Best Practices When Terminating Employees

It’s no surprise that exercising diligence and care is crucial when it comes time to employee terminations. Whether you’re letting someone go for performance problems, financial issues, or any other reason, missteps can be costly. State, federal and even local employment laws, and your own contracts and policies, can all create exposure. In this short article, we provide some best practices for agencies encountering this inevitable situation.
 

Don’t Wait Too Long

Digital and creative agencies are often smaller organizations, which makes it more likely that every employee is important to your company’s success. It also means that a single employee failing to do their job can have a significant impact on business.

Because letting someone go tends to be emotionally difficult, we tend to avoid doing it. That’s just human nature. But avoiding or delaying the necessary in this scenario can harm your business: the wrong team member can be bad for morale, an impediment to productivity, a drag on profitability, and even a liability with clients, vendors and other team members. Often, the more you prolong the relationship, the worse things are likely to get.

On the other hand, impulsivity can also be dangerous. So, it is important to have a reliable process in place that allows you to handle these moments decisively, while also addressing any potential legal exposure.
 

Don’t Say Too Much

Generally, we advise clients who have decided to let someone go to communicate the termination decision clearly, but to avoid prolonged discussion. Nearly everyone who is being fired will want to know why. Ideally, it shouldn’t be a surprise to them, but even so they’ll typically want to understand your justification. From a legal standpoint, perhaps counterintuitively, the less you say about the reasons for termination, the better.

If they have questions, it’s best to not answer them — no matter how tempting. That may sound cold, but here’s why: the more you say on the matter, the more information they have to potentially use against you later if they decide to fight their firing.

Instead of going into specifics, paint with a broad brush. For example, if performance is the problem, explain that they are being let go for ​“performance-related issues.” That’s it. Or, if your company’s financials are the issue, say that. Or it may be both. You don’t need to go into any more detail than that.

Sometimes the reason for termination is that the employee just wasn’t ​“a good fit” for your organization. But that’s usually not an ideal thing to articulate, because it hints at personality traits which may be related to some protected class. (We’ll dig deeper into that later.)

Put the Decision in Writing

Most terminated employees will want to file for unemployment benefits upon losing their job. In some states, the unemployment law (or other laws) requires that the termination decision be in writing to enable the terminated employee to identify the reasons for termination in their unemployment application.

So write up a short letter explaining why you let the employee ago. Again, keep it brief and put your reasons in terms — simply stating they were let go for ​“performance-related reasons” is enough.

Provide this letter at the time of termination along with any proposed severance agreement (more on that below). This should help to limit the communication you’ll need to have with the employee post-termination, given they have what they need to file unemployment.

Be Aware of Protected Classes

One of the most common claims of wrongful termination involves someone who is a member of a ​“protected class,” and those classes are numerous. A protected class can apply to religion, sexual orientation, gender, disability, age, race, illness and more. There are federal and many state laws that apply to employers of varying sizes.

These laws don’t mean you can’t fire a member of a protected class, but rather that you cannot do so based on their being a member of a protected class.

Severance Agreements Are a Useful Tool

A severance package can take the sting out of a termination for an employee. But the main purpose of a severance agreement for the employer is to protect your agency down the road.

A proper severance — or ​“separation agreement” — contains a ​“release” of any claims the former employee may have against your company in exchange for the severance payment.

The signed agreement means the former employee gets a bit of a financial cushion while the agency has assurance that this relationship is formally over without fear of future disputes.

Don’t Expose Your Company with Your Own Policies

As noted above, it’s not just employment laws that can lead to legal exposure; your agency’s own policies and contracts can do that. This could be the subject of many separate articles, but typical mistakes include:

“unlimited” paid time off policies;

“progressive discipline” policies; and

overtime exemption misclassification.

Avoid Unlimited PTO

Unlimited PTO has become very popular over the last decade or two, but it has a number of potentially bad legal outcomes, including the following: (1) perpetual or extremely long *paid* disability leave for an employee out on disability (especially problematic without a disability policy that covers all of the employee’s compensation); and (2) unintentional accrual and required payout (at termination) of significant unused PTO in states like California.

Progressive Discipline

Without knowing they’ve done so, many employers end up adopting ​“progressive discipline” policies in their off-the-shelf employee handbooks. These policies provide that employees will be given warnings and a chance to improve before being let go; sometimes they go further and define additional steps (e.g., verbal warning, followed by written warning, and then termination). In certain states, terminating an employee without following this sort of policy can amount to something like a breach of contract claim.

Overtime Exemption Misclassification

Finally, in our experience, many employers misclassify employees as exempt from overtime, mistakenly believing that paying a salary is all that is required.

Consider EPLI

If this all sounds tricky to navigate, that’s because it is, but you can give your agency some additional peace of mind with a kind of insurance meant to deal with a number of potential employment claims.

We sometimes hear from clients who say, ​“Well, we let somebody go and know they’re raising issues about being in a protected class when actually we just fired them because they weren’t good at their job.” Now they feel like they’re in a tight situation.

The first thing we usually ask is, ​“Do you have EPLI insurance?” Employment Practice Liability Insurance is meant to cover defense costs and damages in cases where an employer is accused of wrongful termination, discrimination, workplace harassment, or retaliation.

If you have EPLI, you tender a claim to your insurance carrier just like you would with a claim from a client if you messed something up.

It’s an investment worth considering once your agency starts to hire employees.

Take a Simple, Straightforward Approach to Terminations

Agencies can ill afford to keep employees who aren’t pulling their weight or are creating an undesirable work environment. When termination is your last resort, you can do so with minimal disruption and worry by following these steps.

As always, if you want to hear more about how Matchstick has advised clients in these situations, we’d love to hear from you.