How to head off termination suits - preventing wrongful termination lawsuits

Nation's Business, May, 1995 by J.D. Thorne

An employment attorney offers tips for handling employee dismissals so that you minimize your chances of being sued.

Is it possible to fire an employee and stay out of a lawsuit? The answer is yes. The solution lies in granting a discharged employee severance pay and other considerations in return for a release of liability and a promise not to sue.

For example, a company fires a salesman who has been on the payroll for eight years. He has done nothing wrong--his attendance is good, he is honest about his expense account, and his office is as neat as a pin--but he has never really sold anything. He has simply administered orders from established accounts.

The employee is naturally angry about being dismissed, but because the company provides for adequate severance pay and outplacement counseling in an employee separation agreement, he is eventually thankful. He doesn't sue.

Firing an employee is difficult enough without a lawsuit. Here are suggestions for avoiding legal pitfalls when such action is necessary.

The Case For Discharge

Discharging an employee is one of the most disliked yet most important responsibilities of a manager. A discharge decision should seldom if ever come as a surprise to an employee. If the performance or behavior issues are long-term, then an employee should have been receiving warnings, poor evaluations, or even "coaching" or training to help overcome obstacles to job success.

Of course, in rare situations, even a single act of insubordination or dishonesty may warrant a discharge. Even with a climactic episode, though, it is best to suspend the offending employee first, investigate the incident, and then decide what to do.

Whatever the cause for dismissal, the manager should control the timing of a termination interview and plan it in detail ahead of time.

Drafting The Terms Of Separation

The best time to settle a lawsuit is before it's under way. Although a "buyout" of the employment relationship can be a bitter pill for many managers and owners, it is often the best course of action. It can be accomplished with an employee separation agreement. In return for an enforceable promise from the employee not to sue the company, the company agrees to take certain actions for the employee or waive certain rights. The agreement's terms depend entirely upon the circumstances. Sometimes, just a promise by the employer to let the employee resign is enough to effect the release-of-liability agreement. But usually more is involved.

In opening a termination interview, the manager should note the meeting's purpose: to inform the employee of the decision to end his or her services and the company's willingness to consider a termination agreement. The key point is that the employee is not negotiating the discharge but rather how the separation will occur.

The most important negotiating points are generally severance pay and continuation of health insurance. Severance pay is usually one week's salary per year of service. Some companies also pay the employee's cost of maintaining health insurance under the federal COBRA rules for a specific period or until the employee gets another job, whichever comes first.

The company can also offer to waive its right to object to any unemployment-compensation claim, and it can offer to provide an agreed-upon reference letter.

Typically, the employee is most concerned about finding another job. Thus, the best step an employer can take to help an employee being terminated and also avoid costly litigation is to offer outplacement counseling.

Outplacement services-generally priced according to the employee's salary--may include expert resume-writing help, constructive career assessment, and interview preparation. Often, an outplacement counselor will provide motivational assistance and financial planning to ease the discharged employee's stress and help the person concentrate on making the job search successful. The advice may also help the employee to become more aware of his or her shortcomings and to turn that awareness into an advantage in the next job.

A Sample Termination Agreement

The termination agreement could be constructed along these lines:

"In return for consideration of the payment to me of [the amount of severance pay], which I acknowledge, and the provision of outplacement counseling services by [name of company], I, [name of employee] of [address] hereby knowingly and voluntarily waive any and all rights related to all matters connected with my employment at [company].

"I agree not to initiate any claim, demand, or cause of action, legal or otherwise, against [company], or any successor, or any assign, or any other employee, officer, board director, agent, or representative of [company]--none of whom admit any liability to me but expressly deny any liability from any such claim, demand, or cause of action."

In addition, if the person being terminated is 40 or older and thus protected by the Age Discrimination Employment Act, then, according to the Older Worker Benefit Protection Act of 1990, the person's release of liability, to be enforceable, must include language such as this: