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Terminating an Employee? These Are the Legal Ins and Outs You Need to Know As a business owner or HR manager, you will inevitably have to terminate employees. Keeping these considerations in mind can help to protect you and your company in the long run.

By Mital Makadia Edited by Kara McIntyre

Key Takeaways

  • To avoid legal repercussions and protect your company's integrity, there are a few things you must know about the employee termination process, according to this startup lawyer.

Opinions expressed by Entrepreneur contributors are their own.

Insubordination. IP disclosure. Misconduct. Breach of restrictive covenant.

All of these are legitimate reasons to fire someone, but what do HR managers and business owners need to know about the legal technicalities surrounding employment termination?

Components of a legal termination

To avoid legal issues post-termination, it's important to understand the main components of a lawful employment termination.

  • Make sure you identify any required paperwork to provide to the employee under state or local law. For example, in California, employees must be provided a certain form of Notice of Change in Employment Relationship as well as a pamphlet about unemployment benefits at the time of termination.
  • Check your state's termination paycheck rules. You might have to pay your employee on the date of termination or within a certain time thereafter, despite your normal payroll cycle.
  • Identify any legal risks in connection with the termination. For example, is the employee a member of a protected class? Have they been a whistleblower?
  • If the termination is for performance or other "cause" termination, have you documented the performance issues? Has there been progressive discipline of some sort, or will this be a surprise to the employee? These are important questions because firings for performance should not be a surprise to the employee; an employee should be on notice of the performance issues and be given a chance to improve. This protects the company if the employee alleges wrongful termination. It also helps with morale; employees won't want to stay if they think they may be terminated out of the blue.
  • Always have a witness in a termination meeting, which may benefit the company in the event of litigation. In most cases, the witness should not be a lawyer. This is to prevent that lawyer from becoming a witness in the lawsuit, which could present an issue for attorney-client privilege reasons.

Related: How to Fire an Employee: 4 Ways to Make the Process Kinder

What not to say during a termination

While there's no guidebook for all of the things to say — and not to say — during a termination, there are some guidelines that an HR manager or business owner should heed.

Termination discussions should be short. Less is more in this case.

Don't ramble on about the reasons for the termination. Don't talk about other employees; if the termination is a layoff, don't explain whose employment status is safe or why. Don't get into an argument or long exchange. Be respectful but firm.

The gray areas of legal termination

A broader, more objective view

HR and legal professionals can have a broader, more objective view of terminations that are important to the company, which can help to mitigate risk. For example, a hiring manager might opt for layoffs or otherwise terminate some employees because those employees are having a harder time adapting to new software. However, this can often end up in terminating mostly older employees. It's important to think about whether there's an age discrimination issue. It's also worth considering whether the manager needs to be counseled on how to better train these employees.

High-risk termination situations

It behooves HR managers and business owners to protect themselves from getting into high-risk termination situations. Therefore, it's important to have policies in place for documenting employment issues and progressive discipline; this can serve as a written record to support termination. This is especially helpful in situations where an employee in a protected class or situation is to be terminated. For example, you need to terminate an employee who is going on maternity leave. If their performance issues are documented, and if there was a process of progressive discipline, a company will be better prepared for an employment claim.

Effective and legal use of severance agreements

Severance agreements can be invaluable in terms of mitigating the risk of lawsuits, but the law around them changes rapidly. Don't reuse forms, and do be sure to work with a lawyer who knows current employment law at both the state and federal levels.

Related: 11 Tips for Firing an Employee

Repercussions of unlawful termination

Failure to comply with final paycheck laws can lead to wage claims and penalties.

Failure to comply with proper paperwork required by state and local law can lead to fines.

Failure to document employment performance issues and engage in progressive discipline can make the company vulnerable to wrongful termination lawsuits. For example, if someone who just asked for a disability accommodation has been terminated, but the HR manager claims it's for performance reasons, a jury is unlikely to believe the manager if those performance problems weren't previously documented.

Failure to identify whether there are risks to termination can lead to making nonoptimal termination decisions. If you see that there is a high chance of an employee bringing a wrongful termination claim, you can better prepare in terms of offering severance or perhaps delaying termination while establishing a better documentation process.

The bottom line

As a business owner or HR manager, it's inevitable that you will have to terminate employees. Keeping these considerations in mind can help to protect you and your company in the long run.

Mital Makadia

Entrepreneur Leadership Network® Contributor

Partner at Grellas Shah LLP

Mital Makadia is a partner at Grellas Shah LLP and co-founder of startup dispute mediation service Solvd4. A TechCrunch-verified lawyer, she provides counsel on a variety of corporate and transactional matters, equity financings, M&A and commercial and intellectual property for her clients.

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