While owning your own business has many advantages, it has it's disadvantages as well. Probably one of the least satisfying tasks small business owners face is having to terminate employees, particularly when it is an adversarial process. Firing or laying off an employee can be stressful enough, but there are several laws that a small business owner must abide by in order to be protected from a possible lawsuit.
This article discusses some basic information about terminating employees, including the meaning of "at will" employment, legal justifications for firing an employee, and special protections related to termination. See FindLaw's Employment Termination section for additional articles and resources.
At Will vs. Contract Employment
Generally there are two types of employment that have very different legal implications:at will and contract employment. Under the at-will employment doctrine, either the employee or the employer can end the employment relationship at any time, for any reason (or no reason at all). The majority of states recognize the legal framework of at will employment. The exception to this rule is that a termination may not be based on an illegal reason, such as discrimination or retaliation.
For example, a small business may fire an employee based on poor performance, or even as a cost-cutting measure. The business cannot, however, fire someone because she's pregnant or because of an employee's race or religion. Even if a round of layoffs is legitimate, employers may face wrongful termination charges if they only target a certain class of employees for layoffs. And if an employee is laid off ostensibly for performance reasons, for instance, the employer must be able to prove it through reviews or records of prior communication.
Employees who have a specific employment contract, on the other hand, are not considered at will employees. Employees under contract usually can't be fired for any reason or at any time (even though they may be fired for cause, including a violation of contractual terms). Generally speaking, the terms of termination are detailed in the employment contract. Failure to abide by the terms of the employment contract can lead to a wrongful termination claim against the employer or a breach of contract claim (against either party, depending on the circumstances).
If employment security has been promised for a period of time -- whether implicitly or explicitly -- an employee can only be terminated if there is proper justification. This is true even for at will employees, as long as the employer violated a promise given orally or in writing (or even implied). But employees always may be fired for cause. For example, if an employee steals or misuses trade secrets, the employee can be terminated even if there was a promise of job security. Other examples of just cause for employment termination are neglect of duty, dishonesty, or unfaithfulness. In the event that the employer terminates the employee without just cause, the employer leaves him or herself open to a lawsuit.
Employees who believe they were terminated improperly may decide to file a wrongful termination lawsuit, whether they are at well or contract employees. Employees who prevail in such actions typically receive back pay and other damages.
The federal government and many states have enacted various laws that protect workers under certain circumstances. These laws are in addition to laws protecting employees from employment discrimination. A couple of circumstances that afford employees special protections from being terminated include serving jury duty or military service. For example, an employee can't be fired just for being called to chosen for jury duty. It is also illegal to file someone for reporting employer or supervisor misconduct, which is also known as whistleblower retaliation.
Getting Legal Help
It's important to make sure you are following all applicable laws when firing or laying off an employee. Having a good employee termination policy in place can also help you avoid a wrongful termination lawsuit. If you have any questions about terminating an employee, you may want to contact a local employment lawyer to make sure your policies and practices are consistent with the law.