How to Discipline and Fire Employees

Other Issues to Consider Before Firing

There are other legal and operational problems you should take into account before you fire a person. Many growing companies have employment contracts with key executives, and these should be carefully checked for terms. Union employees will have collective bargaining agreements that must also be considered.

If the employee is an officer or director of the corporation, no matter how small your corporation is, firing that employee does not terminate his or her appointment as an officer or director. Get a resignation or vote as required by the corporate bylaws, recording any such actions in resolutions as required by the corporation commission(s) in your state. Remember that the applicable law is based on the jurisdiction in which your business is incorporated, not where you're located.

If you've given the person signature power at the bank, withdraw it immediately. Anyone with the power to write checks against your account may be tempted to do so. Likewise, don't forget to take back any keys, credit cards, samples or other company property in his or her possession. The best way to keep track of this is a checklist of items given to the employee (and signed for) to be kept in his or her personnel file.

Be careful about benefit plans, and be aware of their terms in the event of termination. The Employee Retirement Income Security Act protects the rights of terminated employees and requires strict compliance. There are penalties for failure to pay vested interest in profit-sharing plans, for example. Even health-insurance plans are covered under this act. If you fail to inform an employee of their rights under health plan, you can be held liable.

Resist the temptation to transfer the employee to another job in the company if it's done solely as a means of delaying the inevitable. Sometimes a person can be better suited for another job in the organization and you should consider this alternative. But in most small businesses, there's no useful place for the person to go.

Don't delay firing an employee out of kindness, and don't notify the person too far ahead of when the termination will be effective. An employee who has been notified of termination rarely has their mind on the job and can end up disrupting other employees.

An even worse mistake is allowing an employee on his way out to train his replacement, although that has been done in some instances. Train the replacement yourself so that the mistakes and attitudes of his predecessor are not continued. Another approach is to groom a replacement over time so that someone on staff is ready to step in.

Consequences of Firing

A small-business owner who got into an argument over policy matters with his manager canned the subordinate on the spot. Within two weeks, the manager had formed his own company and attracted several major clients from his old firm as well as two key employees who felt the manager had gotten a raw deal.

Whether you call it terminated or axed, there's no easy way to fire someone who works for you. But if it's poorly handled, it can be a disaster. In addition to loss of business as in the case above, there are legal pitfalls as well. A lawsuit, win or lose, involves legal fees and the time lost defending yourself in court or before the Department of Labor.

While there is no one "right" way to handle a dismissal, there are certain steps can take to balance the rights and interests of the individual against the needs of your company. This is particularly vital in a small company where the severance of a key employee can be crippling.

Cushion the Blow

Shock, anger and surprise are common reactions to getting fired, even among employees who know their performance has been slipping and have been warned in advance. The important thing to remember in dealing with such reactions is that a person who wasn't right for you can be right for someone else.

There are several ways you can make an exit easier on the departing employee. Timely payment of all money due the person is important and will keep you from running afoul of the applicable state laws covering employment.

Some companies let a departing key employee use an office and secretarial help for free or at modest cost while he or she looks for other employment. Allowing the terminated person to submit a letter of resignation is another means of removing the stigma of being fired and makes it easier to find other work.

A letter of recommendation that does not exaggerate abilities or cover any problems may be appropriate, as may pointing the person in the direction of job opportunities that you may know about. In some cases, companies have found it worthwhile to pay for the services of an outplacement firm that helps key individuals pick up the pieces and find another job. This is done, of course, out of enlightened self-interest on the part of companies who can easily be exposed to litigation by a disgruntled ex-executive.

In the final analysis, a firing can be best for all parties concerned if it's handled properly. When problems do occur, it's often because business owners weren't aware of the potential pitfalls and did not plan for them in advance. It's clear there are no easy ways to fire someone and no simple guidelines to follow. But a business owner who is compassionate and sensitive can avoid nightmarish legal and operational problems that result when a firing is viewed simply as giving person walking papers at a moment's notice.

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