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Small Business Resources: How to Handle Employee Termination

Small Business Resources: How to Handle Employee Termination

By: Melanie Berkowitz, Esq.

Unless your last name is Trump, firing an employee is probably one of the least enjoyable parts of owning a business. And for a small business — where boss and employees often think of themselves as a “family” — terminating an employee can be especially tough.

In contrast to a large company where the human resources department  handles employee termination, in a small business the owner may be interviewing job candidates – as well as discipline and fire — every employee personally.  

Knowing every employee by name is a great attribute for a boss to have, unless he or she lets personal feelings get in the way of sound business decisions. Even the smallest company should have a process for employee termination that takes into account the reason for the termination and the law.

Consider the following two lessons:

Employee Termination, Lesson One: Downsize with Dignity
Laura’s Labels, a company with 12 employees, has seen a downturn in business. Laura needs to cut her staff by one person. She selects Amy, who handles bookkeeping and customer service, assuming that she can outsource these tasks. Laura feels guilty and wants to get the job over with quickly. On Friday morning, Laura tells Amy that she is terminated, effective immediately. She offers to pay Amy two weeks salary, but tells her she needs to empty her office that day. One week after Amy leaves, Brian, a 60 year-old salesman, tells Laura that he plans to retire at the end of the month.

Laura may have saved herself the pain of a drawn-out termination, but her swift action possibly hurt her company in other ways. How could she have made the need to downsize easier?

  • Prepare the workforce. Keeping the downsizing a secret until the last second may avoid rumors and gossip, but in this case, it meant that Laura missed the opportunity to cut her staff through Brian’s retirement instead of a termination. In a small business, it is likely that everyone knows about the company’s financial problems anyway, so it’s better to be honest about your plans ahead of time.
  • Transition the terminated employee’s duties. Make sure you know exactly what duties the terminated employees handle and how they will be covered going forward. In a small company, responsibilities may be divided informally. Don’t wait until the lease payment on the office is late to realize that the downsized worker paid that bill every month. 
  • Don’t burn bridges. In a downsize situation, it makes good business sense to maintain a positive relationship with the terminated employee. He or she may be a source of business in the future.  If the employee is eligible for rehire if the company’s situation improves, make sure he or she knows that, and leaves forwarding information.

Employee Termination, Lesson Two: Prepare the Poor Performer
Sarah, a project manager at Quality Consulting, missed two deadlines for a big client. Quality’s owner, Dan, knows that Sarah is going through a divorce, so he does not mention her performance problems, assuming that as soon as her divorce is final, Sarah will improve. Two months later, Sarah submits a poor final product on a big project, and the client threatens to cancel its contract if Sarah remains in charge of the account. Dan terminates Sarah that day, informing her that her work has been poor for some time. Sarah is shocked and upset.

A termination for poor performance should never be a surprise. That doesn’t mean the employee won’t disagree with the decision, but if the employer has addressed the issue with the employee in the past and carefully documented his or her failure to improve, it will be more difficult for the employee to later argue that the termination was unlawful. An employee who is truly surprised by his termination may conclude that something other than performance — such as age, sex, religion or disability was the real reason he was fired.

Even though Dan could sympathize with Sarah’s personal situation, he did neither her nor the company any favors by avoiding the issue of her performance. Sarah did not get the chance to improve her performance or ask for help and Dan continued to provide poor-quality work to an important client.  

After the Fact
If possible, it is a good idea to have both employer and employee sign a written document that covers such issues as severance, confidentiality, return of company property, and other matters. If the agreement includes a waiver of the employee’s right to sue the employer for discrimination, the employer should be aware of the regulations governing such a waiver, particularly with respect to age discrimination. An employment lawyer can help draft a legal document that covers all necessary issues.

When contacted by another company about a reference for a terminated or downsized employee (or, for that matter, one who left under better circumstances), employers need to avoid the inclination to be either too nice or too harsh when providing a reference. In all situations, the safest policy is to confirm dates of employment and job titles only.

In Summary
Employee termination is tricky in any case, but when the employee being fired and the employer have a long work history and possibly even a personal friendship, the situation can become even more charged. Small business owners need to remember that, first and foremost, they are running a business, and a little professionalism and planning at the start can make the most uncomfortable termination both easier and legally compliant later.

Legal Disclaimer: None of the information provided herein constitutes legal advice on behalf of Monster.