Litigation can be expensive, disruptive to business and bad for employee morale.  The good news is that there are certain things that an employer can do before, during, and after the termination of an employee that can minimize the chances of a lawsuit arising out of the termination. In the spirit of an old proverb that advises that “an ounce of prevention is worth a pound of cure,” this article provides a list of best practices that can help avoid wrongful-termination types of lawsuits and the business interruption that comes with such litigation.

Have a probation period. A probation period of 60 to 90 days for new employees allows a business to determine whether an employee is the right fit, and makes it clear to the employee that they do not have a guaranteed term of employment or any rights that may come with a longer tenure, such as medical or other fringe benefits.  An employer should make sure that any problems with an employee during the probation period are documented. The employee’s file should also clearly show when the probation status changes to regular employment.

Have an employee policy.  An employee handbook that clearly outlines the practice’s policies and procedures is key to avoiding disputes over whether the terminated employee is owed unpaid Paid Time Off (PTO) or other compensation upon termination, or whether such employee was terminated for cause or without cause (an important distinction when it comes to the payment of unemployment benefits). If the handbook contains a description of the company’s progressive discipline policy, consistent application of this policy to all employees can establish a defense to a claim that a particular employee was terminated based on a discrimination or retaliation. It should also contain an anti-harassment policy and explain to employees how to report incidents of harassment, discrimination or retaliation.

Follow the policy.  If a business has a progressive discipline policy, it must make sure that such policy is applied fairly, neutrally, and consistently to all employees.  In other words, if one employee is terminated after receiving three written warnings, then another employee cannot be allowed five such warning before being terminated. Making exceptions to the policy can result in a terminated employee arguing that they were treated differently based on one of the protected categories such as race, gender, religion, and others.

Document problems. Any problems with an employee, especially policy violations, should be documented in their personnel file.  Ideally, the problem should be documented in writing, on a form that is signed by the employee, acknowledging that they received the warning.  If this is not possible, then a written note should be made by the employee’s supervisor noting what the problem is and that it was discussed with the employee. Most termination lawsuits involve a situation where an employee had no documented problems or the problems were documented poorly.

Know which laws apply to your practice. Before dismissing an employee, an employer should become familiar with the laws that might apply.  Often, but not always, that depends on how many employees the business has.  Additionally, certain laws, such as the Family and Medical Leave Act, for example, apply only to employees who have worked for the employer for 12 months and a certain number of hours.  Thus, such a statute does not protect all employees.  Knowing which laws a company must comply with before terminating an employee can save it from an unpleasant surprise in the form of a lawsuit.

Prepare for the termination.  Firing on the spot should only occur in extreme circumstances that justify such an action.  Rather, a typical termination should be preceded by a few steps that tend to minimize the chances of a lawsuit. The person in charge of termination should know which laws apply.  He or she should also review the company’s handbook describing unacceptable employee behavior and the discipline policy and make sure that the company has complied with the policy in documenting the employee’s violations of the rules.  The performance appraisals and any disciplinary action records should be consistent with each other. 

A pre-termination review of all the records related to the employee should establish that the termination is legal under all applicable laws, is justified by the facts, is consistent with the company’s policies and procedures and is consistent with how the business has handled such terminations in the past.

Be professional during the termination meeting. During the termination, the key is to treat the employee with respect, and to be polite but firm.  The discussion should be brief and based on the facts.  While an employee may get emotional, the person on the other end of the discussion should remain professional. If a volatile situation is expected, it may be necessary to have security personnel present.  At the very least, one other person should be present on the employer’s side during the termination, who can later confirm that nothing improper was said during the termination conversation.

Comply with Texas Payday Law.  Many times, employers will take certain deductions from the final check, or will hold the final paycheck until the employee returns company property. These actions may violate the Texas Payday Law statute, which requires employers to follow very specific rules in making the final payment to a terminated employee. 

The Texas Payday Law covers all Texas businesses, regardless of size, and applies to all persons who perform a service for compensation, except for close relatives and independent contractors. It covers salary, commission, bonuses, and certain fringe benefits.  This statute lays out the rules on how and when an employer must pay the final paycheck, depending on whether the employee resigned or was terminated. It also describes when an employer can take deductions from the final paycheck.  Failure to comply with the final paycheck rules under the statute can result in penalties from the Texas Workforce Commission. Therefore, employers should become familiar with this statute and its requirements.

Follow up after the termination. The terminating manager should write down what was said at the meeting in the event of a lawsuit. She or he must also inform the remaining employees on a need-to-know basis about the termination.  If a higher-level employee is terminated, have a staff meeting as soon as possible after the termination and tell them what happened and why, but do not provide the specifics.  You want to stop the rumor mill, not feed it.

Leiza is a business and employment litigation attorney in Dallas, Texas. If you need assistance with a business or employment dispute contact Leiza for a confidential consultation at [email protected] or (214) 939-4458.