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Employer’s Checklist for Terminating Employees – What To Do and What Not To Do

Arizona employers are often confused by the laws that govern employee terminations in this so-called “right to work” state. The “right to work” has nothing to do with an employee’s right to keep his or her job. What they are really talking about is the opposite idea, that Arizona is a “no right to work,” “at-will” employment state. This means that, in legal parlance, the servant (employee) serves at the will of the master (employer), who may freely terminate the employee at any time, with or without notice, for any reason or even no reason at all. [i]  There is a catch, however, a big gaping hole of an exception that restricts an employer’s right to terminate an at-will employee for a “bad” reason.

And there are many “bad” reasons to worry about. They include a multitude of federal and state laws that make it unlawful for an employer to terminate any employee, even an at-will employee based on sex, race, disability, age or other protected class, for being a “whistleblower,” for exercising rights granted to the employee by federal or state law, or for refusing to do something that would violate a federal or state law or public policy. The list of these “bad” reasons goes on and on.

It therefore pays tremendous dividends for employers to think very carefully about terminating any employee, even an at-will employee, before they do anything. Even better, employers should rely on the advice of a competent employment law attorney to navigate them through the potentially intricate decision-making process and to minimize the risk of their exposure to employee lawsuits or government enforcement actions. Here is a short, and by no means comprehensive, summary of what every employer should carefully consider before terminating an employee.

Review and Evaluate Policies and Procedures for Terminating an Employee

As a starting point, an employer should make sure that its policies and procedures governing employee terminations or discipline, typically found in an employee handbook of some kind, do not limit or restrict them from terminating an employee. Although most employee handbooks these days include an explicit disclaimer to the effect that “This Handbook is not a contract,” an employer could still get into trouble if it fails to follow its own policies and procedures. At the very least, it looks bad and could damage the employer’s credibility if a government charge or a lawsuit is filed. The employer or its legal counsel should review and, if necessary, re-write or modify its employee handbook and other policies and procedures that could lead to unintended consequences such as, for example:

  • Binding the employer to policies and procedures that it sometimes fails to follow or simply ignores;
  • Binding the employer to policies or procedures that are contrary to its own best interests – for example, a progressive discipline procedure that may be read to require it to take certain corrective, disciplinary steps before it may terminate an employee when it wants to;
  • Exposing the employer to liability because its employee handbook or other policies or procedures are just plain wrong – for example, drug testing rules that are inconsistent with the law or that do not incorporate new legal developments; and
  • Allowing the employer’s first-line managers and supervisors to terminate employees without adequate training about what to do and what not to do.

Evaluate Whether the Termination is Lawful and Procedurally Proper

Considerations that any employer should take into account before terminating an employee include:

  • As I have suggested, the employer should review its employee handbook and other policies or procedures pertaining to employee terminations;
  • Making sure that the employee is not being terminated for a “bad” reason, especially if the employee is member of a protected class – the employer should be completely honest and review its own or its attorney’s checklist of possible, even if not likely, claims a terminated employee could make if something that has occurred smells like unlawful discrimination or some other kind of legal transgression;
  • Making sure the employer’s past practices, and not just its policies and procedures, have been uniformly and consistently applied to all employees and that past practices are not inconsistently applied to a single employee – treating similarly situated employees differently is risky and can lead to claims of unlawful discrimination or, at the very least, cause the employer to be perceived as acting unlawfully;
  • Making sure that the employee was properly informed about the employer’s policies and procedures before being terminated, something that can be assured by requiring that all employees are provided with those policies and procedures upon hire and sign a receipt acknowledging they have received, reviewed and understand them; and
  • Understanding the context of the employee’s particular situation – things such as whether an employee has been disciplined before and why or why they may have committed a less-than-mortal sin are important factors to weigh when evaluating whether to terminate a hopelessly bad employee or salvage a good employee who has the potential to grow and learn.

Consider Implementing a Performance Improvement Plan

If the employer thinks an employee deserves a second chance and has the potential to grow and learn, it should consider putting him or her on what is commonly referred to as a performance improvement plan (a PIP). A PIP can be a useful tool to salvage good employees and help them correct performance shortcomings.

