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How to Fire an Employee and Stay within the Law
How to Fire an Employee and Stay within the Law
Several blog posts on SBA.gov offer plenty of advice on how to hire, mentor, and motivate employees. We also frequently tackle the issue of dealing with difficult or disruptive employees. But what happens when you find yourself at the end of the road with no choice but to terminate an employee?
What steps must you take? What does the law require? What are the employee’s rights? What should you do about employee benefits and continuing health care coverage?
Doing everything right won’t always protect you from a lawsuit, but it will show that the termination was justified, legitimate, and handled within the law.
This blog post explains six essential things you need to know about firing employees within the law:
1. Understand the Employment at Will Policy
Every state (except Montana) gives employers the option of adopting an “at-will” employment policy, meaning that an employer may terminate any employee at any time, for any reason, or for no reason at all. Sometimes employee agreements or contracts contradict the “at-will” policy, so check the wording to make sure where you stand.
2. Know When it’s Illegal to Fire an Employee
Your power to fire is not unlimited. Here are some things you can’t fire someone for:
- Discrimination – Federal anti-discrimination law prevents employers from firing employees based on age, race, gender, religion or disability.
- Whistleblowers – You can’t fire employees for complaining about any illegal activity, health and safety violations, or discrimination or harassment in the workplace. These statutes and laws vary by state, so check with a lawyer if, for example, you wish to fire someone who has complained or testified against you in court.
- Exercising Legal Rights – You can’t fire employees for taking family or medical leave, military leave, time off to vote or serve on a jury.
3. Be Sure to Document Performance Issues
Despite the “at-will” policy, you should document instances of poor performance and tardiness, and maintain good records of employee performance reviews and any previous disciplinary interventions. This will provide legitimacy to your actions and prevent any complaints, lawsuits or accusations that termination was discriminatory. Protect yourself by retaining these records, even after the employee has left, and have a cheat sheet of documented performance lapses on hand to refer to during the termination meeting.
4. Understand Employee Rights – Benefits, Unemployment Insurance, 401ks
What benefits are your employees legally entitled to if they are fired or terminated? Here are the main benefits that employees may be entitled to if they are fired:
- Continuation of Health Insurance Coverage – COBRA is a federal law that applies to employers with more than 20 employees. If these employers administer a group health plan, they are required to offer terminated employees, their spouses and dependents the option of temporary continuation of health coverage at group rates. If you have fewer than 20 employees, check with your state; some have comparable laws for smaller employers. Another caveat of COBRA is that terminated employees may be excluded from the plan if they were fired for “gross misconduct.” The law, however, doesn’t describe what is meant by “gross misconduct,” leaving it open to interpretation. This blog offers guidance on this matter: COBRA: What is “Gross Misconduct.”.As an employer, you can require individuals to pay the full cost of coverage, which can be significantly higher than group premiums.
- How to Enroll Fired Employees in COBRA – You’ll need to notify your group health plan administrator within 30 days of firing or terminating your employee to kick start the COBRA process. You may even want to call in an outside HR firm to help you save time and confusion in the long term. SBA.gov also provides COBRA FAQs and more information here (scroll down).
- Unemployment Insurance – It is your legal obligation to notify fired employees of their possible eligibility for unemployment insurance. By knowing their rights, employees are more likely to file a timely claim (and you can avoid being sued).
- Vested Retirement Plans – Fired employees must remain eligible to receive vested 401(k), profit-sharing or pension benefits.
5. The Final Paycheck
Employers are not required by federal law to immediately give former employees their final paycheck. Some states, however, may require immediate payment, and are specific about what should be included in the final paycheck, such as accrued or unused vacation days. Contact your State Labor Office for information on employer requirements in your state. The Department of Labor also provides a Last Paycheck guide that explains applicable laws and regulations.
6. What About Severance Pay?
There is no requirement in the Fair Labor Standards Act that you provide severance pay. This is a matter of agreement between an employer and an employee. Read more from SBA.gov on how to handle severance pay.
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