Employee Termination: Navigating the Ordeal

Terminating an employee is one aspect of business ownership and management that is never fun for anyone. It is one of the most challenging and emotional tasks an employer can face, and it can affect the morale of remaining staff—positively or negatively. Ending the employment relationship the wrong way can lead to significant problems for the organization. A well–handled termination process reduces legal issues, preserves the dignity of the departing employee, and maintains a positive work environment for others.

A termination should be clear and sensitive, which requires careful planning. Employers need a comprehensive and easy–to–follow process for clarity, smoothness, and to limit the organization's legal risk.

The process leading up to an employee's termination should be systematic and intentional. Firing an employee can be very emotional for everyone involved, so make sure termination is the very last step in a fair and thoughtful process. When an employee is finally let go, it should not come as a surprise to the employee. Below are steps employers should take leading up to the termination talk, how to prepare for a termination; and finally, how to carry out the termination in a professional and kind way.

Evaluating the employment relationship

1. Document everything.

Document all information that may be related to an employee's termination. While this is time–consuming, it is important to have a record of all the relevant facts in place before a termination occurs. This record may be needed as evidence for the cause for dismissal. Documentation should include performance reviews, reports of misconduct, attendance records, and any previous warnings issued.

2. Communicate expectations clearly.

Clearly communicate job expectations to an under–performing employee. If there is a written job description, make sure the employee has it and knows exactly what is expected of him/her in that role. If there is not a written job description, write one, and make sure the employee reads it. Don't leave room for any assumptions when it comes to job responsibility.

Communicate job expectations to the employee. Employees may assume that everything is fine unless they are warned. Communication helps to crystallize performance issues, as opposed to misunderstandings about expectations. It also makes a necessary termination defensible.

3. Provide feedback.

Once job expectations are clear and the employee still fails to meet them, the employer should provide that feedback to the employee. Create a process for performance review and a written disciplinary process. Feedback for the employee can be done formally or informally but should happen as soon as performance becomes an issue. This gives notice to the employee that the current level of job production is not satisfactory and offers the the opportunity to take corrective action—if the employee so desires.

It's important to make sure that optimistic or conflict–avoidant managers are not giving glowing performance reviews to an employee who is doing a subpar job. That is unfair to the employee and a great way to create risks to the organization.

4. Put an improvement plan in place.

Should an employee continue to fail to meet job expectations, the next step is to meet with the employee and put an improvement plan in place. An employer may choose to skip this step in some situations. Exceptions to using this step may occur if the employee has committed some serious violation, such as misuse of funds or significant sexual harassment, that calls for immediate termination once the offense is established. In normal situations, it's best to be deliberate and careful about providing opportunities for an employee to meet job expectations. This improvement plan should be in writing and detailed. It should identify the problem and set out specific goals. This plan should also clearly set out the consequences for failure to improve, namely termination.

Normally, an organization should follow its own internal procedure. If employees are not given a warning or second chance, that could appear discriminatory—unless the conduct is egregious.

5. Decide whether to terminate.

In most states, most employees are "employees at–will," meaning that they can be fired for any legal reason, or even no reason—but not for a discriminatory reason. A termination must be supported by a legitimate, nondiscriminatory reason. A legitimate reason for firing an employee—such as poor performance or violation of company rules—makes it less likely that the organization will be at risk of liability in an employment discrimination lawsuit. If the employee has a contract, there must be a legitimate reason for ending the contract prematurely. In both cases, it may be wise to consult with legal counsel before taking action.

Another point to consider is whether the employee has filed grievances or complaints (internally or externally). It is common for employees who sense that their days may be numbered to insulate themselves by filing a complaint, and of course, a complaint could always be genuine, even from a poor performer. If so, proceed with caution. Under state and federal employment discrimination laws, it is improper to terminate an employee as retaliation for filing a complaint of discrimination. If a termination comes quickly after a complaint is filed, it tends to support the employee's argument of retaliation.

An employee who files a complaint is not completely insulated from discipline or termination. It becomes even more important to document the legitimate, non–discriminatory, non–retaliatory reasons for termination. An employer who needs to fire an employee who has just complained about her supervisor's improper sexual advances, for instance, should proceed with caution and seek legal counsel.

