TERMINATION & OFF-BOARDING
"It's not as easy as "you're fired!" Terminating an employee is arguably one of the most difficult tasks human resource professionals and managers have to deal with. However, when you have done the leg work to document performance issues throughout the employee’s tenure with your company, you are likely to find the termination process less burdensome and proceed more smoothly and result in less wrongful termination claims.
The termination process (and steps to take), potential severance and separation agreements, unemployment benefits and WARN Act issues are all critical pieces to the termination and off-boarding process - which we expand upon below
Termination & offboarding
Employers often face claims by former employees that their employment was terminated for an unlawful reason. Whether or not they have merit, wrongful discharge claims can result in lengthy and expensive legal battles, adverse publicity and damaged morale in the remaining workforce.
This Note addresses key issues for employers to consider when terminating an employee. It also provides best practices to minimize claims of wrongful discharge by former employees and maximize employers' ability to defend against claims filed. Specifically, it provides guidelines on how employers can:
Establish legitimate reasons for termination.
Assess potential legal risk.
Create and maintain relevant documents, including policies and performance reviews.
Deliver the termination message appropriately.
Protect the employer's trade secrets and other legal and professional interests in the terminationprocess.
Planning for termination decisions helps employers justify their decision and defend against potential litigation. To do so, employers should:
Understand applicable employment-related law.
Develop and consistently apply appropriate policies, procedures and handbooks.
Document performance and disciplinary issues fully and objectively.
Understand Applicable Laws
The general practice and default rule for private employers in the US is at-will employment. Managers often mistakenly believe that at-will employment allows them to terminate anyone for any reason. However, this assumption ignores basic anti-discrimination laws and other legal limits on discharging employees. At the same time, employees protected by these laws are not insulated from termination on legitimate grounds (such as poor performance).
Although it is impossible to list every cause of action that might arise out of the termination, some of the most common grounds on which employers face litigation risks include termination:
Due to discrimination, retaliation, or harassment (for more information, or seeking to enforce related rights, including:
Title VII of the Civil Rights Act of 1964 (Title VII), prohibiting discrimination on the basis of race, color, sex (including amendments by the Pregnancy Discrimination Act and the Civil Rights Act of 1991), national origin, and religion;
Title I and Title V of the Americans with Disabilities Act (ADA), prohibiting discrimination on the basis of disability (including amendments by the Civil Rights Act of 1991 and the Americans with Disabilities Act Amendments Act (ADAAA));
Age Discrimination in Employment Act (ADEA), prohibiting discrimination on the basis of age (40 and over);
Genetic Information Nondiscrimination Act (GINA), prohibiting discrimination on the basis of genetic information;
Uniformed Services Employment and Reemployment Rights Act (USERRA), prohibiting discrimination on the basis of past, current or prospective military service;
Section 1981 of the Civil Rights Act of 1866 (Section 1981), prohibiting discrimination on the basis of race, color and ethnicity in the area of contracts; and
additional prohibitions enacted under state or local law (for examples of additional protected classes recognized under state or local law,
Because an employee seeks or takes protected leave, including:
Family and Medical Leave Act (FMLA), protecting covered employee rights to take up to 12 weeks of leave for most authorized medical and family medical care purposes (there are some exceptions, for example, 26 weeks for covered medical care of a family member serving in the military) (for more information on FLMA leave;
USERRA military leave (for more information on military leav;
workers' compensation leave (for more information on workers' compensation leave, ;
ADA disability leave; and
temporary or short-term disability leave on the basis of, for example, pregnancy.
In response to protected whistleblowing activities, including whistleblowing activities protected by:
Sarbanes-Oxley Act (SOX) and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act or DFA) prohibiting termination because of reporting covered corporate wrongdoing (for more information,
Occupational Safety and Health Act (OSH Act), prohibiting termination for exercising rights protected by federal health and safety law, including whistleblowing (for more information.
