Most small business owners will occasionally have to face the unpleasant task of firing an employee. Small businesses, in particular, rely heavily on each employee. An underperforming employee may not only lower the morale of other employees who have to pick up the slack, but may also jeopardize the success of the business. When an employee must be terminated, it is important to ensure that it is done legally.
Many businesses hire employees on an at-will basis, that is, the employment contract specifically states that the employee is at-will or does not specify that the employee has been hired for a specific term. In this situation, employers have substantial flexibility in terminating employees. At-will employees can be fired at any time, for any reason (except an illegal one), and without prior warning. The employee is also free to quit at any time. It is always important to document the incidents leading to or reasons for the termination in the event the employee decides to file a lawsuit.
Note: Although it is not legally required, it may be best for management to inform employees of the problems with their performance and even provide additional training so they can have an opportunity to improve. If the employee is able to correct his or her deficiencies, this may spare you the emotional difficulty of the termination and the expense of training a new employee. In addition, it may enhance the morale of all your employees to know that you care enough to help them succeed.
If you have hired employees for a specific term (for example, a year), it is generally a breach of contract to terminate them prior to the end of the term unless the termination is “for cause,” that is, if the employee has engaged in conduct specified in the contract as grounds for dismissal. In this situation, it is important to comply with any standards set forth in the contract regarding termination. If the contract requires certain performance measurements, warnings prior to firing, or termination procedures, you must strictly and consistently comply with them. Further, you should carefully and thoroughly document every step you have taken to meet the contractual requirements.
Illegal Reasons for Termination
Regardless of whether an employee is employed at-will or for a term specified by contract, there are certain reasons applicable to most employers that are never permissible for termination:
- Under federal law, it is illegal to terminate employees based on discrimination regarding race, gender, religion, national origin, sex, disability, age, or legal alien status, or to fire them for asserting their rights under these laws. In addition, most employers are prohibited under federal law from terminating an employee for being pregnant or having a medical condition related to pregnancy. Many states have similar laws, some with additional protected categories, such as marital status or sexual orientation.
- The Americans with Disabilities Act prohibits employees from being fired for having a disability.
- Under the Occupational Safety and Health Act, employers may not terminate employees for asserting that their work conditions do not comply with state or federal health and safety requirements.
- Under state law, employers may not fire employees for reasons violating “public policy,” that is, for reasons the state has deemed to be ethically impermissible. For example, in many states, it is illegal to fire employees for refusing to engage in an illegal act, complaining about the employer's illegal conduct, or exercising a legal right such as taking family leave.
These are the most common bases for wrongful termination lawsuits, but there are other federal and state laws that may apply in your specific situation.
If you are concerned about whether you have legal grounds for terminating an employee, we can advise you about any steps you may need to take, as well as help you with any other employment-related concerns. Please contact our office to schedule a meeting.