from termination. 

Termination agreements delineate mutually agreed on terms of separation. Such agreements help shield employers from retaliatory claims and other types of wrongful termination lawsuits. Practical Law’s termination agreement template provides a generic sample agreement that guides employers through topics such as rights and obligations, mutual release of claims, representations and warranties, indemnification provisions, and confidentiality requirements. It also includes other important drafting tips. 

Employee follow-up

Do not immediately write off a terminated employee. Following up after the discharge helps create corporate goodwill and opens the door for discussions about lingering questions. These types of discussions go a long way to prevent the filing of knee-jerk lawsuits. 

Even the most methodical termination process will splinter if the discharged team member can show a discriminatory pretext. 

How to protect your organization against legal action

Wrongful termination claims are filed more frequently than you might think. Even claims entirely devoid of merit result in an expensive, drawn-out process that can damage your company’s reputation and affect the morale of existing employees. 

To protect your organization from retaliatory employee termination claims, get familiar with employment laws. Also, thoroughly document all performance issues, maintain a clear anti-retaliation policy, conduct detailed investigations of alleged wrongdoing, provide managers with disciplinary procedure training, and always consistently apply employment policies. Basing termination decisions squarely on legitimate business reasons eliminates any perception of retaliation. 

If a performance-related discharge or employee layoffs are unavoidable, Practical Law’s procedural checklist on employee termination will alert you to the key business and legal issues to consider. Remember, federal and state employment law requirements must be fastidiously followed to avoid landing in legal hot water. However, should you see potential legal battles on the horizon, review the Practical Law checklist on how to prevent and respond to retaliation complaints for practical tips on drafting effective policies, conducting internal investigations, and responding to internal retaliation complaints. 

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