Sorting Out the Different Risks in Terminating an Employee

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When you decide it may be best for your business to remove somebody from your team, it is your employment lawyer’s job to help you assess the legal risk of that separation, which you will then weigh along with all of the organizational factors before making a decision.  

These discussions sometimes start here: “He’s an employee at will so I have nothing to worry about.” Wrong.

It is important to distinguish contractual risk and what I will call statutory risk. Employment at will is a contractual status, which in fact means that both the employer and the employee can terminate the relationship at any time and for any reason. Most employers have most employees sign off on a policy that says the employees are employees at will. If written and rolled out correctly, that policy in fact means the employer has near zero contractual risk in a termination. If you do not have such a policy and process in place, you should, and it’s easy.

(Employers will choose to have employment agreements with certain employees, typically higher level employees, under which those employees are not employees at will and can be terminated only for certainly contractually specified reasons. For those employees, you and your lawyer will weigh the degree of contractual risk under the specific employment contract and contractual situation.)

Now, what is that statutory risk? That is the risk that you would be found by a court or agency to have violated a statutory restriction on termination, in large part that you have terminated an individual for reasons prohibited by law, i.e. unlawfully discriminated against them. Employers first tend to think of gender, race, age and disability discrimination, but as I discussed in this vintage Metropreneur article, there are many more “protected classes,” that are constantly changing, and they are different in different states and even cities. So, that is another kind of risk you will review with your lawyer. And note that you have SOME risk no matter what you do and how well you do it, it is just a question of how much.

A related kind of statutory risk is retaliation. Virtually every employment statute not only prohibits discrimination, but it also prohibits taking action in retaliation against somebody who exercises their rights under that statute, such as by filing a complaint with the EEOC or making a harassment complaint. It would be illegal, for example, to terminate or take other action against an employee for making such a complaint, because they have a legal right to make such complaints (even if the complained of behavior is found not to have been illegal). So I always ask employers considering an employee separation about any complaints, internally or externally, the employee may have made that might trigger some of these risks. Retaliation claims can be hard to defend when the complaint and the termination are close in time.

The other thing to keep in mind about retaliation risk is that, if you do not have that risk now because of some complaint an employee has already made, you might “acquire” it if you choose to retain the employee and they then file some sort of complaint. Frankly, sometimes that counsels us to end rather than prolong a bad employee relationship in order to avoid the possibility of that future complaint that heightens the risk of a retaliation claim if the employer then fires the employee.  

Does that mean employers should not give employees an opportunity to grow and improve? Of course not. Just that there is risk in retaining a problem employee, and while there are plenty of legitimate complaints, there are also employees who understand that they give themselves some protection and leverage by filing a complaint when they see the handwriting on the wall at work.

In addition to contractual and statutory risk, employers need to consider what I call behavioral risk. In short, if you terminate the employee, will they do anything about it? In other words, is the employee litigious? Of course you are not going to keep just the bad employees you think will sue you, but it is one more factor in each individual chess game. Legal disputes are expensive and distracting, even when you win, so this factor has to be considered.

After assessing these different kinds of risk, different employers make different decisions about similar scenarios. As I wrote here, I think it’s helpful to classify situations as high, medium or low risk and I often use those labels with clients. Once the employer has a full assessment of the legal risks, it can make the business decision weighing that risk as well as all of the other non-legal factors in these important decisions.

This article should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.

Barnes & Thornburg LLP is a national, Midwestern-based business law firm that strives for a more entrepreneurial and cost-effective approach both to client service and its own business. Read more Metropreneurial Legal Insights.