How to conduct a termination is not covered in management class, or any class for that reason.  Yet the termination process is one of the more common business decisions that will receive the most scrutiny and is likely the most legally challenged decisions in the workplace.  In addition, terminations trigger immediate legal obligations that the company must be ready to deal with on a moment’s notice.  Just as companies focus on the hiring process to ensure the best employees are hired, the same attention needs to be given to the termination process to reduce potential liability.

1. Do not sugar coat the reasons for termination.

Document performance as you see it.  If the termination was for cause – document that it is for cause – don’t take the easy route out and say that the employee was laid off.  It is important to document any for cause termination (i.e. for poor performance, theft, etc.…) in order to defend against potential litigation.  A company does not want to be in the position of initially providing the reason for termination as a layoff, but then if litigation is initiated attempting to explain that the true reason was for the employee’s poor performance.  This will appear as if the company is changing the reason for the termination, and will affect the company’s credibility regarding why the employee was terminated.

2. Respect the employee during the termination process.

I do not have anything scientific here, but I’m a true believer in good bedside manner.  Most employees might not like the termination, but probably will understand the decision if they have been given proper performance reviews leading up to a termination and were treated with respect during the process.

3. If offering severance, obtain a release of claims from the employee.

If a company pays severance to the employee, it should obtain a release in exchange for the payment.  A release can be a simple document, sometimes a page or two, if there is not any anticipated litigation.  While offering an employee some severance pay may cost the company money in the short-term, but doing so could save a lot of time and money in the long run.  If done properly, an employee’s acceptance of a severance agreement waives any and all claims against the company.  Employers should be careful to consult legal counsel as what terms can be included in severance agreements.

For example, beginning January 1, 2020, employer may not include a no re-hire provision in the severance agreement.  AB 749 prohibits and invalidates any provisions in settlement agreements entered into on or after January 1, 2020 that prevent workers from obtaining future employment with the settling employer or its affiliated companies.  More information about AB 749 can be read in my prior post here.

4. Documentation.

  • Keep payroll and time records for at least four years on a rolling basis (statute of limitations for many wage claims can extend back four years).
  • Keep personnel files for at least three years after termination.  Employers are required to keep personnel files for three years under the law, but it may be advisable to retain the files longer in order to be able to defend other claims with longer statutes of limitations, such as wage claims than can extend back four years.
  • Document paid sick leave and keep these records for at least one year, or longer.  As you may recall under California’s paid sick leave requirements effective in 2015, if an employee leaves employment and is rehired by the employer within one year, previously accrued and unused paid sick days must be reinstated.  The employee is entitled to the previously accrued and unused paid sick days in addition to accruing paid sick days upon rehiring.
  • If litigation is expected, employers should ensure documents and files are retained and kept safe until the litigation is resolved.

5. Develop a checklist to follow for your company.

I believe in checklists in order to avoid missing simple items during a termination and reducing liability.  Also, the process of thinking through the steps of a termination is helpful to do when there is no pressure, and time can be taken to ensure that all aspects are addressed.  A checklist is also helpful for organizations to ensure their managers are following all of the legal and organizational requirements of a termination.  For some of my considerations to start developing a checklist, see my prior post here.