In response to union activities, as governed by the National Labor Relations Act (NLRA), prohibiting termination related to protected organizing or union activity
Because an employee sought to enforce wage rights, including those protected under the Fair Labor Standards Act (FLSA), prohibiting termination for exercising wage and hour rights (for more information.
That contravenes exceptions to at-will employment recognized in some states, including:
public policy exceptions, for example, termination because an employee refused to break the law or filed a claim for workers' compensation;
implied contracts exceptions, when an employer enters into an unwritten (and likely inadvertent) employment contract by making representations about the security of the job or pre-termination procedural requirements; and
covenant of good faith and fair dealing exception, recognized in a minority of states, that prohibit either bad faith, malice, or termination without just cause.
Termination can include voluntary resignation under extreme circumstances. Many employment laws, such as Title VII, interpret termination to include constructive discharge, meaning that the terms and conditions of the workplace were so intolerable that they made it impossible for the employee to remain with the employer.
There are additional protections specific to federal contractors. For more information on issues specific to federal contracting,
Develop and Consistently Apply Policies
Proper documentation and implementation of an employer's policies and procedures are central to an employer's success in avoiding or defending against wrongful discharge claims. Where wrongful behavior leads to an employee's termination, employers can often undercut an employee's burden to prove that he was fired because of unlawful conduct by using a clear and concise policy prohibiting the relevant behavior. For example,
IT Resources and Communications Systems and Social Media Policies help employers defend termination decisions based on inappropriate use of technology. For model policies, see our Forms section.
A Standards of Conduct Policy helps employers defend termination decisions related to inappropriate personal conduct.
An Anti-Harassment Policy helps employers defend against termination decisions based on an employee's engaging in harassment. For a model policy,
For additional policy examples, see Employee Handbook Checklist or our Premium Services for assistance in drafting a legally compliant handbook.
Obtain Employee Acknowledgment
Most employers have replaced hard copies of an employee handbook with electronic policies accessible on the employer's intranet. While there are sound reasons for doing so, this often fails to support the most important reason for the policies: to ensure that employees read and understand them. Companies with electronic handbooks should require each employee to sign and date a printed acknowledgment that he received, reviewed, and understood the handbook. Without this acknowledgement, an employee may be able to claim that he was unaware of the particular policy for which he was fired. For a sample stand-alone policy acknowledgment.
Apply Policies Consistently
Policies are only useful to employers if they are actually followed consistently. Employers that impose severe discipline on one employee for a specific infraction and little or no discipline on another employee for the same infraction increase their risk of litigation. Employees subject to inconsistent and unduly harsh consequences can allege that the employer followed the policy in a discriminatory manner or that the employer should not be believed when claiming that a particular practice was standard operating procedure.
Document Reasons for Termination
Court decisions favoring employees on wrongful termination claims are often based on a lack of documents showing lawful reasons for termination or a lack of objectivity in those documents. Employers regularly face challenges to their legal defense based on their shortcomings associated with documentation, as described below.
Failure to Create Documents
Employers commonly fail to effectively document the issues that may ultimately lead to termination, such as shortcomings in employee performance. Typically, juries are suspicious of a lack of relevant documents, which can indicate to them that discrimination or other unlawful motives are the actual basis for the employment decision. Documents are critically important to employers because their burden in a discrimination case is to offer a facially nondiscriminatory reason for its employment decision. An employer must be able to support its termination decision through:
Written performance evaluations.
Minutes of management meetings at which the terminated employee was discussed.
Disciplinary or poor attendance records (for a Checklist on employee discipline,
Demonstration of a clear violation of specific employer policies.
Other documentary evidence of the company's dissatisfaction with the employee.
Failure to Exercise Objectivity
Terminations should be documented in an objective and professional fashion. In a worst case scenario, performance reviews may be overtly discriminatory (for example, "employee is too old to grasp new technology"). More commonly, documents that include any of the following may undermine a company's defense in a wrongful termination case:
Speculation or assumptions.
Emotionally charged language.
The more an employer makes these documentation mistakes, the more likely a jury is to find the termination based on something other than lawful business-related motives.
Failure to Maintain Documents
Some employers may create a sufficient written record, but fail to maintain it. For example, employers that fail to keep records about attendance problems will have a more difficult time justifying a termination based on excessive absenteeism. Organized and properly maintained files bolster litigation defenses for lawful terminations.
Failure to Be Timely
Employers should not delay excessively before making and communicating a termination decision. If there is an extended delay between the problem behavior and the termination itself, a jury may be persuaded that the connection between that behavior and the termination decision is too tenuous. In that situation, an employee may be able to argue effectively that the true reason for termination is unlawful discrimination, retaliation, or other prohibited conduct. For an example of what can happen when the reasons for termination are not timely and appropriately documented,
Failure to Train Reviewers
Reviewers who are not aware of legal risks in termination may inadvertently subject the employer to litigation (for examples of litigation risks. All employees who review others should be made aware of legal risks and best practices to avoid them (see Sample Termination Checklist).
Failure to Conduct Adequate Internal Investigations
Although employers of at-will employees can terminate the employment relationship for any reason not otherwise prohibited by law, some termination decisions are made only after a more formalized internal investigation. For example, allegations of sexual harassment or criminal conduct generally require investigation. For a collection of resources to assist with internal investigations that may result in termination decisions.
Once an employer makes a decision to terminate an employee, notification should be prompt and appropriate to the circumstances. Employers should deliver the termination message in a private termination meeting, as further explained below. As a rule, there is no need to conduct an exit interview with an employee who is involuntarily terminated. Timely notice may help avoid mixed messages from the employer or unforeseen complications that may undermine the company's decision.
Ensure that employees on leave whose positions are eliminated are promptly notified of the termination and any related rights and benefits offered them. For information on the risks related to terminating employees on leave.
If you feel that there may be litigation risk, you may want to consider offering the employee a severance package in exchange for their promise not to sue your company. Any time you offer benefits (severance or other) to an employee in exchange for a release of claims, you MUST have the departing employee sign off on a Separation Agreement. If you pay the employee a severance and don’t secure their signature on a Separation Agreement, he or she could still file a lawsuit against your company; defeating the very purpose of offering the severance in the first place.
Use of a separation and release of claims agreement provides several benefits, including:
Minimizing the risk of litigation by the employee following separation.
Binding the employee to new post-termination restrictive covenants to which the employee was not previously bound.
Reminding the employee of continuing obligations under any existing restrictive covenants and having the employee re-acknowledge those obligations.
Separation and release of claims agreements can be used regardless of the reason for an employee's separation from employment, whether voluntary or involuntary. They can be used for single terminations or group terminations (such as a reduction in force). Separation agreements must meet certain specified requirements, however, when used with employees aged 40 or older to release claims under the federal Age Discrimination in Employment Act (ADEA). Employers must meet additional requirements when terminating these employees as part of a group termination program or offering an exit incentive to two or more employees.
Some claims under federal and state law cannot be released regardless of any benefit offered in exchange for the release. Other claims can only be released under particular circumstances. Make sure to seek the help of myHRcounsel's employment lawyers through our Premium Services to make sure you have a federal and state compliant agreement
The federal-state unemployment compensation (UC) program was established by the Social Security Act of 1935. Unemployment insurance (UI) benefits are designed to provide financial assistance to individuals who are out of work, generally through no fault of their own, for periods between jobs. The UC program is funded by taxing employers under federal and state law.
Together with state unemployment tax systems, the Federal Unemployment Tax Act (FUTA) provides funds for paying unemployment compensation to workers who have lost their jobs by taxing employers. Most employers pay both a federal and a state unemployment tax. Employers who pay UI-related state taxes are provided a credit towards the federal taxes paid under FUTA.
Other than services performed by workers contracted by the federal government and railroads, FUTA does not technically provide benefits to any other type of worker. A worker's right to UI benefits accrues under state law.