Once an employer has made the decision to terminate an employee, specific steps should be followed to ensure the transition goes as smoothly as possible, and the organization is protected. Employers sometimes delay the decision to terminate far too long, creating additional chaos within the organization as well as legal liability. On the other hand, sometimes they have had all they can stand, and terminate impulsively without enough preparation. And sometimes they do both.

Prepare for the termination.

1. Make sure the employee file has all appropriate documentation.

If an employee is being terminated for poor performance, make sure that the employee file includes all performance reviews, any improvement plans that were put in place, and evidence of that employee's failure to meet clearly communicated expectations. If termination is being based on a single serious event, such as a moral failure, document that event. If there has been an investigation, include a summary document in the personnel file, but file the Master Report in a separate, confidential file. If it is a layoff, reasons for that should be documented as well. If this evidence does not exist, consider whether the termination may be premature.

Also, be aware that federal, state, and local laws may require employers to retain records beyond the length of employment. Personnel files should be maintained according to the organization's document retention policy, which should be based on these laws. For example, I–9 forms must be kept for three years from hire date, or one year following termination, whichever is later. Some jurisdictions require keeping records after an involuntary termination. In addition, records related to a discrimination claim should be kept until the claim is fully resolved. Some records may relate to other employees and should be kept for that reason. Records related to child safeguarding, including violations of child safeguarding policies, should be kept indefinitely.

2. Determine pay and benefits due to the employee.

Determine what pay and benefits are due to the employee and add those to the employee's last check. Prepare a letter for the employee noting the status of benefits and availability of benefits. Does the employee have any accrued, but unused vacation or sick days? If so, depending on your policy and jurisdiction, the employee may be compensated for the monetary value of those days.

Comply with federal and state law for paying final wages. This can vary from state to state. For a termination, Colorado requires wages to be paid immediately (within a business day), and California requires wages to be paid immediately on the spot, while Texas gives six days.

Consider whether accrued but unused PTO (vacation) must be paid out in the final paycheck. In Colorado, the organization can decide whether to offer PTO, but once it's earned, it must be paid out. Usually, sick leave doesn't have to be paid out, but that may change if it's part of the general PTO bank.

In addition to accrued leave, review whether the employee is enrolled in group health insurance sponsored by the organization. Separation may entitle the employee to health insurance continuation (commonly known as "COBRA"), which triggers certain notice requirements. Work with the health insurance provider to ensure all necessary COBRA notifications are provided.

If the employee is a participant in a company retirement plan, be sure to prepare information regarding options after leaving, such as cashing out, rolling over the funds, or leaving the plan as is. Addressing these benefits up front will help ensure a smooth transition and reduce confusion for both the employee and the organization.

3. Prepare required state forms and notices for the departing employee.

Depending on location, certain forms and notices may be required. In Colorado, there is a separation notice requirement. This form gives the employee information about unemployment insurance benefits and must be provided to all departing employees, including those who quit. While employees of nonprofits are often not eligible for unemployment benefits, it could not hurt to provide the form.[1] Depending on state law, the notice may go to the employee or to a state agency.

States may also require giving information to departing employees about various issues, from unemployment insurance to COBRA. The state Department of Labor website is a good place to check on required notices.

(If the employee is not eligible for unemployment insurance, as is often true with ministries, it will be kinder to let the employee know. Hopefully, this is a reminder of a previous notification, such as in the Employee Handbook. Also, many ministries offer some severance because there will be no unemployment insurance payments.)

4. Review any employee agreements proactively.

Employees may have signed agreements in the past. One example may be a non–compete agreement. Be aware that these are illegal in many places and occasionally criminal (such as in Colorado). Review it for current legality.

There might also be a confidentiality or non–disclosure agreement about company data and trade secrets, a non–solicitation agreement, or an intellectual property agreement. These should all be reviewed for legal issues and applicability.

If they could still be enforceable, but need to be modified, they can be referenced in any Severance Agreement, or separately modified and signed, or both.

5. Prepare a termination letter.

In terminating an employee, it's usually helpful to have a termination letter.

A termination letter should state the specific reasons for the termination in moderate detail (a paragraph or two), the effective date, and any severance package that the employee is being offered. It should also outline ongoing obligations, such as confidentiality agreements the employee may have signed, or benefits owed to the employee. This letter serves as the formal notice of termination.

