New BusinessTALENT

How to Terminate an Employee the Right Way


Firing an employee is one of the most difficult human resources (HR) challenges a small business is likely to face. In addition to having to deal with the specific problem the employee is creating, you’ll have to handle the firing in as fair a manner as possible to reduce the risk of legal repercussions. This requires setting up a formal termination process in advance, and carefully documenting every step as you implement the process.

You will also need to communicate effectively with your other employees, so the firing will not negatively impact morale. This requires transparency—yet you don’t want to infringe on the fired person’s privacy unless absolutely necessary. All in all, firing is a painful and, sometimes, risky business. If you can’t avoid it, then it’s important to keep it from getting emotional by following professional HR best practices.

Acceptable Reasons for Termination

In general, terminating employees falls into two categories: layoffs for economic reasons and firing for cause. This article focuses on the latter, which is to say, how to fire an employee who is creating problems in the workplace.

Acceptable reasons can range from failure to perform at the required level to committing crimes at your place of business. However, employers may not fire someone based on reasons that are discriminatory or otherwise illegal.

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What’s an “At Will” Employment Relationship?

“At will” employment refers to a relationship that is legally assumed to exist when there is no employment contract. As such, employers are free to terminate employees at any time without notice, and employees are likewise free to leave their jobs.

Although at will relationships seem to give employers free rein, U.S. courts have been quite receptive to employee complaints about unfair firing. It’s not uncommon for fired employees to sue based on discrimination claims or interference with employees’ rights, such as filing for workers compensation or taking time off for jury duty.

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Establishing a Termination Policy & Guidelines

Experts advise employers to create well-thought-out policies and guidelines describing the grounds for termination and how the process will be handled, if and when it becomes necessary. These policies are usually written in an employee handbook. It’s a good idea to ask all new hires to sign a release saying they’ve read and agreed to abide by the policies.

Proactively creating a termination policy makes it easier to handle difficult situations when they arise. You won’t have to figure out the proper responses in the heat of the moment.  You’ll have evidence that policies were clearly communicated in the event of a lawsuit.

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Developing an Employee Review Process

The employee review process commences when you or an immediate supervisor informs the employee that his or her behavior or performance does not conform with standards and expectations. In the case of relatively minor problems, the employee is generally given an opportunity to make specific changes. The process may include additional training or counseling.

More serious situations, such as threats of violence, harassment, or actual criminal behavior demand an immediate response. In cases where you need to protect the safety of other employees, it’s probably wise to call in the police right away. And, in all cases, be sure to document every incident and your response, in the event it might be needed later in a court of law.

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Informing Your Employee: The Moment We All Regret

The actual firing meeting is always difficult. Experts advise informing the terminated employee face to face. The conversation should be brief and factual, with no suggestion of any opportunity to revisit your decision. Explain the employee’s next steps with regard to the final paycheck, benefits, and collecting personal belongings—and then say goodbye.

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Severance Packages - Yes? No? Maybe?

It’s probably not likely you’d voluntarily offer severance to an employee who has been terminated for cause. However, if there’s an employment contract or a generally understood company policy that includes severance, then you will need to pay it. In certain cases it may be wise to negotiate a severance package in exchange for a signed waiver in which the employee agrees not to sue you or your company.

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Don't Worry, COBRA Doesn't Bite Employers

If you employ 20 or more people, you will be legally required to allow a fired employee to remain on your group health insurance plan, if you have one, for at least 18 months. However, you are not required to subsidize the cost of premiums and you’re allowed to tack on a small administrative fee. With cheaper options now available on public insurance exchanges, experts expect that the Consolidated Omnibus Budget Reconciliation Act (COBRA) will soon become virtually extinct.

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