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Firing Employees With Employment Contracts
Employment contracts can limit your ability to fire employees.
If an employee has an employment contract -- whether written or oral, express or implied -- that contract may limit your ability to terminate the employee. Usually, if an employment contract exists (which is not always easy to determine), you must treat the employee fairly and only fire him or her for "good cause."
Determining Whether There's a Contract
The first step in learning the reasons for which you can fire an employee is to figure out whether you have an employment contract with him or her. Occasionally, this will be as simple as opening the employee's personnel file and seeing a document labeled "employment contract." This type of contract is called an express written contract.
Usually, however, it's not that easy. This is because employers sometimes create employment contracts without meaning to. This type of contract -- called an implied contract -- binds employers as much as written contracts do.
Employers create implied contracts when they promise the employee something, usually job security. These promises can occur in all sorts of circumstances, such as during a casual conversation with an employee or as part of a discussion in an employee handbook. No matter how the promise occurs, if a court thinks that the promise has enough weight and that the employee has relied on that promise (usually through continued employment), the court will view that promise as a contract and require you to hold up your end of the deal.
Figuring out whether you have unintentionally created an implied contract can be tricky business. Past court decisions do provide some guidance, however. Courts have found that an implied contract was formed in the following circumstances:
- In trying to convince a prospective employee to take a job, an employer promises the employee that he will only be fired if he doesn't do his job well.
- An employee manual states that once employees have completed an initial 90-day probation period, they become "permanent" employees.
- During an evaluation, a supervisor gives an employee a glowing review and says that he will have a long future at the company as long as his good performance continues.
Don't let the specter of implied contracts worry you too much, however. If you are dealing with an employee who has only been in the job for a year or less and you feel certain that you have never promised the employee job security, then chances are good that the employee does not have an implied contract. In this situation, you can fire the employee for any reason that isn't illegal. Also, even if the employee does have an implied contract, you can still fire the employee for good cause (see below).
Standards for Firing Employees With Employment Contracts
Regardless of what type of contract you have with the employee, that contract will obligate you to treat an employee fairly. This obligation is called the covenant of good faith and fair dealing.
If you have an express written contract with an employee, it will usually state the reasons for which the employee can be fired. If you want to terminate that employee, you must follow what the contract says. Often, contracts simply state that an employee can only be terminated for good cause. However, some contracts are more detailed. Either way, you must follow the contract terms.
Usually, the existence of an implied employment contract means that you can fire an employee only for good cause.
Good Faith and Fair Dealing
If you have a contract with an employee, then you have an obligation to treat that employee fairly. Although this rule might seem like a gaping hole in your ability to terminate employees, it really isn't. To breach this obligation, employers have to engage in very egregious conduct, such as:
- firing employees to prevent them from collecting sales commissions
- firing employees just before their retirement benefits vest, or
- fabricating evidence of poor performance in order to fire the employee.
Good Cause
As explained above, most employment contracts require that employees be terminated only for good cause. The exact meaning of good cause varies from state to state, but generally it means what it says: You must have a legitimate reason for firing the employee. In general, the termination must be based on reasons related to business needs and goals. Firing an employee because you don't like the fact that she has an illegitimate child, for example, isn't good cause. Firing an employee because he harasses female coworkers is.
Other examples of good cause include the following:
- poor job performance
- low productivity
- refusal to follow instructions
- habitual tardiness
- excessive absences from work
- possession of a weapon at work
- threats of violence
- violating company rules
- stealing or other criminal activity
- dishonesty
- endangering health and safety
- revealing company trade secrets
- harassing coworkers
- disrupting the work environment
- preventing coworkers from doing their jobs, and
- insubordination.
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