When That Time Comes: Proactive Steps to Ensure ... by Thomas J. Lloyd III


When That Time Comes:
Proactive Steps to Ensure Smooth Transitions when Terminating Employees

by Thomas J. Lloyd III

One of the most difficult aspects of running a business can be managing the personnel, especially when it comes to terminating employees.  In life, some say that the three most important things are one’s health, one’s family, and one’s job. When the time comes for a business to take away the latter of these three, then, it is impossible to overstate the importance of handling it in a manner that best protects the company from any adverse reaction from the terminated employee(s).  If not handled properly, the termination of a single employee can cascade into a serious – and costly – legal battle. The following tips are merely examples of some best management practices that, as employment lawyers, we see lead to expensive litigation more often than most may realize.

Prepare Responsibly

As they say in football, the best defense is a good offense. Proper preparation for a smooth, successful, and effective termination (i.e. one that does not embroil the company in a lawsuit for the next several years) begins long before the need to terminate an employee ever arises.  Though perhaps a pessimistic viewpoint, measures to ensure the company’s well-being upon an employee’s termination ought to begin at the outset of the employment.

First, a decision ought to be made prior to hiring as to whether the company chooses to have its employees sign a non-competition agreement. This decision should take into account a number of considerations, many of which are often overlooked.  These include, but are not limited to, the nature of the employee’s job duties, the location of the company, the location of the employee, and the nature of the company’s business.  Too often, employers attempt to create a ‘one-size-fits-all’ non-compete agreement for all employees, which is rarely effective. Generally, such generic agreements end up being overly broad, and courts will rarely enforce an overly broad non-competition prohibition.

Prior to insisting upon a non-competition agreement, employers must also become familiar with any variances in the laws applicable to the different jurisdictions in which they conduct business and employ personnel.  For a company operating solely in the Magic Valley, this step only requires familiarity with Idaho law governing these types of agreements.  However, if the company’s business operations extend outside the geographical limits of Idaho, there can be significant differences in the laws of the other jurisdictions that, if not addressed, can result in the nullification of the non-compete provisions. For example, the Washington legislature has enacted strict legislation that imposes greater limits on the enforceability of non-competes, and the courts in Washington are therefore far less inclined to give the company the benefit of the doubt in enforcing these agreements.

For these reasons, it is best to avoid using a generic document that attempts to address all of the company’s employees. Rather than envisioning a single company non-compete, it is best to approach these types of agreements on an individual, “per employee” basis. Moreover, the company should regularly audit its employee files – at every level of labor and management – to ensure that all employees have signed their respective non-compete agreements. Another common mistake is to wholly entrust the responsibility for gathering executed non-competes to a single employee, usually in some level of management, who when the time comes to terminate that employee, has mysteriously never executed their own non-compete. Although it can be a bit of an administrative headache, the failure to carefully heed these steps can have disastrous effects on the company’s business if and when a key employee must be let go.

Evaluate Effectively

Once the employment relationship has begun, one of the best tools a company can use to proactively protect itself from a post-termination lawsuit is to follow consistent procedures for documenting employees’ conduct and performance. This provides the company with a documented system of effectively tracking the trends in employees’ behaviors, and should account for both the employees’ overall performance and specific instances of problematic behavior.  Preparing forms for management to quickly and efficiently document incidents and establishing guidelines for periodic employee reviews are among the most common methods to track employees’ performance, but if they are not used properly, they can end up causing more problems than if there were no such policies at all.

By way of example, simply having an annual employee review is not the same as having an effective review policy. The review time should not simply be a meeting wherein the company focuses on the positive aspects of the employees’ performance.  While it is always recommended to commend and reward good performance, a common mistake is for employers to not take advantage of the review period for being an open and non-confrontational opportunity to give an honest review of an employee’s shortfalls. The effective review should be one in which a management representative addresses and documents those shortfalls, while simultaneously encouraging the employee with ways to improve upon them.  The reality is that there are some people who simply are not comfortable delivering critique or criticism, and these are not the people who should be conducting employee reviews.

The result of an ineffective review policy, much like the result of an incident reporting policy that is not followed, is that if termination is ultimately required, the company has failed to adequately create the evidence required to defend its adverse action against the employee. Imagine the argument that the terminated employee’s lawyer will give to a jury when asserting that the employee was actually fired because of some illegal discrimination on the company’s part:  “Not only is there no evidence of poor performance by this employee, but there is actually an absence of any evidence even though the company had a policy of documenting the kinds of problems they are now asserting the employee had.”  Again, although the process of documenting employees’ troubles can be a managerial headache, it is one that is worth the time and effort. Employers that find themselves in the midst of a lawsuit with a problematic former employee universally regret their failure to adequately document those problems.

Terminate Objectively

Following along with an effective review policy, the decision to terminate an employee ought to be based – whenever possible – on objective criteria. Management must pre-determine what criteria employees will be evaluated upon and include that criteria in whichever form of performance review is used.  This ensures there is a direct translation between the documented evidence of an employee’s performance and the ultimate bases for termination. Whenever possible, measureable metrics should be used to identify an employee’s shortfalls and to establish goals for improvement.

This is not to suggest that there are no “intangibles” in the employment relationship, as there are often issues of incompatible personalities, tempers, pet peeves, and myriad of other, normal human conditions that cannot be ignored. Nonetheless, a well-crafted set of performance criteria can effectively take all of these considerations into account without endangering the company by appearing to be overly subjective (and, thus, susceptible to allegations of underlying discriminatory intent). Given that an employment atmosphere is a social environment, the well-oiled machine of the company’s operations requires compatibility and harmony among its employees. Thus, it is very reasonable for a company to evaluate an employee based upon how well he gets along with and interacts with other employees and customers. Although it is a reasonable expectation to have, it is also one that is highly susceptible to being challenged as being a pretense for an underlying, discriminatory motive. For this reason, ensuring that there is a history of documented evidence regarding this evaluation factor is crucial in defending against a lawsuit by a terminated employee whose temper in the workplace has translated to a temper in the courtroom.

Unfortunately, there is no “best way” to end an employment relationship with an employee. At times, the relationship is forced to end due to the economics of the company; other times, it is due to the incompatibility of the employee’s work habits and the management’s desired workplace environment.  Whatever the cause, the ability of a terminated employee to retroactively manufacture a discriminatory basis for his termination should not be overlooked or ignored. Through careful management and planning, it is considerably easier to avoid these types of post-termination headaches. A problematic employee hurts the bottom line, but a disgruntled former employee can sink the whole ship. Effectively managing company policies and monitoring compliance therewith can be the key to avoiding that unfortunate outcome.