The UC program is a federal-state partnership based upon federal law, but administered by state employees under state law. Some states administer the program through their local department of labor while other states do so through other state departments. Because of this structure, the program is unique among the country's social insurance programs. The UC program is also unique in that it is almost totally funded by employer taxes. Only Alaska, New Jersey and Pennsylvania collect taxes from employees. For links to each state's UI agency and the applicable statutes and regulations.
FUTA sets forth certain basic requirements for the program. Each state then designs its own UC program within the structure of the federal requirements. There are no federal standards for benefits in terms of:
Duration of regular benefits.
This structure has resulted in a patchwork of UI laws that vary by state. This Practice Note addresses the most common issues and application of UI law within that patchwork in its most general terms. Employers and employees should consult their local UI laws to determine specific eligibility requirements under the applicable state law. For more information about how a UI claim is generally processed.
The following types of workers are covered under separate UI programs which are also beyond the scope of this Note:
Former civilian federal government employees.
UI benefits are intended to be a partial replacement of wages. Eligible claimants are generally entitled to 26 to 30 weeks of UI benefit payments that are based on a weekly benefit rate determined by each state. In periods of high unemployment, claimants may be eligible for extended benefits, which are funded by federal and state governments.
The weekly benefit rate is the amount payable for a week of total unemployment. On average, states replace about 50% of a claimant's lost wages up to a limit of the average weekly wage in the state. States rely on various formulas to calculate the weekly benefit rate. A specific analysis of these formulas is beyond the scope of this Note. The minimum and maximum weekly vary by state. For example, in New York, the maximum weekly benefit amount is $420, but in Florida it is $275.
Standard for Eligibility
To determine whether services performed by a worker are covered by the UI law, the following questions must be considered:
Were the services performed in an employer-employee relationship?
Were the services performed for an employer?
Were the services performed in employment?
Were wages paid for the services?
If the answer to all of the questions above is yes, then the services are likely covered by the UI law. In addition, the claimant must have sufficient earnings during a specific period of time to qualify for UI benefits (see Earnings During Base Period).
The state must also determine that the claimant's separation resulted through no fault of her own (determined under state law) and that she meets other eligibility requirements of state law. Some of these eligibility requirements include:
The claimant is ready, willing and able to work.
The claimant has met the waiting period (typically one week in most states).
The Worker Adjustment and Retraining Notification Act (WARN ACT) is a federal statute requiring covered employers to provide employees 60 days' advance notice before closing a plant or conducting a mass layoff. Covered employers that do not satisfy the WARN Act's requirements or qualify for an exception can be liable to affected employees for back pay and benefits. Some states have enacted their own versions of the federal WARN Act, often referred to as "mini-WARN Acts." If a union represents any portion of an employer's workforce, a collective bargaining agreement (CBA) may provide for additional notice or additional rights and remedies.
This Note provides an overview of the federal WARN Act. In particular, it considers:
Which employers are covered by the WARN Act.
Which events trigger the WARN Act's notification requirements..
The parties owed notice when the WARN Act is triggered.
The required content of notice to various parties under the WARN Act.
Exceptions to the notice requirements.
Substituting pay and benefits for notice.
Damages typically owed by employers who fail to comply with the WARN Act.
Employers are subject to the WARN Act when they are business enterprises employing either:
100 or more employees, excluding part-time employees (see below).
100 or more employees, including part-time employees, who collectively work at least 4,000 hours each week, excluding overtime.
Employees are classified as part-time if they have worked either:
An average of less than 20 hours each week in the shorter of:
the full period of employment; or
the most recent 90 days.
Less than six of the 12 months before the date on which notice is required.
The WARN Act's notification requirements are triggered by either a plant closing or a mass layoff.
A plant closing is a permanent or temporary shutdown, resulting in an employment loss for at least 50 employees during a 30-day period, of either:
A single site of employment.
Facilities or operating units within a single site of employment.
Part-time employees are not counted when determining whether a plant closing has occurred.
A mass layoff is a reduction in force that must both:
Not be the result of a plant closing.
