TALENT

Mature BusinessTALENT

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  • Dismissing Employees

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    In-Depth

    Acceptable Reasons for Dismissal

    During tough economic times, it may be necessary to reduce headcount in order to stay afloat. And it may be necessary at any time for reasons that include risk to your company’s reputation, theft, and physical violence against coworkers. The 55,000 charges of wrongful termination received by the Equal Employment Opportunity Commission (EEOC) in 2010 represented only about 0.6% of the unemployed population of 9 million in 2010 — so the likelihood of dismissals triggering lawsuits may not be as great as people think.

    “At will” employment policies

    Businesses in most states are free to adopt “at-will” employment policies. “At-will” means the employer has the right to dismiss an employee at any time for any reason. However, this comes with a major caveat: The reason for dismissal cannot be an illegal one, such as the many forms of discrimination that we’ll discuss in the next section. Basically, at-will policies give you more flexibility than you’d have if your employees were retained with employment contracts.

    Economic reasons for layoffs

    The most common reasons for dismissals are economic. When the country is in a recession, companies are likely to be impacted, and they may have to resort to dismissals simply to stay in business. Or, the problem may be limited to your particular industry—or the business itself. Perhaps a competitor leapfrogs your latest innovation, or cuts prices to give their product a marketing advantage. Maybe federal regulators detect trace elements of a toxic substance in your product. The reasons are endless, but the response is always the same: You have to regroup by getting expenses under control. Headcount is often the first line item employers turn to.

    The key to implementing cost-cutting dismissals legally is to make sure that you are not discriminating unintentionally. It’s important to use objective, business-focused criteria for choosing the employees you plan to dismiss. For example, you can eliminate an entire department or group. Or trim the five percent of the workforce that was hired most recently. If you are an at-will employer, you can go ahead and announce the planned dismissals. Otherwise, you will have to honor the terms of any contracts, which may involve negotiations with affected employees or their unions.

    Firing “for cause”

    The last category of legal terminations, firing “for cause,” is typically the most difficult to manage. By definition, the employee in question is creating problems that negatively impact the business and may involve potential harm to co-workers. The “causes” that are grounds for dismissal run the gamut including: illegal activity such as stealing or revealing trade secrets, dishonesty, breaking company rules, harassing or disrupting other workers, insubordination, excessive unexcused absences, and poor job performance by some objective measure.

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    Although the need to lay off employees may seem clear-cut and justified to you, the employees themselves—and possibly the courts—may have a different point of view. That’s why it’s important to have a basic understanding of the discrimination laws (which are presented in the next section), and the recommended pre- and post-termination processes (explained in the sections that follow).

    In some cases, the basic guidelines will not be enough, and you will need to consult an attorney with specialized expertise in employment law. For example, suppose you owned a residential mortgage loan business over the last 10 years. When business was great in 2005-06, you decided to reward your loan officers by hiring administrative assistants. Then when the market turned in 2007-08, you knew you had to cut costs. It seemed obvious to you that the first step would be to let the assistants go. They were the most recently hired, and you would be uniformly paring a specific, non-essential job function… But then one of your executives points out that this dismissal would affect only women. And this could possibly be construed as a violation of Title VII of the Civil Rights Act’s prohibition of discrimination based on sex.

    You could check out the EEOC website and try to decide for yourself. However, unless you have specific experience in how the courts are handling this type of situation in your local jurisdiction, you may not be able to accurately evaluate your risk without professional counsel.