The key to a good, effective PIP is sincerity. Sincerity is demonstrated by setting specific, measurable, attainable, objective, relevant and timely goals. The issue must be work performance supported by preferably documented evidence of the deficiencies and the need to correct those deficiencies. A good, effective PIP includes:

  • A list of specific areas that require improvement, including examples or indicators of poor performance;
  • An outline of the employer’s specific expectations about what the employee is supposed to do, including a clear, specific description of what the desired goals are and how to achieve them;
  • A description of the specific consequences the employee may expect if he or she fails to achieve the desired goals – possible consequences such as termination or demotion should be clearly articulated at the outset;
  • A description of the resources available to help the employee achieve the desired goals – for example, mentors or additional training;
  • A specific time frame that gives the employee sufficient time to achieve the desired goals – a realistic time in which to do that is usually 90, although a shorter time may be appropriate if business needs require less time if, for example, (the employee is in a key management position;
  • A process put in place to monitor the employee’s progress, including such things as regular feedback, periodic meetings or progress reports; and
  • A paper trail that documents the employer’s reasons for not terminating the employee immediately and instead giving him or her a second chance, the employee’s willingness to correct and improve the perceived deficiencies, and his or her success or failure in doing so, thus making an invaluable record of the employer’s sincere efforts to help the employee and why the employee did not or could not timely achieve the desires goals.

A Word of Caution: There are “good” PIPs and “bad” PIPs. Employers should not implement a PIP that is insincere, vague or overly subjective, or sets goals that are extremely difficult if not impossible to achieve. A bad PIP can do more harm than good if it can be seen as a means to “set up” the employee for failure or to mask an unlawful reason to terminate the employee. A bad PIP can throw an employer’s right to terminate an at-will employee for any reason or no reason at all into the legal trashcan and, instead of being a useful tool, become a nightmare of the employer’s own making. Proceed with caution, preferably with competent legal advice.

Consider Offering the Terminated Employee a Severance Package

Whether to soften the blow or to guard against any possible claim an employee could make, or both, it is sometimes a good idea to offer the terminated employee a severance package or agreement in which the employer agrees to pay the employee a reasonable lump-sum severance in exchange for the employee’s agreement to formally waive and release any claims that he or she may have, keep the employer’s confidential information confidential, and not competing with the employer or poach the employer’s employees, customers or clients for a specified time after the termination. Sometimes an ounce of prevention is worth a pound of attorney fees to defend a lawsuit.

Always Have a Good Reason to Terminate Any Employee 

Document It, Document It, and Then Document It Some More In all cases, even if an employee is at-will and regardless of why he or she is being terminated, an employer should always, and I mean always, be able to articulate a good reason for the termination. Not that it needs one to terminate an at-will employee. It doesn’t. But the ounce of prevention principle teaches us to guard against the unexpected and improbable. (See the Severance Package suggestion above.) [ii]  A well-documented good reason will serve an employer well if it is sued by the terminated employee.

Anyone can sue anyone. A disgruntled employee does not have to have a valid or even an arguable claim to sue and the employer will always have to endure the costs and attorney fees of defending the case regardless of its merit. The question then becomes, not whether the employer will win the case, but how much will it cost the employer to win the case. The answer to that question is often directly proportional to how well the documented facts and evidence support the employer’s defense. A well-documented defense provides the employer’s attorney with the best possible ammunition to dispose of the case in the shortest order possible.

So, as any competent employment attorney will tell you, document it, document it, and then document it some more!

[i]  Some states require “cause” to terminate an employee. In Arizona, however, the at-will nature of the employment contract does not require that, although the terms of a written employment agreement or a binding employer policy may require it. “Cause” is usually defined as a really good reason to terminate an employee such as, for example, stealing, self-dealing, or committing a felony.

[ii]  It may or may not be a good idea to tell the employee why he or she is being terminated, depending on the reason and the particular circumstances. An employer should consult with competent legal counsel.

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