How to Fire People the Right Way

With the economic recovery in question, companies are starting to cut staff again, and employees are more likely to file wrongful termination charges against their former employers. Human resources and legal experts explain how to avoid legal trouble when firing an employee for performance reasons or laying off an employee for financial reasons.

Mon, October 31, 2011

CIO — 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.

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