Firing an employee can be unpleasant for both the employer and employee, but there are some circumstances where it has to be done. If you have hired employees for your business, it is almost certain that you will need to fire someone at some point. When it comes time to do so, it takes far more than just saying "you're fired." You need to have a legal reason for firing an employee, and there are also proactive steps you should take to protect yourself from a wrongful termination lawsuit.
When You Cannot Fire an Employee
There are certain reasons for which you can never fire an employee. If you do so, you could face a lawsuit from the fired employee as well as government fines.
These protections are provided by federal, state, and local laws. If one set of laws has a protection that another does not, you must follow the strictest law. If you have multiple locations, you must follow the laws in each location for the employees at that location.
Federal equal employment opportunity laws bar discrimination based upon a list of protected classes. These include the following.
- National origin
State and local laws can, and often do, add protections to the federal protected classes. For example, many state or city governments have passed laws banning discrimination based on sexual orientation. Other jurisdictions prohibit age discrimination against workers who are considered too young, while federal law only protects workers who are viewed as too old.
Public policy may also prohibit firing an employee in situations that are not discriminatory. One of the most common examples is state and federal laws giving protections to whistleblowers.
A whistleblower is someone who reports safety violations, tax evasion, or other serious misconduct to government authorities. Depending on what is being reported, the whistleblower may be required by law to go straight to the government, or they may need to talk to their employer first to keep whistleblower protections. If an employee makes a report in accordance with whistleblower laws, the employer may not fire that employee in retaliation.
Another common protected situation is military service. Employers must accommodate employees who are called up to the National Guard or military reserves. Firing an employee who is away for protected military service is a violation of federal law.
You also must honor any contractual protections you have given an employee. This might include an individual employment agreement or a union agreement.
Violating a contractual protection is generally only a civil dispute between you and the employee. This means that the consequence of the violation is that the employee can sue you in court. However, serious violations of a union agreement, unlawful attempts to break up a union, or unlawful attempts to prevent employees from forming a union may lead to a National Labor Relations Board investigation and potential fines.
Where the law provides protections against unlawful termination, it also prohibits using a pretext to fire an employee. If you say you have fired an employee for poor performance when you have really fired them because of their race, then this is still a direct violation of anti-discrimination laws.
If you are accused of firing an employee under false pretenses, the court or government investigators may look into your employment records for any disparities in treatment of employees in a protected class. The fired employee will also be able to present evidence showing why they believe they were fired for an unlawful reason.
The potential for these types of claims is why it is important to protect yourself even if you have no discriminatory intent.
Lawful Reasons to Fire an Employee
When you fire an employee, you must have a lawful reason for doing so. In most cases, this simply means that you must have a reason that is not an unlawful one. The following reasons are considered lawful reasons for firing an employee.
- Poor performance – Poor performance can include when an employee is inefficient, lazy, or just not good at their job. In short, the reason for firing them is because they are not meeting your expectations. It is generally a good business practice to try to coach employees to help them improve their performance. Many good workers simply need a little extra training, and this will help your other employees avoid worry that their own jobs are at risk. However, you can fire a poorly performing employee at any time as long as you did not do so for an unlawful reason.
- Serious misconduct – Serious misconduct can include things like theft, skipping a shift without notice, or harassing other employees. If you believe a violation is serious enough to fire an employee on the spot, you are free to do so.
- Budget cuts – At times, you may need to reduce your payroll costs even if you do not otherwise want to fire an employee. When choosing which employee to layoff, it is important that you do not take any unlawful reasons for firing into account when making your decision. Legal reasons to make your choice might include past performance reviews, seniority at your company, or who has the most essential position. Assuming you did not want to fire the employee, you may wish to offer them a few weeks' notice or severance pay, if possible, along with help in finding a new position. In addition to being a nice thing to do, it can help you legally. If you leave things on good terms and help the employee transition to their next position, they will be less likely to pursue a wrongful termination claim.
- Any reason under an at-will agreement – Nearly all states have at-will employment. This means that, unless there is a contract in place to the contrary, you can fire an employee for any reason at any time unless the reason is an unlawful one. Of course, firing employees lightly is disruptive to your business, is likely to make others leave, and will make future hiring difficult. The key here is that when employment is at-will, you have no burden to prove that an employee should be fired. If you decide an employee should be fired, you can do so in any way that you feel is right for your business.
How to Protect Yourself When You Fire an Employee
To protect yourself from a claim that you have fired an employee for an unlawful reason, there are several steps you should take to protect yourself. While larger companies will generally have more detailed and formal processes, companies of every size should have similar measures in place even if they are slightly less formal.
- Use an employment contract – An employment contract sets out the basic terms of your relationship with the employee. This includes things like job title, job description, and rate of pay. You should use an employment contract even if you intend to have an open-ended, at-will employment relationship, and you can state that the employment is at-will in the agreement. Similarly, if you are hiring an employee on a temporary or seasonal basis, you can use your employment contract to make that clear so that they cannot claim they were unlawfully fired at the end of their employment period.
- Use an employee handbook – An employee handbook sets out the general policies and procedures that affect all of your employees. It may include things like how to request time off, how you handle performance issues such as tardiness, when your payroll department sends paychecks, and what an employee should do if they feel their rights have been violated. The purpose of an employee handbook is to set company-wide standards so that all employees know what to expect and feel that they are being treated fairly. Even a brief handbook of a few pages can go a long way toward making sure everyone is on the same page and showing that you followed normal procedures when firing an employee.
- Give written performance evaluations – Use periodic written performance evaluations even when you give constant verbal feedback. In addition to helping your employees grow, you want to document their performance, both good and bad. If you wait until you want to fire an employee for poor performance to start documenting their performance, they may claim you were unfairly targeting them. Having a continuing performance review process provides a paper trail of both the fact that an employee was under-performing and that other employees were meeting or exceeding the standards you felt the fired employee was not meeting.
- Do not make firing a surprise – Few firings are for a cause serious enough to warrant an on-the-spot termination. If you fire an employee by surprise, it increases their stress and anger and makes it more likely that they will retaliate with a wrongful termination claim. When you give your formal and informal performance evaluations, be sure to make it clear when an employee's job may be at risk if they do not improve.
- Do not just cut an employee's hours or not schedule them – Some managers try to avoid actually firing an employee because they feel bad doing it or want to avoid an unemployment claim. If you simply stop scheduling an employee or drastically reduce their schedule, this could be considered a constructive dismissal. Constructive dismissal means you have effectively fired the employee even though you never said you were firing them. An employee can still bring a wrongful termination claim following a constructive dismissal. Further, if the court or government believes you acted in bad faith by constructively dismissing an employee rather than formally firing them, that could support any claim the employee brings against you.
- Keep a written memo of termination reasons – Before you fire an employee, you should write an internal memo outlining the reasons you are going to fire them. Preferably, you will also have proof of when you wrote it such as by emailing it to another manager. This creates a written record of your lawful reason for the firing that you can use in court if needed.
- Have a witness present when you meet with the employee – When you fire an employee, never do it alone. An angry employee may make a false allegation that you acted inappropriately or stated that the firing was for an unlawful reason. The witness could be another manager, or it could be someone from human resources that can help guide you through the correct way to deliver the news and complete any needed paperwork.
Don't Have the Paperwork You Need?
If you do not have an employment agreement, employee handbook, or other needed documentation, visit the human resources section of our document library to start creating the legal protections your business needs if you have to fire an employee.
Table of content