When Roy Bostock, the chairman of Yahoo's board of directors, fired Carol Bartz over the phone last month, the company's cold handling of the termination was widely regarded as an example of how not to fire an executive—or any employee for that matter.
Regardless of one's opinion of Bartz and her tenure at Yahoo, legal and HR experts agree that employees at all levels deserve to be treated with respect when their employment is being terminated, whether for performance or financial reasons. That means—at the very least—firing the employee in person.
"If you're the employer or manager, you should be treating the person who's life this news will be dramatically changing with as much dignity and respect as possible," says Audrey Gee, founding partner of law firm Brown, Church and Gee.
Handling an employee termination in anything but a professional manner can have serious and costly legal consequences. Gee has observed an increase in the number of wrongful termination lawsuits employees have filed against former employers over the past year and a half. She's also seen a spike in disability discrimination claims. She says employees who've lost their jobs for performance reasons (because they can't keep up with the work) or who were terminated after taking stress-related leaves of absence are now filing discrimination claims under the Americans with Disabilities Act or California's Fair Employment and Housing Act.
Gee notes that layoffs have left companies with shoe-string staffs and doubled the workloads of remaining employees. "They're terribly stressed, and they're asking for time off because of stress situations or because of depression," says Gee. "Managers don't recognize that clinical depression and requests for time off because of stress can be possibly protected as a reasonable accommodation under the Americans with Disabilities Act or the California Fair Employment and Housing Act."
Rebecca Heyman, a human capital consultant with HR outsourcing company TriNet, notes that filing a discrimination claim with a local EEOC agency as part of a wrongful termination claim costs nothing for an employee, but causes significant disruption to the employer's business. "The employer has to respond to the employee's allegations. They often have to work with an attorney to prepare a response to the claim. That can be costly," she says.
How costly? Mimi Moore, a partner in the labor and employment practice with Bryan Cave LLP, says that each legal claim an employee brings against an employer in court could cost the company between $50,000 and $250,000 in legal fees and potential settlement payouts.
With the economic recovery faltering, companies are once again turning to layoffs to cut costs. In September, employers announced plans to lay off 115,730 workers, which made it the worst month for job cuts in two years, according to global outplacement firm Challenger, Gray & Christmas.
Companies that mismanage terminations may see more litigation, says Moore. She notes that in the current climate, when employees are terminated, they're more likely to consider filing a legal claim against their employer because they know how difficult finding a new job will be, and a potential legal settlement could ease their transition.
To mitigate legal risks, companies should avoid making the following mistakes when firing employees.
Common Mistakes Employers Make Leading to a Termination
Several of the mistakes employers make take place long before they say good-bye to an employee. Here are some of them:
1. They don't hire the right person for the job. Sometimes managers are so desperate to fill positions that they bring candidates on board who aren't the best fit for the jobs, says Heyman. That often sets up the individual for failure and leads to termination, she says.
2. They don't manage the employee's performance. A lot of managers think it's too hard to coach people or to have those difficult, direct conversations with employees about the behavior that needs to change, says Heyman. But failing to train an employee or set clear expectations with the employee about his or her performance can lead the employee to allege wrongful termination. "Most people want to know if they're doing something wrong that could possibly get them fired," she says. "They need an opportunity to correct it before you [the employer] take that action."
3. They don't explicitly state to employees the consequences of not improving their performance. Heyman says managers need to stop beating around the bush with employees during conversations about their performance. Managers need to be clear that whatever the employee is doing or not doing could result in job loss.
"We shouldn't leave employees to guess that they're at risk for termination, and a termination for a performance or behavioral issue should never be a surprise," she says. "Managers have a hard time saying these words, but they need to be clear about the severity of the situation because most employees operate under the assumption that everything is fine even though they know their boss would like them to work a little bit better or faster."
4. They don't document performance problems. "If you've had problems with an employee, it must be reflected in performance reviews and if not, you must be writing up employees' performance deficiencies," says Gee.
She's seen plenty of managers fire employees for cause after having multiple conversations with employees about their performance, but they never document any of these conversations in employees' HR files. Without documentation, she says, an employee has a stronger case for wrongful termination.
5. They make inappropriate comments about the employee via email. Bryan Cave's Moore warns managers to be careful about the things they write in emails regarding employees whose performance may warrant termination. "Those emails are all discoverable in a case," she says. "Those are documents that could become public."