If an employee is not sure why she is being fired, she "fills in the blanks" and usually comes up with a discriminatory reason, such as gender or age. A letter that politely but firmly states the reasons for termination helps the employee understand why it happened. She probably won't agree with the decision, but at least she will know the reasons. This may help her in future job performance. Even more important, if she goes to a plaintiff's counsel, the attorney will ask to see any documentation. In one sense, the letter is written to explain to her attorney what happened (and why a discrimination complaint would not be successful.)

6. Prepare a severance agreement.

A severance agreement typically has the employee waive all claims against the organization and reaffirm some other commitments in exchange for a severance payment. If the severance payment will be more than minimal, it's best to have a formal severance agreement and a waiver of claims. Be sure the severance agreement is legally current. There are some things that either cannot be said or have to be limited, such as non–disclosure agreements in Colorado.

The severance agreement is a good place to adopt or modify previous employee agreements.

7. Plan for return of company property.

When company property is not returned, can the employer hold back the final paycheck? Usually not. If the organization would like to take this approach, it's best to have written authorization up front (as a matter of routine), with a written agreement on how deductions will be calculated. Even with an agreement, the wage must not go below minimum wage for both exempt and non–exempt employees or erode earned overtime. Be sure to check state law on this, as some states control this tightly.

It's possible to tie some additional benefit, unearned bonus, or severance to return of company property. Whatever approach the organization takes, be prepared before the discussion with the employee.

A checklist signed by both parties can be a useful tool to track all items.

8. Evaluate the status of projects and responsibilities.

Be prepared to discuss with the departing employee the status of projects and any ongoing responsibilities or deadlines. If the departure is reasonably amicable, the employee may be willing to help with the transition, especially with a severance package in place. If not, the employer must have a plan to transition this work.

9. Evaluate any risk from the employee.

Consider whether the employee poses any risk during a termination. If there could be personal risk, it's wise to have extra personnel or even security present and available. If there may be risk to data or work product, notify IT to make sure nothing can be permanently deleted by the employee. It may even be prudent to cut the employee's access to important software simultaneously with the termination discussion.

However, an employee who is not hostile or otherwise a threat may be given a longer off–ramp and time to transition. Also, if an employee is not a threat, don't treat him like one. This is insulting and may create further problems.

10. Consider timing of termination.

Once a decision to terminate an employee has been made, it is time to give notice of termination to the employee. Consider appropriate timing, such as at the end of the workday or work week. If a proper process was followed before termination, it should not come as a surprise to the employee that he or she is being terminated. (Though sometimes it does anyway, because the employee cannot believe he will really be held accountable.) And for a neutral termination, such as a layoff, or an amicable parting, the employee may know well in advance.

Terminating the employee

1. Conduct a termination interview.

In the termination meeting, it is helpful to have two people present, such as a manager and the HR Director, to witness the meeting and make sure it stays professional.

The interview should be professional and kind. Acknowledge that the situation is hard for the employee, and let the employee express feelings, but avoid getting into an argument.

The employer can go over the different points discussed above. The HR representative will want to give the final check for salary, vacation or reimbursements, and explain ongoing and transitioning benefits and other details.

The employer should verify the current mailing address for the W–2 and any other correspondence and determine how the employee will update the employer of any changes of address within the year.

It is often hard for the departing employee to remember all these details, because the situation is unpleasant and often a shock. It is wise to give needed information in writing to be reviewed later.

If it is possible to structure the departure in a way that is supportive to the employee, such as allowing a resignation, this can help maintain a positive relationship. It may be possible to support the employee in finding a new situation.

Be sure to document the meeting, including the employee's responses and any agreements made.

2. Address all employee agreements with the employee.

Review previous employment agreements with the employee before he or she leaves. These could include a non–compete, confidentiality agreement, non–disclosure, non–solicitation, or intellectual property agreement.

As mentioned, some of these agreements may not be valid or may need to be modified (usually in accompaniment with a severance agreement). Discuss how each of these agreements, if signed by the employee, limit next steps for the terminated employee. If the agreement that the employee signed is no longer legally binding, it is best to be candid about that, so the employer doesn't infringe on the employee's legal rights.