Result in an employment loss at a single site of employment during any 30-day period for either:
50 employees who comprise at least 33% of active employees; or
at least 500 employees.
Part-time employees are not counted when calculating whether a mass layoff has occurred.
While plant closings involve employment loss resulting from the shutdown of one or more distinct units within a single site or the entire site, a mass layoff involves employment loss regardless of whether one or more units at the site are shut down .
Single Site of Employment
Whether a plant closing or mass layoff is large enough to trigger the WARN Act notice requirements depends on whether employment sites are sufficiently grouped together to be considered a single site of employment. The regulations governing the WARN Act outline the following considerations in determining whether a single site of employment exists.
Q. Does the company need to explain the reasons why an employee is being terminated?
A. It is best practice to give an employee the truthful reason that he or she is being terminated. Further, some states have statutes on the books that give a terminated employee a right to request the truthful reason for termination within a certain number of days of being terminated. The best terminations are the ones that are not a surprise to the employee. If you have clear employee policies explaining what is expected of employees, have been providing verbal coaching, warnings, and write-ups that clearly communicate those expectations, when you sit down to terminate that employee, they will likely know it's coming. They still won’t be happy, but if they understand the reasons for the termination, they are less likely to think there were discriminatory motives and bring a lawsuit.
Q. Is our company required to give an employee notice of termination?
A. Unless you have an employment or union contract stating otherwise, most employment is at will. This means that you may terminate an employee at any time, without reason and without notice. The only exception to this rule is if your company is conducting a mass layoff or reduction in force triggering the WARN act. See the WARN act FAQ below for more information.
Q. How soon must I pay a terminated employee?
A. This varies from state to state, and often depends on whether an employee is fired, laid off, or quits. Some states require immediate payment of all wages due when an employee is fired, some indicate employees must be paid by the next regular payday, and some states do not have laws specifically on point. Find state by state guidance here:
Q. What happens to accrued, but unused vacation hours upon termination?
A. This varies from state to state, and often depends on whether the employer and employee have previously agreed to an arrangement in writing. Some states consider accrued vacation hours to be earned wages, and therefore payable upon termination, some indicate whether accrued vacation hours are due upon termination depends on a written agreement or policy, while other states are silent on the matter. Check with a myHRcounsel attorney if you are unsure about your situation.
Q. Should our company be conducting exit interviews?
A. It depends – everyone’s favorite answer from a lawyer! In some situations, conducting an exit interview can yield a goldmine of data about an employee’s experience working for your company. Without fear of reprisal based on the departing employee’s answers, your company could get a very truthful response and unique perspective on the company’s performance and employee satisfaction. That information can, in turn, be used to make organizational changes to improve business function and employee morale. However, without proper planning and the right motives for requesting an exit interview (hint: do not use this interview to gauge whether the departing employee will sue your company), the interview could cause more strife to the departing employee and the only answers you get may be colored by anger and resentment toward the company. If your company employs exit interviews, it is best to have a formal policy regarding the interviews, consider reserving exit interviews for only voluntary separations, and don’t just conduct exit interviews for key employees. It is often the employees who are the “boots-on-the-ground” that can give you the best intel on the inner workings of your company.
Q. Are companies required to offer a terminated employee a severance?
A. No. Unless otherwise required by state law or if you have entered into an agreement otherwise, employees are not typically required to be paid a severance either for voluntary or involuntary terminations. However, companies will often offer a severance to a long-term employee to reward loyalty and hard work. Companies can also offer a severance if the employee presents a litigation risk. If your company does decide to offer a departing employee a severance, ALWAYS have the employee execute a Separation and Release of Claims agreement. A sample form is available in myHRcounsel’s forms library.
