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Pitfalls to avoid in employee termination

November 15, 2010

By John Boggs, Esq.

My business is defending car dealerships against employment-related complaints, and I also serve as legal counsel to the California New-Car Dealers Association. In the last six months the volume of employment cases coming to my office has increased 300 percent, which is terrible news for dealers.

Increased Unemployment = More Employee Lawsuits. With unemployment at the highest rate since 1983, the number of lawsuits filed by terminated employees is at an all-time high. Just Google the phrase "how to sue when laid off," and you’ll find over half a million articles.

The U.S. Equal Employment Opportunity Commission reported a 15 percent increase in the number of bias charges filed with the agency in 2008, on top of an 11 percent jump during the two previous years. Even if you successfully defend your case, you still lose.

In my experience, legal fees incurred by a dealership for a successful defense against a single claim bought by an employee are minimally between $75,000 and $125,000, let alone a judgment which typically exceeds $500,000 for the settlement.

Actions to take before terminating an employee

Many employees look upon a legal settlement for a payday at a time when a new job is hard to find. While you can’t prevent employee lawsuits, the actions that you take prior to employee termination can have a major impact on whether or not you win the case in court, or on any settlement negotiated outside of court.

Here a several pitfalls to avoid in employee termination:

1. Hiring a high-risk employee

Start with the basics: Drug, background and reference checks are designed to protect companies from bringing problem employees into the workplace. While most companies now perform these checks, it’s amazing how frequently new employees are hired before all of the results are confirmed and approved.

2. Using out-of-date, noncompliant employee handbooks, policies

Here’s a quick way to increase your liability risk: Exhibit A in the courtroom is your company’s handbook, with a policy that is not in compliance with the prevailing state or federal laws.

How can a company stay in sync with a steady stream of changes in employment law? In 2008 alone, significant changes were made to the Americans with Disabilities Act, the Family and Medical Leave Act, and new military leave requirements. Any breach in corporate compliance could open the door to potential employee legal action.

It’s a daunting task to stay up-to-date, even with Human Resources staff attending training and continuing education classes. Policies and handbook changes need to be triggered by changes in the law, not "when there is time" or on a once-a-year refresh.

3. Vague or missing job descriptions

If you terminate someone for nonperformance, the court will look to the job description as the standard against which the employee’s work should be measured.

Be honest: Does your organization have current job descriptions for all employees? Do the job descriptions clearly specify, in detail, the responsibilities, essential job functions, and reporting relationship?

You can expect a plaintiff’s attorney to cast a wide net in order to demonstrate discrimination against the employee. Allegations of gender or racial discrimination and charges of retaliation make up the two biggest categories of employee complaints to the EEOC. When job descriptions are well drafted for all employees, a company can demonstrate consistent expectations among all employees.

4. Performance reviews that avoid difficult conversations

A performance review is your company’s official statement on how satisfactorily an employee performs his or her required duties. If an employee is terminated for performance reasons, there had better be a history of performance reviews, or at the least counseling, that reflect poor performance.

A review full of "happy talk" that misses fact-based observations of substandard performance will be a gold mine for your terminated employee in a courtroom.

5. Botched termination

In the past, employers often tried to "buy off" employees who were being terminated by essentially swapping a sweet severance package for the former employee’s signature on an agreement not to sue. This is often not possible economically because of tight financial conditions of companies. It also is compounded when large numbers of employees are laid off at one time.

There are many legal considerations to employee termination; the first consideration is human. How a termination is handled on a personal level can make a huge difference in whether the former employee files a lawsuit. Treat employees with fairness and dignity during the termination process, and they’ll be less likely to "get even" with the company later.

Common lawsuits filed by terminated employees are based on accusations of:

• Discrimination against a protected class, such as age, race or gender;
• Underpayment of wages and benefits; and
• Inadequate warning that a position was about to be eliminated.

Don’t breath a sigh of relief too soon after a termination. The EEOC guidelines allow from 180 days to 300 days for a laid-off worker to file a grievance; many state laws have a window of one year or more.