6. They don't give employees appropriate notice. Under the WARN (Worker Adjustment and Retraining Notification) Act, employers with 100 or more full-time employees that are closing a facility and laying off at least one-third of their workforce are required to give those employees 60 days' notice of the layoff.
Common Mistakes Employers Make During a Termination
Given that terminations are one of the most difficult personnel issues managers have to deal with, it's easy to bungle them. Avoiding the following pitfalls will reduce your risk of a wrongful termination lawsuit.
1. The manager doesn't plan for the termination meeting. Winging a meeting with an employee you're going to fire is a bad idea. If you don't prepare what you're going to say to the employee, you could speak out of turn, and your comments could be fodder for a lawsuit.
Indeed, managers need to plan a variety of things in advance, says Moore: What they're going to say during the meeting. What's going to happen after the meeting. Whether the employee will be allowed to collect his belongings from his desk, or whether the company will pack them up and send them to him. If the employee has company files at home, the manger needs to figure out how to get those files. The manager needs to cut the employee's final paycheck and include pay for any unused vacation. The manager also needs to provide the employee with a COBRA notice so he knows how much it will cost to continue his health insurance.
Planning the details of the termination helps demonstrate respect for the employee, says Moore. "It shows you care enough about the employee to think about the questions and issues the employee will face," she says.
2. Employers treat it like a cattle call. Gee has seen employers who have to do large layoffs round up employees like cattle in a conference room and tell them all at once that they're getting pink slips. She says this disrespectful tactic breeds ill will among the affected employees toward their former employer.
3. The manager prefaces the discussion with niceties. TriNet's Heyman says managers should never start a meeting with an employee in which they're going to be terminated with pleasantries. "It's cruel to mislead the person about the conversation," she says.
Instead, managers should cut to the chase. Heyman recommends: "'Steve, we're meeting today because your position has been eliminated' or 'because we need to let you go.'"
If the employee asks why they're getting fired or laid off, managers have two options for answering this question, depending on the reason for the individual's termination. If the termination is due to the employee's poor performance, Heyman recommends managers "have a line and stick to it," such as, 'We've discussed your performance several times. This job is no longer a good fit.'
If the employee is part of a layoff motivated by economic or financial circumstances, it's best to say something simple such as, 'Your employment is being terminated due to a necessary reduction in force. The reason we have to do a reduction in force is because of the tough economic climate,' and leave it at that, says Moore.
4. The manager isn't truthful about the reason for the termination. Managers who feel badly about having to lay off staff will sometimes try to soften the blow to the employee during the termination meeting, says Moore. The manager might say, "We have to cut you, but it has nothing to do with your performance. You were a great employee, but I need to let you go, and it's completely and solely related to cost reasons," says Moore.
Such histrionics become problematic when the decision to lay off the employee was in fact performance related, adds Moore. If that individual decides to file a lawsuit alleging he was fired because of his age, the company will respond to the claim by saying, 'You weren't fired for your age. You were fired because your performance was the lowest among the people we chose,' says Moore. The plaintiff will in turn respond, 'During my termination meeting, you told me my performance was great and that it had nothing to do with the reason for my termination.' That discrepancy can get an employer in hot water.
5. The manager shares the bad news over social media. Gee says she's starting to see lawsuits and legal claims related to updates managers have posted to Facebook, Twitter or LinkedIn, in which they disclose details of employee terminations. "Talk about disrespectful," she says.
Of course, one way employers can dramatically reduce their risk of wrongful termination suits, says Gee, is by offering employees a severance agreement in return for a release of all legal claims. "It helps the employee because it aids in their transition and doesn't preclude them from seeking unemployment insurance," she says. "From the employer's perspective, the severance agreements are important because the employee will release the employer of all claims related to or arising out of the employment [if they accept the severance package]. That will take care of tort claims, contract claims, discrimination claims and wrongful termination claims."
One final word of advice: Always have two people present in the meeting other than the individual being fired. That way, says Moore, if you end up in litigation, it's not one person's word against the other. "It's better to have a second person from the company who can indicate exactly what was said," she says.
Meridith Levinson covers Careers, Project Management and Outsourcing for CIO.com. Follow Meridith on Twitter @meridith. Follow everything from CIO.com on Twitter @CIOonline and on Facebook. Email Meridith at email@example.com.