Q. My employee quit, but is now requesting unemployment. How is that possible if they voluntarily quit?
A. If an employee voluntarily quits a job without good cause, they are typically not eligible for unemployment benefits. However, every state has different definitions of what constitutes good cause. Some of the common reasons for quitting that would allow an employee to collect unemployment:
· Constructive discharge - Most states allow employees to collect unemployment if their work situation had grown so difficult that they were essentially forced to quit (for example, if you feel that quitting is the only option because of constant sexual harassment, dangerous working conditions that your employer refuses to remedy, or a manager's demands that you commit an illegal act). If a reasonable person in that situation would have found the working conditions intolerable, quitting most likely won't make you ineligible for benefits.
· Medical issues – In many states employees who quit because of either their own illness or injury or to care for a family member’s illness or injury remain eligible for unemployment.
· Domestic violence – Most states consider it good cause to quit employment when either the employee or the employee’s child is the victim of domestic violence.
There may be other reasons why an employee’s voluntary quit still allows him or her to collect unemployment. Consult a myHRcounsel attorney for more information.
Q. We fired an employee and now that employee has filed for unemployment? How can a terminated employee possibly qualify for unemployment?
A. We hear this question a lot. Companies have fired an employee for any number of reasons, only to later see that same employee apply for unemployment. While your gut may be telling you to fight this claim, remember there are situations where even a terminated employee may be eligible for unemployment benefits. Again, these vary by state but a few of the more common reasons include:
- Absence because of illness or injury with proper notice to the employer
- Inability to meet the employer's performance standards
- Ordinary errors or accidents not due to carelessness or negligence
- Honest mistakes or omissions
However, if the employee was terminated for any of the following reasons, it’s possible they may be considered ineligible, depending again on which state you are in:
- Continued, unexcused absences and/or tardiness
- Using drugs or alcohol on the job
- Breaking company rules
- Intentional neglect of duties
- Insubordination, theft, fighting, or harassment
It will ultimately be up to the unemployment law judge assigned to the case to decide whether the terminated employee is eligible or ineligible.
Q. After terminating an employee, the employee failed to return company property. Can I withhold the cost of the property from his or her final paycheck?
A. First, states vary widely as to whether you can deduct the cost of unreturned company property from a paycheck. Some states do not allow it at all and instead your company would need to bring an action either in small claims or district court, depending on the value of the unreturned property. Other states will allow it as long as there is a policy in an employee handbook. Still other states will allow if an employee signs an authorization form allowing the deduction to be made. Consult with a myHRcounsel attorney to determine how you can comply with your state’s law when trying to recover the value of unreturned company property.
Q. We are conducting a mass layoff and I have heard of the WARN Act before. What is the WARN act and what must our company do to comply with it?
A. The WARN Act is a complex law and compliance requires more than a general FAQ, but generally, the WARN Act was passed into law in 1988 and provides protection to workers and their families by requiring employers with 100 or more employees to provide 60 days advance notice when there will be a plant closing or a covered mass layoff. This law is meant to give displaced workers an opportunity to find suitable alternate employment. A plant closing triggers the notice requirements of the WARN Act when an employment site will be shut down and the shutdown will result in loss of employment for 50 or more employees in a 30-day period. A covered employer must also give WARN Act notices when there is to be a mass layoff which does not result from a plant closing, but which will result in an employment loss at the employment site during any 30-day period for 500 or more employees, or for 50-499 employees if they make up at least 33% of the employer's active workforce. Again, there are many exceptions and small nuances within the law that make compliance complicated. Consult with an experienced myHRcounsel attorney if you believe your company may need to comply with the WARN Act.
Q. Are employees who are terminated eligible to continue their health insurance under COBRA?
A. Yes, unless the employee is terminated for gross misconduct. Unfortunately for employers, the COBRA statute does not define what is considered gross misconduct and courts throughout the United States have given differing interpretations of what constitutes gross misconduct such that an employer is justified in denying COBRA. Check with counsel for what courts in your jurisdiction consider to be gross misconduct, but a good guidepost is that gross misconduct justifying a denial of COBRA is something more than mere negligence, carelessness, or obstinacy. Therefore, it is unlikely that your run-of-the-mill termination will rise to the level where it is okay to deny COBRA continuation coverage to the departing employee.