Address any severance agreement that is being offered and how that might interact with other agreements. These points can also be covered in the termination letter.

3. Go over forms and notices.

Discuss with the employee all required forms and notices that have been prepared, as described above.

4. Discuss return of company property and cleaning out the office.

It's important for the employee to know what property should be returned. That list may include phones, computers, badges, books, keys, customer lists, credit cards, tools, safety equipment, uniforms, price lists, company files, company financial information, company manuals, company cars, or even software programs. Be sure to document all returned company property.

Also, the employee will need clean out his or her office and take personal property home. Approaches range from giving the employee time (and perhaps help) to clean out the same day, to setting up an appointment after hours or on the weekend, to escorting the person off the premises immediately, with the office contents to be boxed up and shipped later. Some departing employees may be given days, weeks, or even months of transition. The method chosen should reflect the degree of risk the employee presents to the organization, as well as practical transition needs. Treat the employee with as much dignity and courtesy as possible—it makes the transition easier for all. How the employee is told to leave the premises and whether the employee feels humiliated is one of the main points that can create resentment and even further legal action.

5. Discontinue employee access to building and property.

Collect all company keys from the employee and disconnect the employee from any apps. Alarm codes and entry codes should be changed if all employees use the same code.

6. Transition all access and data.

Employers will want to address all IT concerns. The end date for the employee's access to the company network is usually the same day the employee is terminated. Passwords should be changed so the employee has no further access to employer software.

Plan with IT how to evaluate whether all data and files have been properly saved by the employee. If they have not been, extensive additional work may be needed to save the files.

7. Conduct an exit interview.

If the employee will agree to participate in one, exit interviews are a good chance to hear about the employee’s work experience with the company. Exit interviews are usually set up later. An exit interview can provide insights into the employee's perspective and give constructive feedback to the organization. This information can improve organizational practices and reduce future terminations. It may also reveal other problems that need to be addressed. An exit interview should not be an argument, but a chance to listen to the employee.

8. Continue with transition.

Once saving the files has been addressed, the employee's work computer, work phone, or any other electronic work device should be wiped and reset. Transition all clients or accounts of the departing employee to a different employee. Phone lines and email accounts are typically kept active and monitored for at least 60 days past termination date to make sure no client information is lost in the transition. This period may be much longer in the case of employees with important client communications. After that period, shut down all employee accounts.

9. Prepare for unemployment or other claims.

The employer should be prepared for the possibility of some kind of legal claim. In most cases, employees will apply for unemployment benefits. If the termination was for cause, employers may want to dispute this. Employers must be prompt to respond to correspondence from the state unemployment agency. Employers may also want to monitor their account, because it's not unheard–of for the state to simply provide unemployment benefits without even contacting the employer. Also, be aware that states are apt to provide unemployment even in a termination–for–cause. Unless the activity is actually criminal, unemployment benefits are quite employee–friendly. Unless the employee's actions were egregious, the employer may not want to go further than a simple response to the agency.

The employer should also make sure the file is complete and saved, in case of some other action like a discrimination claim.

10. Notify key people of the employee's departure.

When an employee leaves, thoughtful notification can minimize disruption. The people who need to know that the employee is gone and who will step into the employee's place may include colleagues, clients, or vendors.

People need to know who will assume the employee's responsibilities and whom to contact with questions. Also, team members will need information about tools, documentation, or resources to cover the departing employee's work.

These messages should be considerate and positive, and should not share confidential details about why the employee is leaving.

Conclusion

With a good process, a termination goes more smoothly and is more dignified. Where possible, it's best not to burn bridges and to try to help an employee transition well. Good relationships with former employees and employers can be a great asset.

It is a good idea to consult with legal counsel if there are any potential problems with the termination, an employer is unsure about exactly what benefits are due to the employee, or to see if any particular federal or state laws apply to terminating this employee. If there is a severance agreement, legal counsel can also help with drafting and making sure it is current. While a termination is upsetting for everyone, kindness and generosity in the process can keep it from being humiliating and escalating further conflict.

[1] https://cdle.colorado.gov/sites/cdle/files/documents/Employer-Separation-Form-22-234-fillable.pdf

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Featured Image by Rebecca Sidebotham.