The Right Things to Do to Avoid Wrongful Termination Claims

By Deborah Muller

Oct. 23, 2008

One of the most stressful life events, according to the Holmes and Rahe Life Events Scale, is being fired from a job. And, with the current economy in an unpredictable and declining state, both the prospect and the fear of losing their jobs has become very real for many Americans. As a result of the current economic downturn, companies will be forced to more aggressively reduce costs through organizational restructuring and downsizing. At a time like this, it is highly likely that there will be a spike in employment claims and suits for wrongful termination. Therefore, it is critical to take steps to reduce the risk of costly litigation that could bring many more companies to the brink of bankruptcy or beyond.

In “normal” times, being laid off or terminated for performance issues might have been viewed as an opportunity to “try on” something new. A 2006 survey conducted by Yahoo Small Business and Harris Interactive found that two-thirds of Americans were considering starting their own business. Corporate severance provided a financially comfortable window to explore such options before settling on a new job. And for the non-entrepreneurial types, low unemployment rates held the prospect of quickly landing a new position without the risk of lost income.

Times have changed. With dramatically lower 401(k) and savings-account balances, the thought of being out of a job is a gloomy proposition. Anxiety levels related to layoffs are high as employers take a closer look at who stays and who goes. You can be assured that performance review conversations between supervisors and employees will be more hotly debated and an “average” or “below average” rating may no longer be readily accepted by those on the receiving end. As employees feel victimized by the process and desperately seek options to protect their financial stability in very unstable times, an increase in claims of wrongful termination should not be at all surprising.

So what can your company do to reduce the risk of employment claims that may arise from necessary terminations? It’s nothing that’s any different from what most companies do day in and day out. But now, more than ever, it is important to be consistent and mindful of the process when it comes to making these difficult decisions and taking action.

The following are several musts during tough times:

  1. Document, document, document. Document not just the performance of the person or people you may need to terminate, but all employee performance consistently across the organization. Make sure that all (high, middle and low performers) receive complete performance appraisals as part of a regular and recurring process. Ensure that supervisors engage in open and frank discussions with all their employees regarding their performance throughout the year.

  2. Have in place written guidelines that describe the process used to select employees for termination when positions are eliminated or reduced due to downsizing or restructuring. Consistently use these guidelines across the organization. Have your legal counsel review your recommendations, prior to taking any action, to ensure that no unintended adverse action is being taken against a protected group, such as women or workers over 40.

  3. Ensure that every termination decision is reviewed objectively. Whenever possible, have an HR leader or other senior manager review the downsizing or performance-related terminations before taking action.

  4. When engaging in a termination discussion with the employee, be very clear and specific as to why he or she was selected. If you are vague in your explanation, you will provide the necessary fuel for the employee to jump to his or her own conclusions as to why the decision was made. This can lay the groundwork for the filing of a wrongful termination suit.

  5. Whenever possible, provide at least a few weeks of warning or notice of a termination (versus the practice of telling an employee that today is his last day on the job). This lets employees begin to consider their next steps while they are still employed. If your company is able to provide a severance package, it certainly will lessen any financial hardship for affected employees, and it may enable you to obtain a legal release that will protect your company from future claims.

  6. The sooner a terminated employee secures a new job or foresees positive future employment prospects, the less likelihood of protracted and costly litigation. Therefore, it is in the best interests of your company to offer some kind of job placement assistance. If your company is not able to afford to offer the services of an outplacement firm, several inexpensive alternatives are available that can make all the difference in the world:

a. Conduct internal seminars on topics such as résumé writing and interviewing skills. If you don’t have anyone on your staff who can lead these sessions, contact your local chamber of commerce or state unemployment office. These types of agencies may have volunteers who can help train your affected employees.

b. For larger layoffs, set up a networking Web site to help employees network with other companies for new opportunities. Allow employees (both current and former) to post jobs that are open at other firms. Consider some type of recognition program for those who successfully link a present or former colleague to a new job opportunity.

c. Invite a representative from your state unemployment office to your work site to answer questions about benefits and employee eligibility.

d. Alert local companies to the fact that you have displaced employees who are looking for new opportunities. Offer to hold a job fair at your site.

  1. If an allegation of discrimination or wrongful discharge is made by an affected employee, treat it seriously and investigate promptly. Even if the employee has already been terminated, you still need to conduct your fact-finding. Consult with your legal counsel for more assistance.

  2. And finally, treat all your employees with the sensitivity and dignity they deserve during these tough times. Recognize that losing a job in this economic environment will be much harder than in previous years. Those who have been treated unfairly at termination are more likely to seek revenge and attempt to gain a share of their former employer’s purse.

While it’s certainly true that we are in the midst of some trying economic times, the bottom line is that your company needs to be especially vigilant in terms of adhering to the right termination protocols in order to avoid a deluge of wrongful termination suits that could drown you in costly litigation for many years to come.

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