How To Reduce Liability Risks When Discharging Employees

The best way to reduce the liability risks associated with firing employees is to make sure that you hire good employees. But, even employers who screen very carefully during the hiring process will find themselves from time to time with employees they do not wish to retain. Here are some important things to keep in mind when deciding to let somebody go:

1. Employment at will is a myth. Although California law provides that employment is at will in the absence of a contrary agreement (see Labor Code section 2922), the reality is that you cannot fire someone for no reason. Because of the way the burden of proof is allocated in a lawsuit, a discharged employee generally need only show that he or she was performing competently in order to put the burden on the employer to show a legitimate reason for the discharge. We explained this in more detail a couple of years ago in a post entitled Layoffs Mean Lawsuits. When you decide to discharge somebody, make sure that you can articulate a good reason for doing so.
2. Document the reason before you discharge the employee. You are at a trial where a former employee testifies that she was fired a week after she complained about sexual harassment. The vice president of the department where she worked testifies that she had to let her go because everybody agreed that she was the worst employee they had ever hired. Cross-examination goes like this. "Q: Can you show me a single piece of paper that ever criticized the employee's performance? A: No, we don't do things that way." Is there much doubt about how the jury will vote? 
3. Evaluate employees regularly and tell them how to improve. Another trial. Same type of retaliation claim. The director of human resources testifies that the employee was let go because she was ten minutes or more late for work five times in the first six months that she worked at the company. Cross-examination goes like this: "Q: Was the employee ever written up for being late? A: No. Q: After the employee started work, did you ever tell her that she could be fired for being late? A: No, it's in the policy posted on the employee bulletin board--five lates means you can be fired. Q: Did you ever go over the policy with her? A: No, that's her responsibility. Q: Did it matter to you that she was late the fifth time because her son came down with the flu? A: No. The policy is the policy." How much better the case would be for the company if (1) the policy were in an employee handbook that the employee acknowledged having reviewed in writing, (2) the first time she was late, the employee's supervisor sat down with her and explained the importance of the policy and asked whether there was a reason she could not get to work on time, (3) the second time she was late, there was further counseling and a note in her personnel file, (4) the third time, she received a written warning, and (5) the fourth time she got a written final warning that the next late would result in termination.
4. Consider a severance agreement. Instead of just letting the employee go, you could offer something extra in return for a release of all liability -- another few weeks of pay, a couple of months extension on medical benefits. With such an agreement, you have an ironclad defense to any lawsuit the employee might try to pursue. This will not work every time. Sometimes, offering a severance package will get the employee wondering whether he or she might have a valuable claim that is worth a lot more, leading him or her to consult an attorney and file a lawsuit.